Crowding-out or shying-away: impact of corporate income tax on capital structure choice of firms in Pakistan

Sheikh, Nadeem Ahmed; Qureshi, Muhammad Azeem

doi:10.1080/09603107.2014.925053

Cited by 15 publications

(40 citation statements)

References 33 publications

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“…Confirming earlier studies in Pakistan (Qureshi, 2009, Sheikh andQureshi, 2014), we find that these firms prefer retained earnings to finance their projects and debt is easily available for experienced firms. Further, these firms follow a mix of two basic capital structure theories i.e.…”

supporting

confidence: 90%

“…Empirical evidences suggest positive relationship of firm size with leverage in Turkey (Bayrakdaroğlu et al, 2013), nine transition economies (Jõeveer, 2013), and Pakistan Wang, 2011, Qureshi et al, 2012). While other studies in Pakistani context find positive/negative relationships in different sectors/proxies of leverage (Qureshi, 2009, Sheikh andQureshi, 2014). The firms accumulate market knowledge and market power over time.…”

Section: -Theoretical Frameworkmentioning

confidence: 88%

“…The time (years) and space (firms) dimensions make it an unbalanced panel dataset comprising of 688 firms listed during this period giving 13,375 firm-year observations 1 . We consider panel data analysis as an appropriate method that is also used in similar studies (Bayrakdaroğlu et al, 2013, Sheikh andQureshi, 2014). Of the two competing models, fixed-effects model (FEM) and random-effects model (REM), we use FEM which has no problem to deal with an unbalanced panel data (Wooldridge, 2012) specially when time T>30 (Judsona and Owenb, 1999), as in our case.…”

Section: Insert Table 1 Here] 3-data and Methodologymentioning

confidence: 99%

“…Empirical evidence for Poland (Mazur, 2007), and Pakistan Wang, 2011, Qureshi et al, 2012) confirms it. However, other studies in Pakistani context show a mix of inverse and direct relationships for different sectors/proxies of leverage (Qureshi, 2009, Sheikh andQureshi, 2014). Further, creditors consider large firms lesser risky not only because of their large amount of tangible assets but also due to their ability to diversify.…”

Section: -Theoretical Frameworkmentioning

confidence: 96%

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Firm, industry, and country level determinants of capital structure: evidence from Pakistan

Ahsan

Wang

Qureshi

2016

SAJGBR

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Purpose The purpose of this paper is to find out firm, industry, and country level determinants of capital structure of Pakistani listed non-financial firms. Design/methodology/approach The authors use a fixed effects panel data model over a 39 years (1972-2010) unbalanced panel data of Pakistani non-financial listed firms to determine the factors that influence capital structure of these firms. Findings The authors find that Pakistani firms prefer retained earnings to finance their business projects, and debt is easily available for experienced firms. Moreover, socio-economic collusive networks, poor corporate governance mechanism along with weak legal system provide these firms an opportunity to pass on their risk to the creditors (banks). Research limitations/implications The data set does not contain factors characterizing inter-industry heterogeneity, therefore, the authors use mean industry leverage and mean industry profitability to explore if any relationship exists between leverage of firms, and their respective industry leverage/profitability. Practical implications Pakistani non-financial firms are highly leveraged increasing their probability to face financial distress in erratic economic conditions. As such, the policy makers need to develop capital markets of Pakistan to enable a resilient corporate capital structure. Further, erratic economic conditions of Pakistan create uncertain business environment yielding short-term opportunities and to finance them Pakistani firms use short-term debt as a main financing source. The policy makers need to improve corporate governance mechanism and strengthen legal system that will go a long way to develop Pakistani capital market on sound and sustainable footing. Originality/value This is the first study that uses an extended number of variables and discovers financial behavior of firms in a bank-based economy having limited financing options, and facing erratic economic conditions.

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supporting

confidence: 90%

Section: -Theoretical Frameworkmentioning

confidence: 88%

Section: Insert Table 1 Here] 3-data and Methodologymentioning

confidence: 99%

Section: -Theoretical Frameworkmentioning

confidence: 96%

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Firm, industry, and country level determinants of capital structure: evidence from Pakistan

Ahsan

Wang

Qureshi

2016

SAJGBR

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“…Table 2 represents description of all the explanatory variables and their relationship with leverage and leverage adjustment rate. For dependent variable of leverage, this study uses financial leverage following the empirical studies of Delcoure (2007), Sheikh and Qureshi (2014), Ahsan et al (2016b), and Tian et al (2015). The study uses three proxies of leverage: short-term leverage (SL) which is the ratio of short-term loan to total assets, long-term leverage (LT) is the ratio of long term loan to assets, and total leverage (TL) is the ratio of total liabilities to total assets.…”

Section: Life Cycle and Target Leveragementioning

confidence: 99%

Dynamics of financial leverage across firm life cycle in Chinese firms: an empirical investigation using dynamic panel data model

Rehman

Wang

2016

China Financ. and Econ. Rev.

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Background: This study tries to investigate how firms adjust their leverage policy across the firm's life cycle. For this purpose the study uses an extensive set of data of 867 A listed Chinese non-financial firms over a nineteen years period (1996)(1997)(1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013)(2014). Methods: The study employs Arellano-Bover/Blundell-Bond dynamic panel data model to estimate adjustment rate of leverage and its determinants in three different life stages of Chinese firms. We find that adjustment rate of leverage varies for different life stages. Results: In accordance with trade off theory of capital structure this study reports a low-high-low pattern of leverage across growth, maturity and decline stage of firms' life respectively. For total leverage, dynamic panel data reports highest adjustment rate for growing firms, followed by mature firms and firms in declining stage of their life. Conclusions: Both short term and long term leverage report similar pattern of leverage's adjustment rate across the three stages of life cycle. The study provides useful insight in a unique market setting of Chinese financial markets.

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The Factors Determining the Specific Nature of Formation of the Capital Structure: Evidence from Maritime Sector

Puleikiene

Rudytė

2022

Eurasian Studies in Business and Economics

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Crowding-out or shying-away: impact of corporate income tax on capital structure choice of firms in Pakistan

Cited by 15 publications

References 33 publications

Firm, industry, and country level determinants of capital structure: evidence from Pakistan

Firm, industry, and country level determinants of capital structure: evidence from Pakistan

Dynamics of financial leverage across firm life cycle in Chinese firms: an empirical investigation using dynamic panel data model

The Factors Determining the Specific Nature of Formation of the Capital Structure: Evidence from Maritime Sector

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