All Theses and Dissertations


Master of Science in Economics

Faculty / School

Faculty of Business Administration (FBA)


Department of Economics

Date of Award

Spring 2017


Dr. Wali Ullah

Second Advisor

Dr. Muhammad Nishat

Committee Member 1

Dr. Wali Ullah, Institute of Business Administration, Karachi

Committee Member 2

Dr. Muhammad Nishat, Institute of Business Administration, Karachi

Project Type


Access Type

Restricted Access


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Capital structure is the ratio of debt and equity. This study determines the key contributors of an optimal capital structure. To better analyze the capital structure, corporate governance (via the three categories of ownership structure, namely insider ownership, institution ownership and individual ownership) is included. This element helps understand the presence of agency costs and the role of management in deciding the capital structure of a firm. A panel data set since 2005-2014 of 249 non-financial companies listed on the Pakistan Stock Exchange has been used. To best handle the data set, Generalized Method of Moments (0MM) technique is used. The results suggest that the ownership categories of insider ownership, institution ownership and individual ownership when taken at lag (with market leverage being the dependent variable) are statistically significant and negative. Variables such as Return on Assets (ROA), Tobins Q, Tangibility and Product Market Share are statistically significant when book value of leverage is the dependent variable. Altman Z Score, which measures risk, is the only variable that is statistically significant and negative when the dependent variable (book or market value of Leverage) is used. In the case of speed of adjustment, the variables yield similar results in fixed and random effects. The ownership categories continue to be positively significant contributors to the adjustment.Moreover, the current liabilities variable is also a negative significant contributor to this adjustment variable. The stakeholders of this study are the firm owners and investors. The primary aim of this study is to provide valuable policy directives for all the concerned stakeholders. The presence of atzency costs and its resulting impact on the firms' capital structure would help the management to tackle their issues better.

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