Capital Structure Dynamics and Bank Affiliation of Business Groups Evidence from Pakistan

Main Article Content

Qamar Uz Zaman Malik


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.


Download data is not yet available.

Article Details

Malik, Q. U. Z. (2018). Capital Structure Dynamics and Bank Affiliation of Business Groups: Evidence from Pakistan. SEISENSE Journal of Management, 1(1), 22-37.
Research Articles

Copyright (c) 2018 Qamar Uz Zaman Malik

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Afza, T., & Hussain, A. (2011). Determinants of Capital Structure across Selected Manufacturing Sectors of Pakistan. International Journal of Humanities and Social Science , 1 (12), 254-262.

Ahmadinia, H., Afrasiabishani, J., & Hesami, E. (2012). A Comprehensive Review on Capital Structure Theories. The Romanian Economic Journal , 15 (45), 3-26.

Almeida, H. V., & Wolfenzon, D. (2006). A Theory of Pyramidal Ownership and Family Business Groups. The Journal of Finance , 61 (6), 2637-2680.

Anderson, R. C., & Reeb, D. M. (2003). Founding-family ownership and firm performance: Evidence from the S&P500. Journal of Finance , 58 (3), 1301–1328.

Baert, L., & Vennet, R. V. (2009). Bank Ownership, Firm Value and Firm Capital Structure in Europe. Socio-economic Sciences and Humanities, European Commission Working Paper D.2.2. FINESS.

Booth, L., Aivazian, V., Demirguc-Kunt, A., & Maksimovic, V. (2001). Capital Structures in Developing Countries. Journal of Finance , 56 (1), 87-130.

Byun, H.-Y., Choi, S., Hwang, L.-S., & Kim, R. G. (2013). Business group affiliation, ownership structure, and the cost of debt. Journal of Corporate Finance , 23, 311-331.

Chang, S. J., & Hong, J. (2000). Economic performance of group affiliated companies in Korea: Intragroup resource sharing and internal business transactions. Academy of Management Journal , 43 (3), 429–448.

Chen, C. N., & Chu, W. (2012). Diversification, resource concentration, and business group performance: Evidence from Taiwan. Asia Pacific Journal of Management , 29, 1045-1061.

Ciamarra, E. S. (2012). Monitoring by Affiliated Bankers on Board of Directors: Evidence from Corporate Financing Outcomes. Financial Management , 665-702.

Claessens, S., Fan, J., & Lang, L. (2006). The benefits and costs of group affiliation: evidence from East Asia. Emerging Markets Review , 7 (1), 1-26.

Deb, A. T. (2010). Business Group Ownership of Banks: Issues and Implications. IEG Working Paper No. 308 .

Deesomasak, R., Paudyal, K., & Pescetto, G. (2004). The determinants of capital sturcture: evidence from Asia Pacific region. Journal of Multinational Financial Management , 14, 387-405.

Dewenter, K. L., & Warther, V. A. (1998). Dividends, asymmetric information, and agency conflicts: Evidence from a comparison of the dividend policies of Japanese and U.S. firms. Journal of Finance , 53 (3), 879–904.

Faccio, M., Lang, L. H., & Young, L. (2001). Dividends and expropriation. American Economic Review , 9 (1), 54–78.

Freixas, X., & Rotchet, J. (1997). Microeconomics of Banking, Massachusetts. The MIT Press.

Ghani, I. W., Haroon, U., & Ashraf, J. (2011). Business Groups Financial Performance: Evidence from Pakistan. Global Journal of Business Research , 5 (2).

Ghemawat, P., & Khanna, T. (1998). The nature of diversified business groups: A research design and two case studies. The Journal of Industrial Economics , 46 (1), 35–61.

Gohar, R. (2013). Cross Subsidization and its Effect on Pakistani Business Group's Affiliated Frim Performance. Journal of Applied Finance & Banking , 3 (3), 207-217.

Gul, F. A. (1999). Growth opportunities, capital structure and dividend policies in Japan. Journal of Corporate Finance , 5 (2), 141–168.

Harris, M., & Raviv, A. (1991). The Theory of Capital Structure. The Journal of Finance , 46 (1), 297-355.

He, J., Mao, X., Rui, O. M., & Zha, X. (2013). Business groups in China. Journal of Corporate Finance , 22, 166-192.

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics , 3 (4), 305-360.

Kester, W. C. (1986). Capital and Ownership Structure: A Comparison of United States and Japanese Manufacturing Corporations. Financial Management , 15 (1), 5-16.

King, M. R., & Santor, E. (2008). Family values: Ownership structure, performance and capital structure of Canadian firms. Journal of Banking and Finance , 32, 2423-2432.

Leff, N. (1976). Capital markets in the less developed countries: the group principle. In Money and Finance in Economic Growth and Development (McKinnon, R. ed.). New York: Marcel Dekker.

Leff, N. H. (1978). Industrial Organization and Entrepreneurship in Developing Countries: The Economic Groups. Economic Development and Cultural Change , 26 (4), 661.

Manos, R., Murinde, V., & Green, C. J. (2007). Leverage and business groups: Evidence from Indian Firms. Journal of Economics and Business , 59, 443–465.

Margaritis, D., & Psillaki, M. (2010). Capital structure, equity ownership and firm performance. Journal of Banking & Finance , 34, 621-632.

Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review , 48 (3), 261-297.

Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics , 13 (2), 187–221.

Perotti, E. C., & Gelfer, S. (2001). Red barons or robber barons? Governance and investment in Russian financial-industrial groups. European Economic Review , 45 (9), 1601–1617.

Qureshi, M. A., & Azid, T. (2006). Did They Do It Differently? Capital Structure Choices of Public and Private Sectors in Pakistan. The Pakistan Development Review , 45 (4), 701-709.

Ross, S. (1977). The determination of financial structure: the incentive-signaling approach. Bell Journal of Economics, Vol. 8 No. 1, pp. 209-43. , 8 (1), 209-43.

Sheikh, N. A., & Wang, Z. (2011). Determinants of capital structure An empirical study of firms in manufacturing industry of Pakistan. Managerial Finance , 37 (2), 117-133.

Shyu, J. (2013). Ownership structure, capital structure and performance of group affiliation: Evidence for Taiwanese group affiliated firms. Managerial Finance , 39 (4), 404-420.

State Bank of Pakistan. (2009). Prudential Regulations for Corporate/Commercial Banking . Bank Policy and Regulation Department.

Titman, S., & Wessels, R. (1988). The Determinants of Capital Structure Choice. The Journal of Finance , 43 (1), 1-19.

Vennet, R. V. (2009). Bank ownership, firm value and firm capital structure in Europe. FINESS Seventh Framework Programme: Working paper D.2.2 .

Zhang, T., & Huang, J. (2013). The value of group affiliation: evidence from 2008 financial crisis. International Journal of Managerial Finance , 9 (4), 332-350.