Determinants of Capital Structure: Evidence from Pakistani Panel Data

International Review of Business Research Papers Vol. 3, No. 4, pp. 265-282, October 2007

18 Pages Posted: 13 Nov 2007

See all articles by Attaullah Shah

Attaullah Shah

Institute of Management Sciences

Safiullah Khan

Kohat University of Science & Technology, Kohat, Pakistan.

Abstract

Using two variants of panel data analysis, we attempt to find the determinants of capital structure of KSE listed non-financial firms for the period 1994-2002. Pooled regression analysis was applied with the assumption that there were no industry or time effects. However, using fixed effect dummy variable regression, the coefficients for a number of industries were significant showing there were significant industry effects hence we accepted the later model for our analysis. We used six explanatory variables to measure their effect on leverage ratio. Three of our variables were significantly related to leverage ratio whereas the remaining three variables were not statistically significant in having relationship with the debt ratio. Our results approve the prediction of trade-off theory in case of tangibility variable whereas the earning volatility (EV), and depreciation (NDTS) variables fail to confirm to trade-off theory. The growth (GT) variable confirms the agency theory hypothesis whereas profitability (PF) approves the predictions of pecking order theory. Size (SZ) variable neither confirms to the prediction of trade-off theory nor to asymmetry of information theory.

Keywords: Capital Structure, Pakistan, Panel Data, KSE

Suggested Citation

Shah, Attaullah and Khan, Safiullah, Determinants of Capital Structure: Evidence from Pakistani Panel Data. International Review of Business Research Papers Vol. 3, No. 4, pp. 265-282, October 2007 , Available at SSRN: https://ssrn.com/abstract=1027180

Attaullah Shah (Contact Author)

Institute of Management Sciences ( email )

1-A, Sector E / 5, Phase – VII, Hayatabad, Peshawa
Peshawar, NWFP 25000
Pakistan
+923459146115 (Phone)

HOME PAGE: http://www.opendoors.pk

Safiullah Khan

Kohat University of Science & Technology, Kohat, Pakistan. ( email )

Kohat
Kohat
Pakistan

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