Financial development and firms’ growth in textile industry of Pakistan: A panel data analysis

Authors

Ijaz Hussain, Beaconhouse National University, Lahore, Pakistan

Abstract

This discussion uses secondary data from “Balance Sheet Analysis (2000- 2009) of Joint Stock Companies Listed on the Karachi Stock Exchange published by Statistics Department of State Bank Of Pakistan” and covers a panel of 75 textile firms of textile industry in Pakistan . Findings of this study indicate that all explanatory variables included in our model have significant influence on firms’ growth. Lagged profitability and efficiency and financial development have statistically significant and positive impact on firms’ growth while financial leverage, size, risk, real cost of debt, energy crisis and abolishment of textile quota have negative impact. Acute energy crisis starting from 2007 has severely hit the growth of textile sector. Removal of textile quota from 2005 onwards has also negative impact on firms’ growth. The signs and impact of the last two explanatory variables help us in understanding why the investment and growth process stimulated though financial development and liberalization could not be sustained. Firms with squeezed operations on account of load shedding of electricity, load management of gas and reduced foreign demand on account of abolishment of textile quota and trapped in high levels of debt and associated fixed financial costs are now bearing the consequences of high gearing. Therefore, we suggest that long term interest bearing debt should be rescheduled and restructured to relieve the firms from the debt trap; energy crisis must be resolved on war footings and intensive efforts should be made to explore new foreign markets

Keywords

Firms’ growth, Financial development, Financial liberalization, Panel data analysis

DOI

https://doi.org/10.54784/1990-6587.1196

Journal of Economic Literature Subject Codes

M00, M20, O00

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Recommended Citation

Hussain, I. (2011). Financial development and firms’ growth in textile industry of Pakistan: A panel data analysis. Business Review, 6(2), 97-103. Retrieved from https://doi.org/10.54784/1990-6587.1196