Determinants of Firm’s Financial Performance: An Empirical Study on Textile Sector of Pakistan – Conclusion and Recommendations

Tax is significant at 1% level in textile sector and accepts 5th hypothesis it is also consistent with the similar findings by Krishnan and Moyer, Memon, Bhutto and Abbas and Zeitun and Tian. Tangibility is not significant at any level in textile sector. It means that tangibility does not play a significant role for firm’s performance in textile sector. Liquidity is not significant at any level in both sectors. It has negative relationship with firm’s performance in textile sector that rejects the 7th hypothesis. The non-debt-tax shield (depreciation) is significant at 1% level with positive relationship and accepts 8th hypothesis. It means that non-debt tax shield plays an important and significant role for increasing firm’s performance in textile sector of Pakistan.
The current study concluded that firm’s performance in textile sector of Pakistan is significantly affected by Short term leverage, size, risk, tax and non-debt tax shield. The Researchers recommends that the textile sector of Pakistan should make its financial decision taking into consideration of the above said factors because textile sector is the largest sector in Pakistan for non-financial industry and it is considered as benchmark for other sectors in Pakistan. The Findings of the researcher are also consistent with the previous researchers. The Textile sector should preferably decrease their short term debt financing as it will decrease firm’s financial performance while all other sector may increase it. The firm should use less short term debt as it neither provide tax shield advantage and not also cheap as long term debt financing.
The current research findings empirically implies that the companies in textile sector of Pakistan has to make their policies by considering short term leverage, firm’s size, financial risk, tax provision and non-debt tax shield (depreciation) in order to strengthen their performance. Short term leverage decreases performance significantly so the firms should avoid short term leverage while all other factors increases firm’s performance in textile sector of Pakistan.
The current study is limited and applicable to non-financial industry of Pakistan only. It is not applicable to financial sector as their capital structure is entirely different from non-financial sector. The researcher used book value measure for dependent and independent variables. The future research on firm’s performance may be made through market value measures like Tobin’s Q etc. The future research may also be conducted on financial sector using the same models and variables.