EFFECT OF CREDIT RATING ON CAPITAL STRUCTURE: A STUDY ON NON-FINANCIAL FIRMS IN PAKISTAN

Abdul Raqeeb (), Syed Talal Haider Zaidi () and Farooq-E-Azam Cheema ()
Additional contact information
Abdul Raqeeb: Bank Al Habib Ltd.
Syed Talal Haider Zaidi: Freelance Consultant in Finance and Accountancy at Karachi
Farooq-E-Azam Cheema: Institute of Business & Technology IBT Karachi

IBT Journal of Business Studies (JBS), 2012, vol. 8, issue 2, 42-49

Abstract: Purpose Aim of this study was to investigate whether the credit rating is an important determinant other than the firms characteristic to obtain optimal capital structure focusing on the research hypothesis that the firms with higher credit along with the other factors FTOA, ROA and Size tend to have more debt in their capital structure of firms rated by P?CR? and Karachi Stock Exchange KSE. Methodology/Sample For this research, sample size of 48 observations 3 years data of 16 firms was taken on the basis of convenience sampling.Results obtained by using Ordinary Least Square Model OLS as statistical tool to test the hypothesis Findings Analysis clearly suggested that credit ratings do have an impact on firms capital structure.It was concluded that firms with higher credit ratings along with other factors FTOA, ROA and Size do not tend to have more debt in their capital structure. Implications Outcomes of this research might help investors, debtors and other stake holders of the firms rated by PACRA to understand the impact of credit rating on firms debt ratio and the overall dynamics and mechanism of capital structure.

Keywords: FTOA(Fixed Asset to Total Asset ratio); ROA(Return On Asset); PACRA(Pakistan Credit Rating Agency); Karachi Stock Exchange; OLS(Ordinary Least Square) (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:aib:ibtjbs:v:8:y:2012:i:2:p:42-49

DOI: 10.46745/ilma.ibtjbs.2012.82.0

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