EXAMINING MACROECONOMIC FACTORS & CAPITAL STRUCTURE CHOICES IN PAKISTAN'S MANUFACTURING INDUSTRY: AN EMPIRICAL ANALYSIS

Abstract

A company's financing choice is the influenced by both internal and external factors, with empirical research typically focusing more upon internal factors and less upon macroeconomic variables, mainly in emerging countries. This study aims to examine the macroeconomic factors that affect capital structure decisions in manufacturing industry in Pakistan, using data from the past decade (2012-2022). Study uses many models, including POLS, fixed effect, random effect and Hausman test, to analyze impact of macroeconomic factors on capital structure choices of listed manufacturing firms in Pakistan. Results indicate that GDP growth rate, corporate tax, and interest rate have negative link with financial leverage, but exchange rates, stock market development and public debt have a positive association with financial leverage. Study acmes upright of macroeconomic variables in evolving manufacturing sector in Pakistan, about stock market development, corporate taxes, & exchange rates. This study be useful for shareholders in determining proper investment and financing sources, and for financial leaders in determining the optimal level of capital structure.