Economic Factors Influencing Corporate Capital Structure in Three Asian Countries: Evidence from Japan, Malaysia and Pakistan

Muhammad Mahmud, Gobind M. Herani, A.W. Rajar and Wahid Farooqi

MPRA Paper from University Library of Munich, Germany

Abstract: This study is an attempt to determine the factors that influence a firm’s choice of capital structure in three Asian countries: Japan, Malaysia and Pakistan. The specific objective is to investigate if country’s economic factors play a significant role in determining capital structure between markets. These countries are chosen in order to represent three different stages of economic development. Literature review reveals that considerable research has been made in the industrialized countries on the similar topic. Capital structure is one of the most complex areas of strategic financial decision making due to its interrelationship with macroeconomic variables. This study reveals that per capita GNP growth for Japan and Malaysia is significantly related to capital structure of firm and higher economic growth tends to cause to use more long term debt. These results for Pakistan are different from those other two countries. This also shows that inefficiencies coupled with high leverage may entangle Pakistani firms in debt trap. The indicator of prime lending rate is the most decisive factor affecting demand for credit for Japan and Malaysia. It is evident from the analysis that financial liberalization provides major support in the development of capital structure and overall corporate sector in all the three countries.

Keywords: Capital Structure; Business Cycle; Liquidity; Economic Growth (search for similar items in EconPapers)
JEL-codes: G10 G32 G33 O40 (search for similar items in EconPapers)
Date: 2009-04-20
New Economics Papers: this item is included in nep-cfn, nep-cwa and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published in Indus Journal of Management & Social Sciences 3(1) (2009): pp. 9-17

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Journal Article: Economic Factors Influencing Corporate Capital Structure in Three Asian Countries: Evidence from Japan, Malaysia and Pakistan (2009)
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