Impact Assessment of R&D Investment on Capital Structure: An Empirical Evidence from Banking Sector of Pakistan

Abstract

This study will analyze the impact of R&D investment on Capital structure of Commercial Banks of Pakistan. To testify such relationship, our aim is to get direction and to analyze the effect of R&D investment on Capital Structure of 19 Conventional Commercial Banks of Pakistan with Panel Data Analysis from the year 2010 -2018. The data is taken from PSX (Pakistan Stock Exchange), SBP (State Bank of Pakistan) and Banks Financial Annual Reports. The examination depends upon the Commercial Banks that have disclosed their data/information through annual Reports. Hence, this case will brief us about the existence of cohesiveness between Research and Development investment and Capital Structure in terms of Banking Sector of Pakistan. In order to facilitate the impact of R&D on Capital Structure, we have taken a sample of 19 banking firms which are conventional. This study will not only focus from a single lens but multiple. We have used diverse range of the variables which includes Leverage and Short-term debt maturity as a dependent variable, R&D investment as an Independent variable, while Profitability, Growth, Bank Size, Asset Specificity and Non-debt to tax shield as our Control variables. We have linked Pecking Order and Agency theory accordingly. We have applied Fixed and Random Effect on Our data for each bank. Overall, we have concluded the mix behavior of our results. We have found R&D investment effects the leverage of the banks on the other hand R&D investments have no significant impact on short-term debt maturity. This is because the different nature of the banks and their involvement in R&D activities at the same time limited amount of Investment of R&D in Private and Non-Private sectors in Pakistan