Abstract:
Debt specialization (DS) has become widespread among organizations in
recent years. However, the reasons for its existence and prevalence have yet to be
fully examined, especially among small and large firms. This paper aims to
empirically determine whether both small and large companies pursue DS strategies
for similar reasons. We use seven years’ panel data for 2009–15 for 419
nonfinancial companies in Pakistan, listed on the Pakistan Stock Exchange. The
results of the comparative analysis confirm the existence of DS across organizations.
Small firms follow DS to reduce expected bankruptcy costs, economize information
asymmetries and decrease agency conflicts due to limited ingress to the debt market.
Large companies include fewer types of debt to reduce operational risk and flotation
costs and for building a good reputation. We suggest several theoretical
justifications for these results, based on tradeoff and agency cost theory
