International Journal of Humanities and Social Science

ISSN 2220-8488 (Print), 2221-0989 (Online) 10.30845/ijhss

Determinants of Capital Structure across Choosen Manufacturing Sectors of Pakistan
Talat Afza, pAmer Hussain

Abstract
The present study examines the industry specific attributes of firms in Automobile, Engineering, and Cable and Electrical Goods Sectors affecting the determinants of capital structure and validates the results with Booth et. al. (2001) and Rajan and Zingales (1995) .The study uses pooled data regression model on the sample of 22 Automobile, 7 Cable and Electrical Goods and 8 Engineering Firms to identify the determinants of capital structure. The debt to total assets ratio is used as a proxy for leverage and the impact of size, profitability, tangibility of assets, cost of debt, taxes, liquidity and non debt tax shield is analyzed on leverage. It is pertinent to report that the study uses liquidity, tax and cost of debt variables which were not used in the earlier studies conducted in Pakistan on industry specific attribute of capital structure and have significant influence on debt financing decisions. The empirical results reflects that firms of these three sectors with good liquidity position and large depreciation allowances use retained earnings, followed by debt financing for growth and smooth operations and equity financing is considered as a last resort. The results supported the Static Tradeoff Theory and Pecking Order Theory.

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