Exploring the Effects of Firm - Specific Factors on Capital Structure: An Empirical Investigation of Pakistan’s Engineering and Textile Sector

Abstract

The core purpose of the study is to estimate the power of firm specific factors (liquidity, size, tangibility, tax rate, profitability etc.) on capital structure of the firms. Furthermore, to compare the capital structure of the engineering and textile industries listed in KSE (Karachi Stock Exchange) Pakistan. Various methods such as fixed effects model and F-Test & Hausman test for the selection between fixed and random effect model. These techniques have been applied on the data to determine the impact of aforesaid variables on capital structure of the firms. For this purpose, annual data of aforesaid variables have been collected and analyzed from 2010 to 2019. The fixed effects model results indicate a significant positive and negative relationship between selected variables. This relationship is of great importance to firms and policy making perspective as these factors reflect information about (optimal) capital structure decisions and can have important implications for the engineering & textile industries.