Leverage Choice and its Determinants: An Empirical Investigation of Insurance Sector of Pakistan
9 Pages Posted: 23 Jun 2011 Last revised: 30 Jun 2011
Date Written: June 22, 2011
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: Suggested Citation