Abstract:   The purpose of this study is to investigate the determinants of optimal capital structuring that affects growth and financing behavior of the textile sector firms in Pakistan keeping in view the important role capital structuring plays in any firms financial management decisions and the positive contribution it makes to the creation of firms value and profitability. Size of the firm (capital), profitability, fixed assets structure, and taxes were used as control variables to investigate the determinants of optimal capital structuring of textiles companies. A sample size of 90 textile companies across the country was selected and their data for 2005 - 2010 the period was used. The determinants of the optimal capital structure were examined using correlation and regression analyses. F-value was calculated to test the fitness of the overall model. Results of the study showed a negative relationship between the dependent variable financial leverage and independent variables. The statistical analysis of spinning and the composite unit also showed consistency of results with the overall textile sector but the outcome of weaving unit showed a significantly positive relationship between dependent and independent variables. The findings enhance the knowledge base of determinants optimal capital structure and are likely to help companies take effective decision related to capital structure needs. Furthermore, the study is likely to help the decision-makers better adjust themselves towards adopting and considering proficient ways of managing the capital structure of a firm.

Keywords:   Capital Structure, Financial Leverage, Profitability, Taxes, Gearing Ratio

Publisher:   ILMA UNIVERSITY

Published:   3 December 2012

Issue:   Issue 2 : Volume 8

E-ISSN:   2409-6520

P-ISSN:   2414-8393