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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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Listed author(s):
  • 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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    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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    Keywords: Easy credit; energy crisis; corporate profitability; textile sector; panel data; Pakistan.;

    Find related papers by JEL classification:

    • L78 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Government Policy
    • L69 - Industrial Organization - - Industry Studies: Manufacturing - - - Other
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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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. 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.
    3. Lambson, V.E., 1989. "Industry Evolution With Sunk Costs And Uncertian Market Conditions," Working papers 8904, Wisconsin Madison - Social Systems.
    4. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 38(2), pages 112-134.
    5. 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.
    6. 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.
    7. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
    8. Imran Omer Chhapra & Nousheen Abbas Naqvi, 2010. "Relationship between Efficiency Level of Working Capital Management and Profitability of Firms in the Textile Sector of Pakistan," Indus Journal of Management & Social Science (IJMSS), Department of Business Administration, vol. 4(1), pages 30-42, December.
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