THE SIGNIFICANCE OF REPUTATION IN CORPORATE FINANCING: STUDY OF NON-FINANCIAL FIRMS IN PAKISTAN
Keywords:
firm reputation, financing decisions, non-financial sector, Pakistan, fixed effect model, priceearnings ratio, financial leverage, trade credit, tangible assets, loan collateral, investment, borrowing capacityAbstract
This study investigates the impact of firm reputation on financing decisions in the non-financial
sector of Pakistan. It employs a fixed effect model to estimate the regression among variables and finds a
positive and significant effect between price-earnings (P/E) ratio and firm financial leverage. In contrast, the
study reveals a negative association between firm age and financial leverage, as older and better-reputed firms
choose not to use trade credit during financial crises. The study also highlights the importance of tangible
assets as loan collateral to obtain trade credit. The authors suggest that managers should consider the
sensitivity of firm reputation when making financing decisions, as it can be used as an instrument of financing.
The paper recommends that future studies should explore the effects of firm reputation on other business
decisions such as investment and borrowing capacity. The study theoretically, empirically, and practically
highlights the contribution of firm reputation in firm financing decisions, providing new understanding
through different theories such as pecking order theory, trade-off theory, and agency cost theory.
