A decomposition analysis of capital structure: evidence from Pakistan’s manufacturing sector

Attiya Yasmin Javed and Qaisar Imad
Authors registered in the RePEc Author Service: Attiya Yasmin Javid

MPRA Paper from University Library of Munich, Germany

Abstract: This study investigates the determinants of the various components of debt—short- and long-term debt and their categories—in the case of nonfinancial listed firms in Pakistan for the period 2008–10. We make a significant distinction between these determinants depending on the components of debt issued: long-term or short-term forms of debt. Our results show that large firms are more likely to have access to long-term debt borrowing than small firms and that, due to supply constraints, small firms resort to short-term forms of debt. Firms with higher potential for growth prefer using less long-term debt as well as debt with fewer restrictive arrangements in order to become more financially flexible. Firms with sufficient fixed assets can generate external finance more easily and at lower cost by using these assets as collateral, which supports the tradeoff theory. Firms generating high levels of profit, however, may choose to finance their investments using internal resources rather than by raising debt finance, which conforms to the pecking order theory. Our results also confirm the presence of the inertia effect and industry-specific effects, and are robust to alternative estimation techniques.

Keywords: Long-term debt; short-term debt; growth; firm size; profitability; Pakistan (search for similar items in EconPapers)
JEL-codes: M2 M21 P34 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in The Lahore Journal of Economics 1.17(2012): pp. 1-31

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/39371/1/MPRA_paper_39371.pdf original version (application/pdf)

Related works:
Journal Article: A Decomposition Analysis of Capital Structure: Evidence from Pakistan’s Manufacturing Sector (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:39371

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().