BANK’S SUPPLY OF CREDIT AND CORPORATE CAPITAL STRUCTURE IN PAKISTAN

Waqar Badshah (), Shoaib Irshad (), Usman Hakam () and Adnan Saeed Khan ()
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Waqar Badshah: Istanbul Sabahattin Zaim University, Turkey
Shoaib Irshad: Izmir University of Economics, Turkey
Usman Hakam: International Islamic University, Islamabad,Pakistan
Adnan Saeed Khan: International Islamic University, Islamabad, Pakistan

Romanian Economic Business Review, 2016, vol. 11, issue 4.1, 17-24

Abstract: The aim of this paper is to investigate how the macro-economic factor i.e. the supply constraint of bank credit affects the corporate capital structure of non-financial firms of listed companies of Karachi Stock Exchange (KSE) during the period of 2005 to 2010 in a data set with 558 observations using panel data. This paper investigates the fact that other than the typically observed determinants of capital structure i.e. liquidity, profitability, tangibility and earning volatility etc. (Sheikh and Wang, 2011; Shah&Hijazi, 2004; Shah and Khan, 2007), it is examined how the financial constraints affect the capital structure decision. This paper is one of the first study carried out in Pakistan and is particularly inspired by the research recently conducted by Leary (2009) and Faulkender and Petersen (2006). The significant fluctuations in credit supply that were observed during the last decade offer a very suitable natural scenario to experiment and identify how the capital structure of non-financial firms is influenced by the credit supply in the economy. The results of the study posit that capital structure decisions are not influenced by the monetary or credit conditions prevailing in the Pakistani economy. The distinction of this paper is that it underpins the macro-economic factor deteriorating the decision making process of firms and thus incorporates them in determining the capital structure of firms.

Keywords: capital structure; credit supply; systematic risk (search for similar items in EconPapers)
Date: 2016
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