Peer and Focal Firms’ Effect on Capital Structure: Empirical Study of Non-Financial Sector of Pakistan
Author: Mujahid Iqbal

The purpose of this study is to find the impact of peer effect and focal effect on capital structure in Pakistan. For this study, data is taken of non-financial sector of Pakistani firm. There are 313 firms are taken which comprises of 28 sectors of Pakistani firm. The sample of the study is winsorized at 5 percent. This study carries the analysis on non-financial sector of Pakistan. Relevant data for corporate capital structure extracted from published annual audited reports of the firms for the period of 2005-2015. For macro-economic variables, data were obtained from Karachi Stock Exchange (KSE). In order to achieve the purpose of this study we used Generalized Method of Moments for regression as well as to capture the endogeneity we used GMM. The results of GMM shows that there is significant and positive effect of peer firms on firm’s corporate capital structure. Also, there is positive relationship between focal effect and corporate capital structure. The findings of our study show that firms mimic while taking financial decision. Focal firms also mimic while taking decision about capital structure. In the field of finance, combination of debt and equity or combination of both is referred as capital structure. Peer and focal firms play very important role in shaping corporate financial decision. The widespread corporate finance literature endorses the impact of peer firms in making firms’ financial decision. Seeing its importance in the corporate world, the current study intends to comprehensively analyze the impact of peer firms as well as focal firms on corporate leverage in the contexts of Pakistan. The results of current study confirm the impact of focal and peer firm on capital structure decision in the corporate world. The findings of this study would help many stakeholders in the context of Pakistan. Supervisor:- Dr. Nedeem Ahmed Khan Co-Supervisor:- Dr. Jaleel Ahmed

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Supervisor: Nadeem Ahmed Khan
Cosupervisor: Jaleel Ahmed Malik

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