An Investigation of Factors Influencing the Capital Structure of Listed Companies in Pakistan

H. Jamal Zubairi, Shazia Farooq


The capital structure of the firm is the key determinant of the cost of capital which in turns plays a major role in its valuation. The objective of this paper is to determine the influence of growth in gross domestic product, risk free interest rates, profitability, size of firm, growth, liquidity and tangibility of assets on the capital structure. Leverage was taken as the representative for capital structure. The sample comprised of 49 companies listed on Karachi Stock Exchange (KSE) in Pakistan. The study used pooled regression analysis on sample companies which were selected from diverse manufacturing sectors including automobiles, cement, industrial engineering, general industrials, food, oil & gas, personal goods, pharmaceutical, construction & materials and household. The most interesting observation of the study is that the borrowing tendency increases in a booming economic scenario when the firms are more optimistic of their business prospects. This provides some insight into decision regarding an opportune timing to undertake investments through leverage. Furthermore, this phenomenon seems to be generally applicable and does not seem to be sector or firm specific.

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