Impact of Financial Crisis on Capital Structure Determinants of Investment Banks in Pakistan

Abstract

Investment banks also faced challenges as outcome of the financial crisis. This study aims to explore the various factors that determine the choice of financing sources for public limited companies in the investment banking sector of Pakistan. The impact of firms’ profitability, liquidity, tangibility and size on capital structure of KSE listed Investment banks is investigated. Each determinant becomes less or more important when it is related to the leverage. Although there is no direct effect of crisis on Pakistani banks but indirect effect can’t be ignored. The basic purpose of this study is to examine the various determinants of capital structure of Investment Banks in Pakistan during and after the global financial crisis. How different determinants are effected by crisis and their effect on capital structure. Panel regression analysis is used in the study. The Investment banks listed in Karachi Stock Exchange (KSE) are selected to conduct the study. Secondary data from the year 2007-2011 is used to gain insight about effect of financial crisis on capital structure. Sample of 9 banks was selected in order to reach conclusion. The result of study shows that there is effect of crisis on all the determinants and all are decreased as result of financial crisis. On the other hand situation during and after crisis is completely different. The results gave the message to review the strategies in order to avoid from such a situation in future.