Determinants of Capital Structure: Evidence from Securities Companies

Authors

  • Tahmeena Bibi PhD Scholar, Department of Commerce, Bahauddin Zakariya University, Multan, Pakistan Author
  • Prof. Dr. Muhammad Hanif Akhtar Professor and Director, Meezan Centre for Islamic Finance (MCIF), Bahauddin Zakariya University, Multan, Pakistan Author https://orcid.org/0000-0003-3972-1959

DOI:

https://doi.org/10.61506/01.00169

Keywords:

Capital structure, Securities companies, Trade-off theory (TOT), Pecking order theory (POT), Pakistan

Abstract

The objective of the paper is to explore the factors that tend to affect the debt-equity choice of securities companies in Pakistan. Data on the variables used in the study was extracted from income statements and balance sheets of various securities companies registered with the SECP over a period of 14 years from 2008 to 2021. Panel data analysis is based on the use of econometric techniques (fixed effects and random effects models) for estimation of results. Results of the study demonstrate that securities companies prefer to finance their assets with equity which denotes 72.15% of their total assets. In contrast, the total liabilities designate 27.85% of their assets. Profitability appears to be positively related to total and long-term debt ratios. The firm size is positive while tangibility is inversely associated with total and short-term debt ratios. Liquidity is negatively linked to all proxies of capital structure while the firm efficiency appears to have a positive connection with the short-term debt ratio. Results of the study are consistent with the predictions of trade-off and pecking order models. The empirical outcomes of the research offer some useful policy implications for regulatory authorities, managers and shareholders of the Securities Companies in Pakistan.

References

Ahmed Sheikh, Nadeem, & Wang, Z. (2013) The impact of capital structure on performance: An empirical study of non-financial listed firms in Pakistan. International Journal of Commerce and Management, 23(4), 354-368.

Ali, S., Rangone, A., & Farooq, M. (2022) Corporate Taxation and Firm-Specific Determinants of Capital Structure: Evidence from the UK and US Multinational Firms. Journal of Risk and Financial Management, 15(2), 55.

Booth, Laurence, Varouj Aivazian, Asli Demirguc Kunt, and Vojislav Maksimovic (2001) Capital structures in developing countries. The Journal of Finance, 56, no. 1, 87-130.

Frank, M. Z., & Goyal, V. K. (2009) Capital structure decisions: which factors are reliably important? Financial management, 38(1), 1-37.

Gharaibeh, O. K., & Saqer, A. T. (2020) Determinants of capital structure: evidence from Jordanian service companies. Investment Management & Financial Innovations, 17(2), 364.

Hausman, J. A. (1978). Specification tests in econometrics. Econometrica: Journal of the Econometric Society, 1251-1271.

Khan, K., Qu, J., Shah, M. H., Bah, K., & Khan, I. U. (2020) Do firm characteristics determine capital structure of Pakistan listed firms? A quantile regression approach. The Journal of Asian Finance, Economics and Business, 7(5), 61-72.

Modigliani, F. & Miller, M. H. (1963) Corporate Income Taxes and the Cost of Capital: A Correction, American Economic Review, Vol. 53 No. 3, p. 433.

Modigliani, F., & Miller, M. H. (1958) The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261-297.

Qureshi, M. A., & Azid, T. (2006) Did they do it differently? Capital structure choices of public and private sectors in Pakistan. The Pakistan Development Review, 701-709.

Rajan, R. G., & Zingales, L. (1995) What do we know about capital structure? Some evidence from international data. The Journal of Finance, 50(5), 1421-1460.

Saif-Alyousfi, Abdulazeez. Y., Md-Rus, Rohani, Taufil-Mohd, K. Kamarun Nisham, Taib, H. M., & Shahar, H. K. (2020) Determinants of capital structure: evidence from Malaysian firms. Asia-Pacific Journal of Business Administration, 12(3/4), 283-326.

Securities and Exchange Commission of Pakistan, https://www.secp.gov.pk/data-and-statistics/.

Shah, Mumtaz Hussain, & Khan, Atta (2017) Factors determining capital structure of Pakistani non-financial firms. International Journal of Business Studies Review, 2(1), 46-59.

Shah, S. Z. A., & Jam-e-Kausar (2012) Determinants of capital structure of leasing companies in Pakistan. Applied Financial Economics, 22(22), 1841-1853.

Sheikh, Nadeem. A. (2015). Capital structure determinants of non-financial listed firms in service sector: Evidence from Pakistan. Pakistan Journal of Social Sciences, 35(2), 1051-1059.

Sheikh, Nadeem. A., & Qureshi, M. A. (2017) Determinants of capital structure of Islamic and conventional commercial banks: Evidence from Pakistan. International Journal of Islamic and Middle Eastern Finance and Management, 10(1), 24-41.

Sheikh, Nadeem. A., & Wang, Z. (2011) Determinants of capital structure: An empirical study of firms in manufacturing industry of Pakistan. Managerial Finance, 37(2), 117-133.

Sulehri, F. A., Khan, H. M. A., Shahzad, M., & Ali, A. (2023). Beyond the Balance Sheet: Analyzing the Relationship between Corporate Governance, Financial Performance, and Stock Prices in Pakistan's Non-Bank Financial Industry. Bulletin of Business and Economics (BBE), 12(4), 88-95.

Titman, S., &Wessels, R. (1988) The determinants of capital structure choice. The Journal of Finance, 43(1), 1-19.

Ullah, A., Pinglu, C., Ullah, S., Zaman, M., & Hashmi, S. H. (2020) The nexus between capital structure, firm-specific factors, macroeconomic factors and financial performance in the textile sector of Pakistan. Heliyon, 6(8).

Downloads

Published

2024-03-06

Issue

Section

Articles

How to Cite

Bibi, T., & Akhtar, M. H. (2024). Determinants of Capital Structure: Evidence from Securities Companies. Bulletin of Business and Economics (BBE), 13(1). https://doi.org/10.61506/01.00169

Similar Articles

1-10 of 530

You may also start an advanced similarity search for this article.

Most read articles by the same author(s)

1 2 3 4 5 6 7 8 9 10 > >>