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Determinants of Credit Rating and Optimal Capital Structure among Pakistani Banks

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  • Vivake Anand
  • Kamran Ahmed Soomro
  • Suneel Kumar Solanki

Abstract

Firm’s credit rating and optimal capital structure are directly related. Firms with high crediting rating tend to finance more by debts. However, there is no appropriate figure available for optimal capital structure in literature. Firms mostly decide mix of debt and equity based on its operating environment. Knowing fact of high credibility among locals and lower costs associated with debts, managers prefer debts to equity. This paper used factors like profitability, liquidity, firm’s size and leverage, to determine crediting rating of firms. This paper has used data from balance sheets of top twenty banks in Pakistan for last seven years. It was found that profitability and liquidity have negative impacts on credit rating of banks in Pakistan, while size and leverage being more significant have positive correlation with credit rating.

Suggested Citation

  • Vivake Anand & Kamran Ahmed Soomro & Suneel Kumar Solanki, 2016. "Determinants of Credit Rating and Optimal Capital Structure among Pakistani Banks," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 19(60), pages 169-182, June.
    • Handle: RePEc:rej:journl:v:19:y:2016:i:60:p:169-182
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    References listed on IDEAS

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    Cited by:

    1. Patrycja Chodnicka-Jaworska, 2021. "ESG as a Measure of Credit Ratings," Risks, MDPI, vol. 9(12), pages 1-26, December.
    2. Yan Liu & Zhan-jiang Li & Xue-jun Zhen, 2018. "Empirical Study on Indicators Selection Model Based on Nonparametric -Nearest Neighbor Identification and R Clustering Analysis," Complexity, Hindawi, vol. 2018, pages 1-9, April.

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    More about this item

    Keywords

    Credit rating; Capital structure; Commercial Banks;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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