Determinants of Firm’s Financial Performance: An Empirical Study on Textile Sector of Pakistan

Abstract

The current study aims to find out the determinants significantly affecting the firm's financial performance in textile sector of Pakistan for the period 2005-2010. The researcher used panel/longitudinal data set which are created with the help of State Bank of Pakistan's annual publication named as "Financial statement analysis of companies (non-financial) listed in KSE for the period 2005 to 2010 which is available at www.sbp.org.pk online. The researcher used one-way fixed effect model due the presence of cross-sectional fixed effect in the regression Business and Economic Research ISSN 2162-4860 2013 www.macrothink.org/ber 77 results. The dependent variable was profitability as a measure of firm's financial performance while the independent variables were leverage, growth, firm's size, risk, tax, tangibility, liquidity and non-debt tax shield. The firm's performance in textile sector is significantly affected by Short term leverage, Size, risk, tax and non-debt tax shield while taking long term leverage as first independent variable, the leverage becomes insignificant along with tax factor. The textile sector should consider the above said factors because these factors significantly increasing or decreasing firm's financial performance. The findings of the current research are limited and applicable to non-financial sector of Pakistan only. It is not applicable to financial sector due to their difference of capital structure. In addition, the researcher used ROI as measure of firm's financial performance while the future research can have ROA, ROE, EPS etc as firm's financial performance.

Impacts of Capital Structure on Performance of Banks in a Developing Economy: Evidence from Bangladesh

“…This observation is imperative for firms to be large in size so as to have better performance. We also noted an inverse association of liquidity with bank performance, which concords with the results of Abbas et al (2013). This indicates that more liquidity leads to a lower performance of Bangladeshi banks.…”

Determinants of Textile Firms’ Profitability in Pakistan

“…The firm size is measured as monetary value of total sales (thousand rupees). Similar measure has been used by Abbas et al (2013) and Hermelo and Vassolo (2007). It is expected that firm size will have positive impact on the profitability of the textile firm.…”

“…If the value of asset turnover ratio is higher, it indicates that the company is using sufficiently its assets to generate the revenue for the firm. Growth is measured as annual growth in the assets; similar measure has been used in the literature (Abbas et al 2013;Glancey 1998). Leverage is measured as short term and long term leverage.…”

“…Literature Review Abbas et al (2013) identified the impact of various financial measures such as leverage, growth, firm's size etc. on the profitability of firm.…”

“…The literature further concluded that wrong functional form could result in spurious estimation and results; while the flexible functional form has the least maintained hypothesis but this least maintained hypothesis comes at the cost of complicated estimation procedures. In the financial literature, the linear form is the most commonly used functional form (Glancey, 1998;Chhapra and Asim 2012;Abbas et al 2013) but none of these studies tested various functional forms or used functional form specification test. Griffin et al (1987) were of the view that the researcher is never in a position to know the true functional form and the wrong functional form could result in the wrong results and implication.…”