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

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 [ABSTRACT FROM AUTHOR]Copyright of IBA Business Review is the property of Institute of Business Administration Karachi and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)