Determinants of Capital Structure: Textile Firms in Two Different Groups of Economies

The objective of this study is to unveil the effects of determinants of capital structure of textiles firms in two different groups of economies, one being developed (Italy, Spain) and the other developing (Pakistan, India). The study consists of 120 textile sector firms’ data from two economies at different stages of development. Data has been gathered from 30 companies of each country’s textile sector for the period of 2012 to 2017; it is balanced panel data with 720 observations. The study enlightens us on the differences of capital structure decision making in countries with different level of income. The dependent variables includes total debt, long term debt and short term debt while tangibility, age, size, profitability, liquidity, non-debt tax shield and income level are independent variables. Here we use the pooled least square and fixed effect techniques on the regression model for the capital structure. The relationship of independent variables and debts of the firm is discussed. We found that, there is negative relation between profitability and leverage of a firm. Tangibility and liquidity is negatively related to total debt and short term debt but positively to long term debt. Non debt tax shield, size has positive relationship with leverage. income level is positively associated to firm’s debts ratios. Furthermore, in group of developed economies size, liquidity, profitability and NDTS are more influential while on the other hand in group of developing economies size and profitability and NDTS play more significant role on capital structure decisions. Keywords: capital structure, profitability, developing economies, leverage