A IMPACT OF JUDICIAL EFFICIENCY ON FINANCIAL LEVERAGE

Abstract

The objective of this study was to investigate the impact of judicial efficiency on financial
leverage of 100 firms, listed on Karachi Stock Exchange (KSE), over the period of 2010-
2012. Data were collected from Balance Sheet Analysis issued by State Bank of Pakistan
(SBP) and reports of Lahore High Court, based on 36 districts. The study also uses
explanatory variables including profitability of firms, size of firms, tangibility of assets
and growth opportunities that support the judicial efficiency to measure the financial
leverage of firms. The results indicate that in worsening judicial system the size of
firm, tangibility of assets, and profitability, all have a significant impact but negative
relationship with leverage ratios. These results demonstrate in the light of pecking
order theory. Only growth has positive significant impact on financial leverage of firms.
Finally, result also indicates that the judicial efficiency has a negative relationship
but non-significant with financial leverage. The study concludes by discussing policy
implications.