Abstract:

optimal Capital Structure is the imperative decision for any business management to be taken for persistent growth and wealth maximization of the shareholders. The purpose of the study is to investigate firm level and macroeconomic factors of financing behavirs of insurance sector during the study period of 2001-2013. The sample of the study is selected through convenient sampling technique. Moreover, empirical data has been extracted from a number of website notably, State Bank of Pakistan and World Bank. Hausman test and Breusch, and Pagan Lagrange Multiplier test select Fixed Effect and Pooled Regression Model for the study. The findings of the study have revealed that Age, size and tangibility are positively and significantly associated to capital structure, while inflation is insignificant in fixed effect but significant and positively associated in pooled OLS model. GDP is insignificant while lending rate is negative and significantly associated to debt ratio in both estimation techniques. Use of firms fixed effect model also increases the illustrative power of the model signifying that individual firms' heterogeneity issues influential to the leverage. Hence, the relationship of the variables supports Pecking-Order theory and Trade-Off theory of Capital structure. It is recommended to management of insurance sector that mature and large firm could use heavy debt by taking advantage of tax shield. Key words: Capital Structure, Firm level, Macroeconomic Factors, Insurance Sector

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