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Economic Factors Influencing Corporate Capital Structure in Three Asian Countries: Evidence from Japan, Malaysia and Pakistan

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  • Mahmud, Muhammad
  • Herani, Gobind M.
  • Rajar, A.W.
  • Farooqi, Wahid

Abstract

This study is an attempt to determine the factors that influence a firm’s choice of capital structure in three Asian countries: Japan, Malaysia and Pakistan. The specific objective is to investigate if country’s economic factors play a significant role in determining capital structure between markets. These countries are chosen in order to represent three different stages of economic development. Literature review reveals that considerable research has been made in the industrialized countries on the similar topic. Capital structure is one of the most complex areas of strategic financial decision making due to its interrelationship with macroeconomic variables. This study reveals that per capita GNP growth for Japan and Malaysia is significantly related to capital structure of firm and higher economic growth tends to cause to use more long term debt. These results for Pakistan are different from those other two countries. This also shows that inefficiencies coupled with high leverage may entangle Pakistani firms in debt trap. The indicator of prime lending rate is the most decisive factor affecting demand for credit for Japan and Malaysia. It is evident from the analysis that financial liberalization provides major support in the development of capital structure and overall corporate sector in all the three countries.

Suggested Citation

  • Mahmud, Muhammad & Herani, Gobind M. & Rajar, A.W. & Farooqi, Wahid, 2009. "Economic Factors Influencing Corporate Capital Structure in Three Asian Countries: Evidence from Japan, Malaysia and Pakistan," MPRA Paper 15003, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:15003
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    File URL: https://mpra.ub.uni-muenchen.de/15003/1/MPRA_paper_15003.pdf
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    References listed on IDEAS

    as
    1. Chen-Chen Yong & Kim-Lan Siah & Pei-Lee Teh & Keng-Boon Ool, 2008. "Time Series Analysis on Factors Influencing Saving Rate in Malaysia," The IUP Journal of Financial Economics, IUP Publications, vol. 0(4), pages 50-61, December.
    2. Michael Pfaffermayr & Matthias Stöckl & Hannes Winner, 2013. "Capital Structure, Corporate Taxation and Firm Age," Fiscal Studies, Institute for Fiscal Studies, vol. 34(1), pages 109-135, March.
    3. Friedman, Milton, 1972. "Have Monetary Policies Failed?," American Economic Review, American Economic Association, vol. 62(2), pages 11-18, May.
    4. Laurence Booth, 2001. "Capital Structures in Developing Countries," Journal of Finance, American Finance Association, vol. 56(1), pages 87-130, February.
    5. Muhammad Mahmud, 2003. "The Relationship between Economic Growth and Capital Structure of Listed Companies: Evidence of Japan, Malaysia, and Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 42(4), pages 727-750.
    6. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-1617, December.
    7. Bernhardsen, Tom & Eitrheim, Oyvind & Jore, Anne Sofie & Roisland, Oistein, 2005. "Real-time data for Norway: Challenges for monetary policy," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 333-349, December.
    8. Svaleryd, Helena & Vlachos, Jonas, 2005. "Financial markets, the pattern of industrial specialization and comparative advantage: Evidence from OECD countries," European Economic Review, Elsevier, vol. 49(1), pages 113-144, January.
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    Cited by:

    1. Sakshi Khanna & Amit Srivastava & Yajulu Medury, 2015. "The Effect of Macroeconomic Variables on the Capital Structure Decisions of Indian Firms: A Vector Error Correction Model/Vector Autoregressive Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 5(4), pages 968-978.
    2. Samuel Nduati Kariuki & Charles Guandaru Kamau, 2014. "Determinants of Corporate Capital Structure among Private Manufacturing Firms in Kenya: A Survey of Food and Beverage Manufacturing Firms," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(3), pages 49-62, July.

    More about this item

    Keywords

    Capital Structure; Business Cycle; Liquidity; Economic Growth;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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