Determinants of Capital Structure: An Empirical Study of Cement Industry of Pakistan from 2014 to 2018

The propositions of Modigliani & Miller “M&M” had introduced the real theme of capital structure. After MM’s propositions, the determinants of capital structure are regarded as broad and debatable topic in the literature of corporate finance. Capital structure can be defined as a mix of debt and equity. This financial mix has a universal diversity. Financial behavior of firms may not be identical and it keeps on changing due to several determinants. However, the very first task of every firm is to set an optimal level of capital structure. This study investigates the determinants of capital structure in Cement Industry of Pakistan. Profitability (IV), Size (IV), Tangibility (IV), and Growth (IV) are taken as determinants and Leverage (DV) refers to capital structure. The results of all variables are statistically significant. The Results of this study are consistent with Trade off Theory (TOT), Pecking order Theory (POT) and Agency Cost Theory (ACT). The outcomes of this study revealed that Profitability, Size and Growth have negative and significant relationship on Leverage and it is consistent with POT. Furthermore, Tangibility is statistically significant and positively with leverage and this result is consistent with POT, TOT, ACT. The Cross-sectional time series data is collected from 19 firms from 2014-2018. The publication of State Bank of Pakistan (SBP), “Financial Statement analyses of companies (Non-Financial) listed at Pakistan Stock Exchange (2014-2018)” was used as secondary source to collect data. Correlation and Multiple-regression analysis were used in identifying goodness of fit of the study model and to test hypotheses.