Government Debt and Corporate Leverage: Sectoral Analysis of Pakistan
Abstract
This study examined the effect of government debt on corporate leverage and analyzed the impact of government debt on all firms at sectoral level enlisted in Pakistan Stock Exchange (KSE-100). For this purpose, it analyzed the panel data of the selected firms from 2006 to 2018. The study utilized the fixed effect linear regression model as determined by the Hausman test. Two variables (book leverage and market leverage) were used to measure corporate leverage. One variable (debt-to-capital ratio) was used to measure debt ratio, while six control variables (market-to-book ratio, GDP per capita, inflation, unemployment rate, tangibility, and return on assets) were used to identify the impact of government debt on corporate leverage and corporate debt. The results of this study revealed that government debt is negatively associated with corporate leverage and has a significant association with the debt ratio of firms. It was also noted that the control variables significantly affect the corporate leverage and debt ratio of firms. These findings have significant implications for the financing decisions of firms.
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Copyright (c) 2022 Sadia Munir Cheema, Ahsan ul Haq Satti
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