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The Consequences of Easy Credit Policy, High Gearing, and Firms’ Profitability in Pakistan’s Textile Sector: A Panel Data Analysis

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  • Ijaz Hussain

    ()
    (School of Social Sciences, Beaconhouse National University (BNU), Lahore, Pakistan.)

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    Abstract

    This study uses panel data on 75 textile firms for the period 2000–09 to examine the consequences of an easy credit policy followed by high gearing, increased financing costs, and other determinants of corporate profitability. Five out of nine explanatory variables—including gearing, financing costs, inflation, tax provisions, and the industry’s capacity utilization ratio—have a negative impact, while the remaining four variables—working capital management, asset turnover, exports, competitiveness, and devaluation—have a positive impact on firms’ profitability.

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    Bibliographic Info

    Article provided by Department of Economics, The Lahore School of Economics in its journal Lahore Journal of Economics.

    Volume (Year): 17 (2012)
    Issue (Month): 1 (Jan-June)
    Pages: 33-44

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    Handle: RePEc:lje:journl:v:17:y:2012:i:1:p:33-44

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    Web page: http://www.lahoreschoolofeconomics.edu.pk/EconomicsJournal/LJEIntro.aspx
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    Related research

    Keywords: Easy credit; energy crisis; corporate profitability; textile sector; panel data; Pakistan.;

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    1. Marco Grazzi, 2009. "Trade and Profitability: Is there an export premium? Evidence from Italian manufacturing firms," LEM Papers Series 2009/16, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    2. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
    3. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September.
    4. Raza, Syed Ali & Farooq, M. Shoaib & Khan, Nadeem, 2011. "Firm and industry effects on firm profitability: an empirical analysis of KSE," MPRA Paper 36797, University Library of Munich, Germany.
    5. repec:att:wimass:8904 is not listed on IDEAS
    6. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
    7. Chhapra, Imran Umer & Naqvi, Nousheen Abbas, 2010. "Relationship between Efficiency Level of Working Capital Management and Profitability of Firms in the Textile Sector of Pakistan," MPRA Paper 51057, University Library of Munich, Germany.
    8. Andreas Stierwald, 2010. "Determinants of Profitability: An Analysis of Large Australian Firms," Melbourne Institute Working Paper Series wp2010n03, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
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