Impact of Covid-19 on Capital Structure Speed of Adjustment of Listed Non-Financial Firms of Pakistan

Abstract

This thesis aims to evaluate the impact of firm-specific, industry-specific and macroeconomic determinants on the speed of capital structure adjustment and to see if COVID-19 had any impact on these relationships. Methodology & Design This research involves the secondary data of all of the listed non-financial firms in Pakistan ranging from the periods of 2016 to 2021. The data is collected from the financial reports on the Stock Exchange of Pakistan (PSX) websites and Thomson Reuters DataStream. Some macroeconomic data was collected from the Pakistan Bureau of Statistics as well. Dynamic panel data estimator like GMM was used on the data collected, and the information was analyzed based on quantitative methods. Tests measuring values of correlation and regression were also performed in order to analyze the results obtained from the data. Findings The findings obtained from the results of panel data state that the speed of Pakistani firms' capital structure is 16.7% per quarter. It was reported that Covid does not directly affect the adjustment speed. Rather, adjustment speed was more influenced by the significant interaction of the leverage with some firm-specific determinants like profitability, growth and ratio between target capital structure and some macroeconomic determinants like GDP growth. Other determinants that usually show impact on the capital structure did not show any significance. Limitations This research thesis had only a few quarters where COVID-19 started to show its effect on the economy. The association can be further explored down the line if the effects of COVID-19 persist for a longer period. Recommendations The findings suggest the investors who are interested in making investments should see information about the firms regarding the determinants that are significant in this study. Furthermore, management maintains the levels of the liquid assets, growth and profitability, and also pay attention towards the values of macroeconomics determinants as well