Dynamism of capital structure: Evidence from Pakistan

• Main Authors: Memon, Pervaiz A., Md Rus, Rohani, Ghazali, Zahiruddin
• Format: Article
• Language: English
• Published: American Research Institute for Policy Development 2015
• Subjects: HD28 Management. Industrial Management
• Online Access: http://repo.uum.edu.my/15405/1/7.pdf; http://repo.uum.edu.my/15405/; http://doi.org/10.15640/jibe.v3n1a7

This study investigates the existence of target capital structure and estimates speed of adjustment towards target capital structure for the non financial listed firms of Pakistan. The study also examines the firm level and macroeconomic factors determining the target capital structure.This study implies the dynamic panel data modeling using partial adjustment model.The study uses the Generalized Method of Moments (GMM) as the estimation technique. Firms in Pakistan are found to chase target debt ratios and make complete adjustment towards target in less than two years.Two firm level significant determinants of the target capital structure are profitability and tangibility.Macroeconomic factors such as GDP growth rate, inflation and interest rates are also found as the significant determinants of target debt.