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 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.