Financial Reforms and Dynamics of Capital Structure Choice: A Case of Publically Listed Firms of Pakistan

Recent international financial research finds that not only firm- and industry-specific determinants, but also country-specific factors influence a firm’s capital structure. The paper’s aim is twofold. Firstly, it proposes a systematic view of the international studies on country effect since 2000, by highlighting both similarities and differences in terms of tested hypotheses, country-level determinants, expected relationships. The main outcome is a complete framework of the country characteristics, which mostly affect the capital structure choice as well as their respective theoretical rationale. Secondly, based on the above review, some areas of potential development in empirical testing will be identified, regarding test design, sample selection, dependent variable measurement, statistical methodology: the paper’s objective is to critically discuss the state of the art in this field, to hopefully improve the empirical testing of country effect on leverage in further research.

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Farm capital structure choice: theory and an empirical test

Agricultural Finance Review ◽

10.1108/afr-08-2012-0041 ◽

2014 ◽

Vol 74 (1) ◽

pp. 115-132 ◽

Cited By ~ 4

Author(s):

Feng Wu ◽

Zhengfei Guan ◽

Robert Myers

Keyword(s):

Theoretical Model ◽

Capital Structure ◽

Credit Risk ◽

Choice Theory ◽

Empirical Test ◽

Theoretical Framework ◽

Comparative Statics ◽

Content Type ◽

Structure Choice ◽

Capital Structure Choice

Purpose – The purpose of this paper is to provide a unified theoretical framework that explains farm capital structure choice. Design/methodology/approach – The framework accommodates different credit access scenarios and heterogeneous risk profiles of borrowers. It recognizes that the costs of capital are endogenously determined, reflecting the degree of credit risk and accessibility to credit markets. Based on the proposed model and the comparative statics derived thereof, the paper empirically tests the impacts of different factors on capital structure choice. Findings – Based on the theoretical framework, the paper derived the impacts of different factors on capital structure choice using comparative statics. Results suggest that the potential determinants of capital structure have varying effects at different ranges of leverage. Empirical evidence supports the theoretical model. Originality/value – Despite all of previous work on various aspects of farm capital structure choice, a framework that encompasses each of the different assumptions and scenarios is still lacking. The theoretical model integrates credit risk models and accommodates endogenous cost of capital, providing a comprehensive framework for studying farm capital structure choice and its determinants. The results provide insights that could help policy makers and lenders develop effective instruments to manage, monitor, and influence the financial leverage of farms at different quantiles of debt ratio.

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