Capital Structure Dynamics and Bank Affiliation of Business Groups

Evidence from Pakistan

  • Qamar Uz Zaman Malik
      COMSATS Institute of Information Technology
    Keywords: Capital Structure, Bank Affiliation, Business Groups, Panel Regress

    Abstract

    Objective – An empirical investigation to assess the impact of the bank-affiliated business group on firm’s capital structure decisions.

    Design/methodology/approach – A sample of 146 group affiliated firms and subsamples for bank and non-bank affiliated firms was analyzed with random-effect panel regression model to determine the relationship of the bank-affiliated business group on firm’s capital structure determinants of listed firms in Pakistan using data for 2006-2011.

    Findings – We have found that bank-affiliated firms financing decisions are significantly different from that of non-bank affiliated firms with a common factor of the internal capital market.  Bank-affiliated firm capital structure determinants of growth, asset tangibility, non-debt tax shield and operating risk show significantly different association with choice of leverage compared to non-bank affiliated firms.

    Policy implications – Our results show that group affiliated firms particularly bank-affiliated firms are the reason for market imperfections and have successfully eliminated the market distortions keeping others at a disadvantage.  Hence, Policymakers are suggested to improve the regulatory system and its implementation.

    Originality/value – According to best of our knowledge, this is the first study to extend the literature of firm financing decisions in relation to bank-group affiliation in Pakistan.

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    Article History
    Received: 2018-03-24
    Published: 2018-03-25
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    How to Cite
    Malik, Q. U. Z. (2018). Capital Structure Dynamics and Bank Affiliation of Business Groups. SEISENSE Journal of Management, 1(1), 22-37. https://doi.org/10.5281/zenodo.1218190
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    Copyright (c) 2018 Qamar Uz Zaman Malik

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