Capital Structure Decision and Firm’s Life Cycle-A Study on Non-Financial Sector of Pakistan


  • Sonia Zafar et al., MS Scholar PMAS Arid Agriculture University Rawalpindi



Capital structure, determinants of capital structure, life cycle stages


The basic aim of this study is to distinguish the ratio of capital structure at different life cycle stages of a firm. Literature is rich in discussing the determinants of capital structure and its influence on the performance of a firm. However; the association of capital structure decision with respect to the life cycle stages is less investigated especially in the emerging economies. Therefore, in order to investigate the choice of leverage ratio during a firm’s life cycle, 107 firms from the non-financial sector of Pakistan Stock Exchange for the period of ten years i.e. 2004- 2013 are selected. A deterministic approach is used to classify the life cycle stages as presented by Miller and Friesmen (1984). Panel data methodology is used to analyze the capital structure decision with respect to firm’s life cycle. The results indicate that the leverage of a firm has a significant relation with the age of the firm, especially for the older firms. It will have a practical implication for the policy makers to focus on the easy availability of finance at younger stages of a firm as they feel financial constraints during their early life cycle.