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The Co-determinants of Capital Structure and Stock Returns: Evidence from the Karachi Stock Exchange

Author

Listed:
  • Hamid Ahmad

    (Instructor, Virtual University of Pakistan.)

  • Bashir A. Fida

    (Assistant Professor, COMSATS Institute of Information Technology, Islamabad, Pakistan.)

  • Muhammad Zakaria

    (Assistant Professor, COMSATS Institute of Information Technology, Islamabad, Pakistan.)

Abstract

This study uses a structural model to analyze the co-determinants of capital structure and stock returns. Applying a generalized method of moments (GMM) model to a panel dataset for 100 nonfinancial firms for the period 2006– 10, our results indicate that both leverage and stock returns affect each other but that the former has a dominant effect on the latter. The results illustrate that profitability, growth, and liquidity are significant determinants of leverage and stock returns. Profitability negatively affects leverage and positively affects stock returns. Growth has a positive effect, while liquidity has a negative effect on leverage and stock returns. Firm size does not have any significant effect on either capital structure or stock returns.

Suggested Citation

  • Hamid Ahmad & Bashir A. Fida & Muhammad Zakaria, 2013. "The Co-determinants of Capital Structure and Stock Returns: Evidence from the Karachi Stock Exchange," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 18(1), pages 81-92, Jan-June.
    • Handle: RePEc:lje:journl:v:18:y:2013:i:1:p:81-92
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    References listed on IDEAS

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    Cited by:

    1. Rubina Shaheen & Attiya Yasmin Javid, 2014. "Effect of Credit Rating on Firm Performance and Stock Return; Evidence form KSE Listed Firms," PIDE-Working Papers 2014:104, Pakistan Institute of Development Economics.
    2. Evelyn Wijaya & Budiyanto - & Nur Fadjrih Asyik, 2021. "Capital Structure Determinant and Profitability and Their Impact on Firm Value: Study in Indonesian Manufacturing Sector," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 13(10), pages 1-99, September.
    3. Senjuti Barua, 2020. "Firm Level Characteristics and Stock Returns: Evidence from Selected Insurance Companies Listed on the Dhaka Stock Exchange," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(12), pages 1356-1365, December.

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    More about this item

    Keywords

    Capital structure; stock returns; GMM; Pakistan;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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