Capital Structure Determinants: Empirical Study of Firms in Textile Industry of Pakistan

This study attempts to explore the important factors that determine the capital structure of firms in textile industry of Pakistan. The investigation is performed using panel data procedures for a sample of 88 firms listed on Karachi Stock Exchange during 2002-2007. The results of the study suggest that negative relation of profitability and positive relation of growth opportunities confirm the prophecy of pecking order theory whereas positive relation of size and tangibility with leverage confirms the implications of trade-off theory. Findings of this study also confirm that some of the insights from modern finance theory are portable to Pakistan in that certain firm-specific factors that are relevant for explaining capital structure in developed countries are also relevant in Pakistan.