Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/188201 
Year of Publication: 
2015
Citation: 
[Journal:] Pakistan Journal of Commerce and Social Sciences (PJCSS) [ISSN:] 2309-8619 [Volume:] 9 [Issue:] 2 [Publisher:] Johar Education Society, Pakistan (JESPK) [Place:] Lahore [Year:] 2015 [Pages:] 344-356
Publisher: 
Johar Education Society, Pakistan (JESPK), Lahore
Abstract: 
The objective of this study is to investigate which of the two competing theoretic frameworks; pecking order theory (POT) or trade-off theory (TOT); better explains the corporate leverage behaviour in Pakistan. For this purpose, we use fixed effects model on a large unbalanced panel data comprising of 13,026 firm-year observations of non-financial firms listed on Karachi Stock Exchange Pakistan during 1972-2010 Our results indicate that leverage has two pervasive and significant relationships. First, leverage is negatively related to current and past profitability. Second, leverage is positively related to past dividends. In addition, empirical results present a reasonable support to POT regarding growth. However, POT gets nominal empirical support in Pakistan regarding firm size. The results of this study will help the corporate managers to better formulate the leverage policy.
Subjects: 
leverage
pecking order theory
trade-off theory
Pakistan
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

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