Impact of Macroeconomic Variables on Capital Structure Choice: A Case of Textile Industry of Pakistan

Zia Ur Rehman .


The financing decision of a firm is influenced by both
internal (firm specific) and external (macroeconomic) factors. However,
most of the empirical investigations have focus on internal factors
whereas the impact of macroeconomic variables on capital structure
decisions is somewhat under researched particularly in the context of
developing countries. The aim of the study is to analyse the impact of
macroeconomic variables on the capital structure decisions of all listed
textile firms in Pakistan for the period 2004-2013. Panel data
regression (fixed effects model) was used to estimate the effect of
macroeconomic variables on capital structure. The findings of the study
reveal that public debt, exchange rates and interest rates are
negatively related whereas corporate taxes, stock market development,
inflation rate and GDP growth rate are positively related with economic
leverage. Moreover, the relationship of corporate taxes, stock market
development and exchange rates is significant with the economic
leverage. JEL Classification: E44, E52, E62, F31, G32 Keywords: Capital
Structure, Interest Rates, Inflation, Public Debt, Exchange Rates, GDP
Growth Rate, Stock Market Development, Pakistan

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