Does bank affiliation affect firm capital structure? Evidence from a financial crisis

Purpose - This study aims to assess the determinants of corporate debt with a particular focus on bank-affiliated and non-bank-affiliated firms during the global financial crisis. Design/methodology/approach - The authors analyse the data of 395 listed manufacturing firms from Pakistan with 2,370 firm-year observations. The sample is divided into subsamples, namely bank-affiliated, non-bank-affiliated and stand-alone firms. Fixed and panel effect regression models are applied to determine the during, pre-crisis and post-crisis effects on corporate capital structure. Findings - The robust results of the study reveal that non-bank-affiliated firms have different leverage determinant behaviours with a greater reliance on size, tangibility and profitability. However, bank-affiliated firms seemed to show greater immunity from a crisis compared to other firms. Simultaneously, the stand-alone firms remained at a disadvantage subject to internal financial ties of group-affiliated firms and form a base of market imperfection. Practical implications - This study's findings imply that financial managers should contain better ties with financial institutions to enhance financial immunity in worse time of financial crisis or COVID-19 global calamity. On the regulation front, these findings call for critical policy regulations to govern the internal ties with financial institutions to create a level playing field for the corporate sector. Originality/value - To the best of the authors’ knowledge, this study is the first to investigate determinants of corporate debt with a particular focus on bank-affiliated and non-bank-affiliated firms. This work is also novel to explore corporate debt of bank-affiliated and non-bank-affiliated firms during the financial crisis.