Impact of Capital Structure on Financial Performance of
Textile Sector in Pakistan
AttaUllah
MBA/MS, Pakistan Institute of Development Economics,
Islamabad
Muhammad Kashif
MBA/MS, Pakistan Institute of Development Economics,
Islamabad
SaifUllah
PhD Candidate, SZABIST
Abstract
The impact of capital structure on the financial
performance of firm is the key purpose of this study by
using a sample of 60 firms of textile industry in
Pakistan for the period of 2010-2014. Panel data
procedure is used for the measurement of firm’s
financial performance. ROA and ROE are depended
variables and assets turn over, growth, debt to assets,
and debt to equity, total debt ratios, short term debt
and long term debt as in-depended variables who lead to
capital structure. As well as, firm size as control
variable and panel data regression technique is used.
ROA and ROE have significant positive relationship with
debt to equity and debt to asset. As well as, in sample
companies of Pakistan textile industry we found
significant positive relationship among performance and
growth; ROA and firm size; ROA, ROE and short term debt;
long term debt and ROA; total debt and performance of
the firm analysis. However, there is negative
relationship exist between ROE and firm size; ROE and
Long term debt. All the results of correlation matrix,
regression model, and descriptive analysis indicate the
same results that if a company manages the appropriate
capital structure it can increases the financial
performance of the corporations. Also, results indicate
that manager can improve the textile sector financial
performance. To conclude, finding of our study helps to
support the arguments of trade-off theory that firms
should use more debt incorporate in the capital
structure and this help to improve the performance of
the organization.
Keywords: firms’ financial performance (ROA, ROE), capital structure, Pakistan stock exchange (PSE), asset turn over, textile sector
