Capital Structure and Its Determinants: Empirical Evidence from Pakistan's Pharmaceutical Firms

Abstract

The purpose of this study is to conduct an empirical study on the determinants of the capital structure of pharmaceutical firms of Pakistan listed at KSE. This study has used data from 2004-2011from the statement of balance sheet analysis published by central bank of Pakistan. This study has employed a fixed effect panel data methodology using different variables related to firm characteristics (firm size, profitability, tangibility, growth, liquidity, earning volatility, non debt tax shields) and corporate governance (CEO duality, CEO Tenure, Board size) and their effect was seen on the debt ratio, which acted as the proxy variable for the capital structure. This study has added value to the existing literature as all the variables used in this study are proven to be significantly affecting the capital structure and bring about new area of research in Pakistan’s context using corporate governance. Results show that except size, tangibility and CEO duality all variables are significant at given significance level. However, their coefficients signs are confirming to the literature. Among corporate governance variables, board size and CEO tenure are negatively associated with the debt level which indicates that governance avoids debt usage to avoid the

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