Leverage Choice and its Determinants: An Empirical Investigation of Insurance Sector of Pakistan

9 Pages Posted: 23 Jun 2011 Last revised: 30 Jun 2011

See all articles by Talat Afza

Talat Afza

COMSATS Institute of Information Technology (CIIT), Lahore

Naveed Ahmed

Comsats University Islamabad

Date Written: June 22, 2011

Abstract

Current study provides the empirical evidence on firm level determinants of capital structure of insurance sector of Pakistan over seven years from 2001 to 2007. Debt ratio is used as dependent variable while profitability, size, tangibility, risk, liquidity are employed as explanatory variables. The results indicate that size, profitability, tangibility, risk and liquidity are important determinants of capital structure of insurance companies of Pakistan. In addition, the results indicate that profitable, more liquid, more tangible and risky insurance companies focus on retained earnings or equity rather than debt financing. Moreover, Pakistani insurance companies follow pecking order theory in terms of profitability, liquidity and risk while the relationship between size and debt ratio is consistent with trade-off hypothesis.

Keywords: Capital structure, Firm level determinants, Insurance sector of Pakistan

Suggested Citation

Afza, Talat and Ahmed, Naveed, Leverage Choice and its Determinants: An Empirical Investigation of Insurance Sector of Pakistan (June 22, 2011). Society of Interdisciplinary Business Research (SIBR) 2011 Conference on Interdisciplinary Business Research, Available at SSRN: https://ssrn.com/abstract=1869642 or http://dx.doi.org/10.2139/ssrn.1869642

SIBR Secretary (Contact Author)

Society of Interdisciplinary Business Research (SIBR) ( email )

Thailand

Talat Afza

COMSATS Institute of Information Technology (CIIT), Lahore ( email )

Lahore, North-West Frontier Province
Pakistan

Naveed Ahmed

Comsats University Islamabad ( email )

Park Road
Chak Shahzad
Islamabad, North-West Frontier Province 44000
Pakistan

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