Abstract:
The debt structure remains an area of indispensable concern for businesses
across the globe. The organizations are facing difficulty to achieve an optimal capital
structure due to inconsistent debt policy. This study investigates the firm's debt
policy consistency over a period of twenty-two years after its establishment by
observing leverage, debt maturity, debt granularity, and debt specialization as
important measures. It has employed a unique dataset covering all the non-financial
Pakistani firms listing from 1997 to 2018. The results depict that a firm’s debt policy
remains remarkably consistent over time, confirming that the initially adopted debt
policy is a significant determinant of its future debt policies. However, it is
noteworthy that the consistency of the debt policy has shown a declining trend due
to the firm’s age and size. Additionally, we have examined the effect of business
group affiliation on the consistency of debt policy, with further segregation in terms
of the financial firm’s presence in a group or not. The findings show that a group
affiliated firm has more access to the debt market than an unaffiliated firm. Further,
the existence of a financial firm in a group serves as an extended financial market
that help them to survive in a distress situation. This study will assist the managers
in understanding the significance of initial debt policy on the continuity of future
policies that help them in financial decision-making.
