Capital Structure and Firm Efficiency: A Case of Pakistan

Authors

  •   Tahir Akhtar Research Scholar, Malaysia-Japan International Institute of Technology (MJIIT), Universiti Teknologi Malaysia (UTM)
  •   Ahmad Zahir Research Scholar, COMSATS Institute of Information Technology Abbottabad
  •   Mohammad Ali Tareq Senior Lecturer, Malaysia-Japan International Institute of Technology (MJIIT), Universiti Teknologi Malaysia (UTM)
  •   Fazle Rabbi School of Business, The University of Notre Dame Australia (UNDA), Sydney

DOI:

https://doi.org/10.17010/ijf/2016/v10i2/87243

Keywords:

Capital Structure

, Ownership Structure, Leverage, DEA, Agency Cost, Firm Efficiency

D24

, G3, G32, L6

Paper Submission Date

, August 21, 2015, Paper sent back for Revision, October 5, Paper Acceptance Date, October 13, 2015.

Abstract

This study investigated the effect of capital structure on firm performance using the agency cost hypothesis and reverse causality hypothesis. For the firms listed on the Karachi Stock Exchange under the textile industry, from 2008-2012, data envelopment analysis (DEA) was used to construct a frontier to measure firm efficiency. Efficiency risk hypothesis and franchise value hypothesis were tested to find out the effects between efficiency and leverage. The results suggested that ownership structure and leverage had a positive relationship (efficiency risk hypothesis) between them. The agency cost hypothesis supported the positive effect of leverage on efficiency. Convergence of interest, that is, concentrated ownership, had a positive effect on firm performance.

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Published

2016-02-01

How to Cite

Akhtar, T., Zahir, A., Tareq, M. A., & Rabbi, F. (2016). Capital Structure and Firm Efficiency: A Case of Pakistan. Indian Journal of Finance, 10(2), 50–66. https://doi.org/10.17010/ijf/2016/v10i2/87243

Issue

Volume 10, Issue 2, February 2016

Section

Articles
Crossref
Scopus
Google Scholar
Europe PMC

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