Assessing the Relationship between Capital Structure and Financial Performance of Textile Firms in Pakistan

Abstract

This study has focused mainly on investigating the relationship between capital structure and financial performance in textile sector of Pakistan. This study has considered size, tangibility, profitability, growth, non-debt tax shield, effective tax rate, net commercial trade position and liquidity (representing capital structure) as independent variables. Return on assets (representing by financial performance) is considered as the dependent variable. This study has finalized textile sector of Pakistan to testify the relationship between variables mentioned above. The major objective of this study is to assess the relationship between size, tangibility, profitability, growth, non-debt tax shield, effective tax rate, net commercial trade position and liquidity (independent variables) and return on assets (dependent variable) in textile sector of Pakistan. Annual financial statements of Pakistani textile firms are used for data collection regarding study variables from the period of 2015 – 2020 (6 years). A sample size of 45 textile firms (270 observations) is finalized to represent the entire textile sector of Pakistan. Collected data is then analyzed through statistical instruments such as correlation and regression by using Strata software. Based on the findings, it is concluded that capital structure (size, tangibility, profitability, growth, non-debt tax shield, effective tax rate, net commercial trade position and liquidity) has significant impact on financial performance (return on assets) in textile sector of Pakistan.