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

Idrees Liaqat, Muhammad Asif Khan, József Popp and Judit Oláh
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Idrees Liaqat: School of Management, Huazhong University of Science and Technology, Wuhan 430074, China
Muhammad Asif Khan: Department of Commerce, Faculty of Management Sciences, University of Kotli, Kotli 11100, Azad Jammu and Kashmir, Pakistan
József Popp: Institute of Economic Sciences, Hungarian University of Agriculture and Life Sciences, 2100 Gödöllő, Hungary
Judit Oláh: College of Business and Economics, University of Johannesburg, Johannesburg 2006, South Africa

JRFM, 2021, vol. 14, issue 9, 1-17

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.

Keywords: dynamic capital structure; financial sector; two step-system GMM (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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