Empirical Identification of Determinants of Firm’s Financial Performance: a Comparative Study on Textile and Food Sector of Pakistan

Abstract

The current research empirically identifies the factors significantly affecting the firm’s performance in textile and food sector of Pakistan. 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 to the presence of cross-sectional fixed effect in the regression 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 case of 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. In food sector, Long term leverage, size, risk, tangibility and non-debt tax shield are the factors significantly affecting the firm’s financial performance. The textile and food 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 profitability as measure of firm’s financial performance while the future research can have ROA, ROE, and EPS etc as firm’s financial performance.