The Determinants of Capital Structure in the Textile Sector of Pakistan

Abstract

This paper investigates the determinants of corporate capital structure in the Pakistani textile industry after Rajan and Zingales (1995), Shah and Hijazi (2005) and Hijazi and Tariq (2006). Data related to four independent variables (size, growth, profitability and tangibility) and one dependent variable (leverage) for 155 companies of the total 167 companies of the textile sector listed on the Karachi stock exchange over the sample period (1999-2004) was analyzed using regression analysis. The results are consistent with the findings of the previous studies. The findings support the researchers’ hypotheses that size and profitability have positive relationship with leverage. Further the findings confirm a positive relationship between tangibility and leverage as expected. However, the findings suggest a negative relationship between growth and leverage contrary to the researchers’ hypothesis.