The Co-determinants of Capital Structure and Stock Returns: Evidence from the Karachi Stock Exchange

Hamid Ahmad (), Bashir A. Fida () and Muhammad Zakaria ()
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Hamid Ahmad: Instructor, Virtual University of Pakistan.
Bashir A. Fida: Assistant Professor, COMSATS Institute of Information Technology, Islamabad, Pakistan.
Muhammad Zakaria: Assistant Professor, COMSATS Institute of Information Technology, Islamabad, Pakistan.

Lahore Journal of Economics, 2013, vol. 18, issue 1, 81-92

Abstract: This study uses a structural model to analyze the co-determinants of capital structure and stock returns. Applying a generalized method of moments (GMM) model to a panel dataset for 100 nonfinancial firms for the period 2006– 10, our results indicate that both leverage and stock returns affect each other but that the former has a dominant effect on the latter. The results illustrate that profitability, growth, and liquidity are significant determinants of leverage and stock returns. Profitability negatively affects leverage and positively affects stock returns. Growth has a positive effect, while liquidity has a negative effect on leverage and stock returns. Firm size does not have any significant effect on either capital structure or stock returns.

Keywords: Capital structure; stock returns; GMM; Pakistan (search for similar items in EconPapers)
JEL-codes: C33 C36 G30 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (3)

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