Industry, Firm, and Country Level Dynamics of Capital Structure: A Case of Pakistani Firms

Abstract

The capital structure appears to be one of the most researched and the most controversial areas in modern corporate finance. Prior literature on determinants of capital structure has concentrated on firm and country level factors by employing static modeling. Static modeling has certain limitations, which do not allow companies to establish an optimum capital structure in line with economic uncertainty. This study makes a worthy contribution to the existing body of knowledge by filling the gap in the evolution of capital structure by employing a dynamic framework of the financial sector of Pakistan. In addition, the study brings into focus sectors’ importance in determining the firm’s financial behavior. Based on secondary financial sector data from 2006–2019, the article addresses the issues by employing two-step system generalized method of moments (GMM). The findings of the study validated the existence of dynamic capital structure across the financial sector of Pakistan and reinforced the substantial impact of sectors’ unique environment on leverage mechanism. The results are robust under alternative estimation approaches and offer useful policy implications.

National Culture and Financial Inclusion: Evidence from Belt and Road Economies

“…The existing literature on culture and finance has also revealed that culture-finance models have endogeneity issues [24]. Endogeneity can occur in three ways in empirical estimations: reversed causality, measuring errors, and omitted factors [65]. In our empirical models, because of omitted variables and measurement mistakes, the regressors can be associated with the error terms.…”

How Does Capital Structure Influence the Dividend Policy? A Comparative study of both Commercial and Islamic Banks: A Time Series Analysis (2006-2021)

“…The most of research mainly focused on non financial sector of the Pakistan keeping in view their capital structure and the dividend policy (Liaqat, Khan, & Popp, 2021).But very few studies in term of financial sectors focused the capital structure and their dividend policy separately (Liaqat, Khan, & Popp, 2021).However this research using the comparative study of both commercial and the Islamic banks in term of their capital structure and their dividend policy using the most recent data from the tome perod of 15 years from 2006 to 2021.…”

“…Does borrowing impact dividend payments, with institutions relying more on borrowing paying lower dividends? (Liaqat, Khan, & Popp, 2021). Myers (1984) introduced the of capital structure known as the pecking order theory.…”

Business Cycles and Capital Structure Choices: Evidence from India

“…Some researchers have observed that capital structure is industry specific (Abor, 2007;Abzari et al, 2012;Boquist & Moore, 1984;Bowen et al, 1982;Manjule, 2014;Panda & Nanda, 2020;Rastogi & Narwal, 2014, Schwartz & Aronson, 1967Scott, 1972;Scott & Martin, 1975). Simultaneously, researchers also suggest that the capital structure of industries is dynamic (Liaqat et al, 2021). Industries change their gearing decisions in their endeavour to perpetually balance the cost of capital and rate of return.…”