DETERMINANTS OF CAPITAL STRUCTURE: A CASE OF LISTED PHARMACEUTICAL AND CHEMICAL FIRMS OF PAKISTAN

Financing decision by the firm is considered to be an important decision because of its influence on the riskiness of the firm and firm value. Financial researchers around the world have shown deep interest in finding out what determines firm capital structure. The aim of the paper is to analyse the critical factors that influence the financing decisions of the firms listed in the chemical and pharmaceutical sector of Pakistan Stock Exchange (PSX), Pakistan. Financial data from 2008 to 2015 was used in this study. Fixed effects model was used to analyse the influence of independent variables on the dependent variable. The findings of the study reveled that taxes, nontax debt shields and tangibility of assets significantly influence capital structure decisions. Moreover, taxes, growth opportunities and non-tax debt shields are positively related to leverage whereas profitability, liquidity, firm size and tangibility of assets are negatively related to leverage.