Study on Determinants of Capital Structure in the Pharmaceutical Industry of Pakistan

Abstract

This research on the determinant of capital structure is limited to pharmaceutical companies listed on Pakistan Stock Exchange (PSX). Several researchers both in developed and developing countries have attempted to identify determinant of capital structure for different industries in their economies. The results for various explanatory variables used by researchers have been somewhat mixed. Some of the variable which were found significant in explaining the capital structure in one study remained insignificant in the other studies. This empirical study makes an attempt to explore the determinants of capital structure in the pharmaceutical firms quoted on PSX (Pakistan Stock Exchange). This study coversa ten years period from 2012 to 2021( both inclusive) for seven companies using eleven explanatory variables for leverage. There are twelve companies listed on PSX, seven of these twelve quoted companies on the basis of availability of data for all 10 years have been selected. The results of the study indicate, operating leverage, firm’s specialty, return on asset and tax rate were significant determinants of capital structure. It was also observed that the size of the firm, growth rate, basic earning power, fixed charges coverage ratio, non-debt tax shield, dividend payout ratio and liquidity have a minor (insignificant) influence on the capital structure of the pharmaceutical companies in Pakistan.