Determinants of Capital Structure in Non-Financial Companies of Pakistan

Munirullah Khan, Muhammad Sohaib Shah, Furqan ul Haq, Syed Zulfiqar Ali Shah


This paper analyzes the various factors which determine capital structure in non-financial companies listed on Karachi Stock Exchange. Panel data of 113 companies spanning over a period of 10 years is used as our sample. Data is obtained from balance sheet analysis of non-financial listed companies, published by State Bank of Pakistan. Panel data estimation models are employed for data analysis. Our results reveal the factors contributing to determination of capital structure in Pakistan. Profitability and liquidity are negatively related to debt ratio, while free cash flows, interest rates and earnings volatility are positively related to debt ratio. Firm size, growth opportunities, non-debt tax shields and asset tangibility appear to have no significant impact on debt ratio.

Keywords?capital structure, debt ratio, profitability, liquidity, free cash flows, tangibility, firm size, earnings volatility, interest rate, non-debt tax shields, growth opportunities, Pakistan


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