Does bank affiliation affect firm capital structure? Evidence from a financial crisis

Abstract

Purpose

This study aims to assess the determinants of corporate debt with a particular focus on bank-affiliated and non-bank-affiliated firms during the global financial crisis.

Design/methodology/approach

The authors analyse the data of 395 listed manufacturing firms from Pakistan with 2,370 firm-year observations. The sample is divided into subsamples, namely bank-affiliated, non-bank-affiliated and stand-alone firms. Fixed and panel effect regression models are applied to determine the during, pre-crisis and post-crisis effects on corporate capital structure.

Findings

The robust results of the study reveal that non-bank-affiliated firms have different leverage determinant behaviours with a greater reliance on size, tangibility and profitability. However, bank-affiliated firms seemed to show greater immunity from a crisis compared to other firms. Simultaneously, the stand-alone firms remained at a disadvantage subject to internal financial ties of group-affiliated firms and form a base of market imperfection.

Practical implications

This study's findings imply that financial managers should contain better ties with financial institutions to enhance financial immunity in worse time of financial crisis or COVID-19 global calamity. On the regulation front, these findings call for critical policy regulations to govern the internal ties with financial institutions to create a level playing field for the corporate sector.

Originality/value

To the best of the authors’ knowledge, this study is the first to investigate determinants of corporate debt with a particular focus on bank-affiliated and non-bank-affiliated firms. This work is also novel to explore corporate debt of bank-affiliated and non-bank-affiliated firms during the financial crisis.

Citation

Zaman, Q.U., Akhter, W., Abdul-Majid, M., Hassan, S.I.U. and Anwar, M.F. (2023), "Does bank affiliation affect firm capital structure? Evidence from a financial crisis", Journal of Economic and Administrative Sciences, Vol. 39 No. 1, pp. 150-174. https://doi.org/10.1108/JEAS-11-2020-0193