Determinants of capital structuring: an empirical study of growth and financing behavior of firms of textile sector in Pakistan

Imran Chhapra and Muhammad Asim

MPRA Paper from University Library of Munich, Germany

Abstract: Purpose- Purpose of this study is to investigate the determinants of optimal capital structuring that affect growth and financing behavior of textile sector firms in Pakistan keeping in view the important role capital structuring plays in any firm's financial management decisions and the positive contribution it makes to the creation of firms' value and profitability. Methodology/sample- Size of the firm (capital), profitability, fixed assets structure and taxes were used as control variables to investigate the determinants of optimal capital structuring of textiles companies. A sample size of 90 textile companies across the country was selected and their data for the 2005 – 2010 periods was used. The determinants of optimal capital structure were examined using correlation and regression analyses. F-value was calculated to test the fitness of overall model. Findings- Results of the study showed a negative relationship between dependent variable financial leverage and independent variables. The statistical analysis of spinning and composite unit also showed consistency of results with the overall textile sector but outcome of weaving unit showed a significantly positive relationship between dependent and independent variables. Practical Implications- The findings enhance the knowledge base of determinants optimal capital structure and are likely to help companies take effective decision related to capital structure needs. Furthermore, the study is likely to help the decision makers better adjust themselves towards adopting and considering proficient ways of managing capital structure of a firm.

Keywords: Capital Structure; Financial Leverage; Profitability; Taxes; Gearing Ratio (search for similar items in EconPapers)
JEL-codes: G3 G31 G39 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in Journal of Management and Social Sciences Fall 2012.8 (2)(2012): pp. 01-10

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