Abstract
This paper empirically investigates the dynamic causal relationship among
corporate financing patterns, industrial growth, domestic credit, capital
expenditures and market capitalization and the direction of causality in Pakistan
for the 1975 to 2013 period. Our empirical results favour the presence of long run
relationship among variables under the consideration. We found that the capital
structure deviations from the long run equilibrium due to random economic
shocks are corrected by the system at the rate of 17.42% per year. In the short
run the causality runs from industrial growth, domestic credit and market
capitalization to the debt financing and from the debt financing to the capital
expenditure. In the long run the unidirectional causality runs from the domestic
credit, capital expenditures and market capitalization to the debt financing.
However, the industrial growth and debt financing have reciprocal causal
relation in the long run. The presence of long run reciprocal causality indicates
that a multipronged long-term financial policy may effectively contribute to the
industrial development through efficient utilization of capital in Pakistan.
Sohail Amjed, S.M Amir Shah. (2016) Does industrial growth and capital expenditure induce corporate financing behaviour in Pakistan? The role of domestic credit growth and equity markets, Abasyn Journal of Social Sciences, Volume-09, Issue-2.
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