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Industry, Firm, and Country Level Dynamics of Capital Structure: A Case of Pakistani Firms

Author

Listed:
  • Idrees Liaqat

    (School of Management, Huazhong University of Science and Technology, Wuhan 430074, China)

  • Muhammad Asif Khan

    (Department of Commerce, Faculty of Management Sciences, University of Kotli, Kotli 11100, Azad Jammu and Kashmir, Pakistan)

  • József Popp

    (Institute of Economic Sciences, Hungarian University of Agriculture and Life Sciences, 2100 Gödöllő, Hungary
    College of Business and Economics, University of Johannesburg, Johannesburg 2006, South Africa)

  • Judit Oláh

    (College of Business and Economics, University of Johannesburg, Johannesburg 2006, South Africa
    Institute of Applied Informatics and Logistics, Faculty of Economics and Business, University of Debrecen, 4032 Debrecen, Hungary)

Abstract

The capital structure appears to be one of the most researched and the most controversial areas in modern corporate finance. Prior literature on determinants of capital structure has concentrated on firm and country level factors by employing static modeling. Static modeling has certain limitations, which do not allow companies to establish an optimum capital structure in line with economic uncertainty. This study makes a worthy contribution to the existing body of knowledge by filling the gap in the evolution of capital structure by employing a dynamic framework of the financial sector of Pakistan. In addition, the study brings into focus sectors’ importance in determining the firm’s financial behavior. Based on secondary financial sector data from 2006–2019, the article addresses the issues by employing two-step system generalized method of moments (GMM). The findings of the study validated the existence of dynamic capital structure across the financial sector of Pakistan and reinforced the substantial impact of sectors’ unique environment on leverage mechanism. The results are robust under alternative estimation approaches and offer useful policy implications.

Suggested Citation

  • Idrees Liaqat & Muhammad Asif Khan & József Popp & Judit Oláh, 2021. "Industry, Firm, and Country Level Dynamics of Capital Structure: A Case of Pakistani Firms," JRFM, MDPI, vol. 14(9), pages 1-17, September.
    • Handle: RePEc:gam:jjrfmx:v:14:y:2021:i:9:p:428-:d:630668
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    References listed on IDEAS

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    Cited by:

    1. Gopane, Thabo J. & Gandanhamo, Tanyaradzwa & Mabejane, John-Baptiste, 2023. "Technology firms and capital structure adjustment: Application of two-step system generalised method of moments," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 70, pages 34-54.
    2. Idrees Liaqat & Yongqiang Gao & Faheem Ur Rehman & Zoltán Lakner & Judit Oláh, 2022. "National Culture and Financial Inclusion: Evidence from Belt and Road Economies," Sustainability, MDPI, vol. 14(6), pages 1-21, March.
    3. Tekalign Negash Kebede, 2024. "Firm-specific and country-level determinants of commercial banks capital structures: evidence from Ethiopia," Journal of Innovation and Entrepreneurship, Springer, vol. 13(1), pages 1-25, December.
    4. Mieczysław Kowerski, 2022. "A number of capital structure models presented even in prominent papers are estimated with incorrect estimators," Bank i Kredyt, Narodowy Bank Polski, vol. 53(5), pages 475-496.

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