Three Corporate Finance Practices in Pakistan: A Review of Previous Studies and Way Forward

Abstract

This study reviews the previous empirical studies about the Pakistani capital market and specifies the pattern of three corporate finance practices. Various activities performed at the firm level such as capital budgeting, capital structure, and dividend payout policy are analyzed in the field of corporate finance. The capital budgeting technique consists of six methods, that is, net present value, discounted cash flow, payback period, and internal rate of return. However, Pakistani firms are often interested in the net present value and the internal rate of return for capital investment evaluation. Similarly, the capital structure decision carries the debate regarding two options of financing, that is, debt financing and equity financing, although the literature shows that the Pakistani firms generally follow the pecking order theory and prefer debt financing. Similarly, as for concern dividend payout policy, the extant literature discusses different theories and determinants although it is still not possible to generalize the dividend payout trend on its basis, specifically in the Pakistani context. Corporate managers and policymakers can use the conclusion of this study for strategic purposes.