How Do Firms Achieve Their Capital Structure? A Configurational Analysis Using fsQCA Vol 13, Issue 2, 2026

Abstract

This research explains the contemporaneous role of credit ratings and financial characteristics for capital structure decisions. It offers a comparative analysis of financial and nonfinancial firms for 2019–2023. Fuzzy-set qualitative comparative analysis (fsQCA) was employed. Size, age, leverage, total debt, total equity, and their respective changes were found to be necessary for capital structure adjustments for financial firms. In contrast, only total debt was found to be necessary in non-financial firms. Contrary to credit rating-capital structure theory, the results shift the perspective. Ratings were neither necessary nor sufficient for either sector’s capital structure decisions, indicating they are not central but contextual factors with limited explanatory power. The configurational analysis showed that the core and the peripheral also vary across the firms. It can be implied that firms’ internal characteristics matter more than external credit ratings for changes in capital structure decisions. Regulators should focus on multi-dimensional supervision in the financial sector, while managers would benefit from optimal leverage, efficient debt servicing, and liquidity management in the non-financial sector. Researchers and practitioners are recommended to employ fsQCA as an auxiliary diagnostic method to identify additional causal factors. The study contributes by comparing Pakistan’s financial and non-financial firms through a configurational lens.