Factors Determining Capital Structure of Pakistani Non-Financial Firms
International Journal of Business Studies Review, Vol. 2(1), p. 46-59, June 2017
14 Pages Posted: 31 Jul 2017
Date Written: July 28, 2017
This study is undertaken to discover the factors determining the capital structure decision of non-financial Pakistani firms. The effect of firm’s profitability, liquidity, size, tangibility and non-debt tax shield on capital structure decision of ten non-financial firms operating at Pakistan Stock Exchange is investigated for a period of ten years i-e from 2005-2014. By using fixed effects panel estimation method it is found that leverage ratio is inversely affected by profitability and current ratio of a firm. While, firm size, tangibility and non-debt tax shield positively effects leverage ratio. The influence of profitability is weakly significant whereas that of liquidity, size, tangibility and non-debt tax shield are strongly significant. The study also shows that results for profitability and liquidity are in accordance with the Pecking Order Theory and the result for size; tangibility and non-debt tax shield are in line with the Trade-Off Theory.
Keywords: Capital Structure, Profitability, Tangibility, Size, Liquidity, Non Debt Tax Shield, Panel Data
JEL Classification: G310, G320, G330
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