Abstract
AbstractThe purpose of this study is to investigate the association between market power and capital structure. This study will further provide a logical explanation towards the factors affecting capital structure. This study analysed 176 non-financial Pakistani companies listed on Karachi Stock Exchange over the period of 2003–2012. Capital structure has been tried to investigate with a different perspective by investigating its association with market power. It has been seen that there is a significant and positive relation between market power and capital structure. Size and liquidity remained significantly negative with capital structure, whereas profitability and dividend payout remained significantly positive with capital structure. To the best of authors’ knowledge, this is the first study that investigates the relationship between market power and capital structure in any developing economy by employing the data of non-financial Pakistani firms.
Highlights
For all business firms, decisions regarding capital structure are very important
This study provides results on capital structure determinants by employing a unique and new dimension into it, which has rarely been investigated in any developing markets yet
LEV = 0 + 1 SIZE it + 2 TANG it + 3 PROF it + 4 dividend payouts (DPO) it + 5 LIQ it + 6 (MP)it + it where LEV is the leverage ratio of a firm; SIZE is the size of a firm; TANG is the tangibility of a firm; PROF is the profitability of a firm; DPO is the dividend payout; LIQ is the liquidity of a firm; MP is the market power of a firm
Summary
Within the corporate business form, usually it is the management’s job to make decisions about capital structure in a manner that the value of firm is maximized. Firm value maximization is not a simple task Agha Jahanzeb. Agha Jahanzeb is a PhD student in Finance at Universiti Teknologi Malaysia. His specialties are corporate finance, financial management and financial economics. Governance (Bangor University), MAcc (Universiti Kebangsaan Malaysia), ACCA (Graduate) and BA (Huddersfield). His specialties are corporate governance, corporate finance, financial management, and business politics. He is currently senior lecturer at Universiti Teknologi Malaysia
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