The nexus between capital structure, firm-specific factors, macroeconomic factors and financial performance in the textile sector of Pakistan

Abstract

The study aimed to analyse the role of the capital structure in the financial performance of 90 textile firms listed in Pakistan Stock Exchange (PSX) during the period 2008–2017. The dependent variable was return on equity as a proxy for financial performance. The independent variables were the debt to equity, total debt to total assets, asset turnover ratios, sales growth, taxation, and export growth, while the firm size was taken as a control variable. The panel regression estimation technique was employed for analysis purposes, and both cross-sectional and time-series data were collected for this study. This study used the random-effect regression estimation model based on the Hausman diagnostic test statistics. The results indicate that the capital structure debt to equity variable has a negative and significant relationship with financial performance while the asset turnover ratio and firm performance showed a negative and statistically insignificant relationship. Export growth and sales growth have a considerable positive connection with financial performance; however, firm size has a negative and significant impact on firm performance, in favour of our alternative research hypothesis. The remaining variables include tax payable and the total debt to total assets ratio, which have an insignificant connection with financial performance (ROE) and validate the agency theory. With better corporate governance by putting more pressure on managers or increasing managerial ownership, institutional investors can reduce the capital, leverage risk and the overall firm capital cost that help to improve the firm's financial performance and economic stability.

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The Effect of Islamic Social Reporting Disclosure and Company Reputation on Financial Performance with Business Ethics as a Moderating Variable

“…In this study, the control variable used to analyze the influence of ISR disclosure, company reputation and business ethics on financial performance is the size of the company (Ullah et al, 2020;Wang et al, 2020), the company's own capital capacity. to fulfill its obligations called Debt to Equity Ratio (DER) and the proportion between debt owned and all assets (assets) owned is called the Debt to Asset Ratio (DAR) (Andhani, 2019;Effendy, 2017;Kurniasih & Surachim, 2019).…”

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