The most consistent and reliable predictors of corporate financial choices in Pakistan: New evidence using BIC estimation

Umeair Shahzad, Fukai Luo, Jing Liu, Mahmood Faisal and Hafeez Ullah

International Journal of Finance & Economics, 2022, vol. 27, issue 1, 237-257

Abstract: The current literature contradicts over the basic predictors of corporate financial choices in Pakistan. This study reports profitability (−ve), liquidity (−ve), industry leverage (+ve), cash holding (−ve), tangibility (+ve), and size (+ve) as reliable predictors explaining book leverage. The study mainly applies Bayesian Information Criteria (BIC) to control predictors' overfitting issues. Evaluated with the United State and other countries, we report the diversity of capital structure decisions in Pakistani listed firms. This study finds the reliability of some residuals on reinforcement with the core predictors' regression model but they do not meet the standard as a core determinant. Our predictors are reliable to explain the capital structure of sample firms across their level of size, growth, maturity, and ownership concentration. We expect that our six basic predictors will contribute to the prospective study on corporate financial choices in Pakistan.

Date: 2022
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