Akademik Veri Yönetim Sistemi
Romanian Economic Business Review, cilt.1, sa.2016, ss.17-24, 2016 (Hakemli Dergi)
The aim of this paper is to investigate how the macro-economic factor i.e. the supply constraint of
bank credit affects the corporate capital structure of non-financial firms of listed companies of
Karachi Stock Exchange (KSE) during the period of 2005 to 2010 in a data set with 558
observations using panel data. This paper investigates the fact that other than the typically
observed determinants of capital structure i.e. liquidity, profitability, tangibility and earning
volatility etc. (Sheikh and Wang, 2011; Shah&Hijazi, 2004; Shah and Khan, 2007), it is examined
how the financial constraints affect the capital structure decision. This paper is one of the first
study carried out in Pakistan and is particularly inspired by the research recently conducted by
Leary (2009) and Faulkender and Petersen (2006). The significant fluctuations in credit supply
that were observed during the last decade offer a very suitable natural scenario to experiment and
identify how the capital structure of non-financial firms is influenced by the credit supply in the
economy. The results of the study posit that capital structure decisions are not influenced by the
monetary or credit conditions prevailing in the Pakistani economy. The distinction of this paper is
that it underpins the macro-economic factor deteriorating the decision making process of firms
and thus incorporates them in determining the capital structure of firms.