Abstract:

The study was designed to examine the determinants of capital structure of financial firms in Pakistan. Tangibility, non-debt tax shield, profitability, firm size, earning volatility and growth were used as the determinants of the study. The study used the financial firms as a population of the study and took 27 banks out of 128 via random sampling technique over the period of 2005-2015.The study used panel data regression model for the data analysis (Fixed Effect Model and Random Effect Model). According to the Fixed Effect Model; Non debt tax shield, profitability have significant effect while tangibility, firm size, growth and earnings volatility have insignificant effect on the capital structure. The empirical result shows that non debt tax shield have significant relationship and positive correlation with leverage of the firm confirmed Trade Off Theory. Size of the firms has negative relationship and statistical insignificant correlation with leverage. Earning volatility having positive correlation with leverage of the firm, this relationship is insignificant while supporting Trade Off Theory. Tangibility positive relationship and growth has negative but insignificant correlation with leverage, profitability is significant while negative relationship with the capital structure thus which confirm Pecking Order Theory. Keywords: Tangibility, Firm Size, Profitability, Financial Firms, PSX

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