Determinants of Profitability: A Comparative Study of Textile and Cement Sector of Pakistan
Abstract
The purpose of this study is to find the internal and external determinants of profitability of textile and cement sector of Pakistan. Secondary data is collected from “Financial Statement Analysis of companies (non-financial) listed at Karachi Stock Exchange” for the period of 2005-2010 by using the random and convenient sampling technique. Dependent variables consist of ROA and ROE and independent variables are liquidity, leverage, growth, capital intensity, size and market share. Out of the six variables, first four represents the internal factors and remaining two are external factors. Panel data analysis is applied to find the relationship among dependent and independent variables. The results of this study indicate that the liquidity and leverage impact significantly in the textile sector but growth, capital intensity, size and market share have no relevance with the profitability of this sector. In case of cement sector, liquidity, leverage and growth shows considerable effect while other factors are insignificant. This study is useful for the management of these sectors while carrying out any decision regarding internal and external variables.
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References
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Boulding, W., & Staelin, R. (1990, October). Environment, Market Share, and Market Power. Management Science, 36(10), 1160-1177.
Bourke, P. (1989). Concentration and Other Determinants of Bank Profitability in Europe, North America and Australia. Journal of Banking and Finance, 13, 65-67.
Brüderl, J. (2005, March). Panel Data Analysis. University of Mannheim.
Castilla, J. E. (2004). Organizing Health Care: A Comparative Analysis of National Institutions and Inequality over Time. International Sociology, 19(4), 403–35.
Coad, A. (2007). Testing the principle of ‘growth of the fitter’: The relationship between profitas and firm growth. Structural Change and Economic Dynamics , 18 (3), 370-386.
Dechant, K., Altman, B., Downing, R., & Keeney, T. (1994). Environmental leadership: From compliance to competitive advantage. Academy of Management Executive , 8 (3), 7-28.
Dougherty, C. (2011). Introduction to Econometrics. Oxford University Press.
Emery, J. T. (1971, March). Risk, Returns, and the Morphology of Commercial Banking. Journal of Financial and Quantitative Analysis, 6(2), 763-776.
Erikson, R., & Goldthorpe, H. J. (1992). The Constant Flux: A Study of Class Mobility in Industrial Societies. Oxford: Oxford University Press.
Fitzsimmons, J. R., Steffens, P., & Douglas, E. J. (2005, February). Growth and Profitability in Small and Medium Sized Australian Firms. AGSE Entrepreneurship Exchange, Melbourne.
Foley, C. F., Hartzell, J. C., Titman, S., & Twite, G. (2006, October). Why do firms hold so much cash? A tax-based explanation. NBER Working Paper No. 12649.
Fraile, M., & Ferrer, M. (2005). Explaining the Determinants of Public Support for Cuts in Unemployment Benefits Spending across OECD Countries. International Sociology, 20(4), 459–81.
Fraser, D. R., & Rose, P. S. (1971, January). More on Banking Structure and Performance: The Evidence from Texas. Journal of Financial and Quantitative Analysis, 6, 601-611.
Fraser, D., Philips, W., & Rose, P. (1974). A Canonical Analysis of Bank Performance. Journal of Financial and Quantitative Analysis, 9, 287-295.
Gallup & Gilani. (2019). Pakistan Economic survey 2018-19. Pakistan: Gallup & Gillani Pakistan.
Genchev, E. (2012). Effects of market share on the bank’s profitability. Review of Applied Socio- Economic Research , 3 (1), 87.
Guru, B. K., & Staunton, J. (n.d). Determinants of Commercial bank Profitability in Malaysia.
Haron, P. S. (2004, March). DETERMINANTS OF ISLAMIC BANK PROFITABILITY. Global Journal of Finance and Economics. USA, 1(1).
Hart, S. (1995). A natural-resource-based view of the firm. Academy of Management Review , 20, 986-1014.
Hayajneh, O. S., & Yassine, F. L. (2011). The Impact of Working Capital Efficiency on Profitability – an Empirical Analysis on Jordanian Manufacturing Firms. International Research Journal of Finance and Economics (66).
Heggested, A. A. (1977). Market Structure, Risk, and Profitability in Commercial Banking. Journal of Finance , 32, 1207-1216.
Hoffmeyer-Zlotnik, J. H., & Wolf, C. (2003). Advances in Cross-National Comparison: A European Working Book for Demographic and Socio-Economic Variables. New York: Kluwer and Plenum.
Jensen, M. C. (1986). Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. American Economic Review, 76, 323-329.
Kessides, I. N. (1990). Internal Versus External Market Conditions and Firm Profitability: An Exploratory Model. Economic Journal , 100 (402).
Khan, A. A., & Khan, M. (2010). Pakistan Textile Industry Facing New Challenges. Research Journal of Internat?onal Stud?es(14).
Khan, Z., Jawaid, S. T., Arif, I., & Khan, M. N. (2012). Working capital management and firm’s profitability in Pakistan: A disaggregated analysis. African Journal of Business Management , 6 (9), 3253-3261.
Koehn, M., & Santomero, A. (1980). Regulation of bank capital and portfolio risk. Journal of Finance, 35, 1235-1250.
Kwast, M. L., & John, T. R. (1982). Pricing, Operating Efficiency, and Profitability among Large Commercial Banks. Journal of Banking and Finance , 6 (2), 233-254.
Lee, S. (2010). Effects of Capital Intensity on Firm Performance: U.S. Restaurant Industry. Journal of Hospitality Financial Management , 18 (1).
Levy, H. (1997). Risk and Return: An Experimental Analysis. International Economic Review, 38(1), 119-149.
Lucius, H. W., Habte-Giorgis, B., & Lee, J. (n.d). Empirical Study of the Strategic Impact of Major Marketing Factors on Firms Accounting Performance in The Pharmaceutical Industry.
MacMillan, I. C., & Day, D. (1987). Corporate ventures into industrial markets: Dynamics of aggressive entry. Journal of Business Venturing, 2(1), 29-39.
Miller, M. H., & Orr, D. (1966, August). A Model of the Demand for Money by Firms. Quarterly Journal of Economics, 80, 413-35.
Molyneux, P., & Thornton, J. (1992). Determinants of European Bank Profitability: A Note. Journal of Banking and Finance, 16(6), 1173-1178.
Molyneux, Philip, William, D. L., & John, T. (1994). Competitive Condition in European Banking. Journal of Banking and Finance , 18 (3), 445-459.
Mullineaux, D. (1978). Economies of Scale and Organizational Efficiency in Banking: A Profit-Function Approach. Journal of Finance, 33, 259-280.
Musa, M. M. (2005). Comparative Evaluation of Profitability Determinants: Evidence of Non-Finance Versus Finance Firms. Master thesis, Universiti Utara Malaysia .
Nagy, N., Newman, D., & Nelson, D. (2009). Determinants of Profitability: What factors play a role when assessing a firm's return on assets? The University of Akron .
Nandi, K. C. (2012). TRENDS IN LIQUIDITY MANAGEMENT AND THEIR IMPACT ON PROFITABILITY: A CASE STUDY. Great Lakes Herald, 6(1).
Obert, M., & Olawale, F. (2010). Does debt really matter on the profitability of small firms? A perspective on small manufacturing firms in Bulawayo, Zimbabwe. African Journal of Business Management , 4 (9), 1709-1716.
Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (1999). The Determinants and Implications of Corporate Cash Holdings. Journal of Financial Economics, 3-46.
Peltzman, S. (1968). Bank Stock Prices and the Effects of Regulation of the Banking Structure. The Journal of Business, University of Chicago press, 41, 413.
Perry, P. (1992). Do banks gain or loss from inflation. Journal of retail banking, 14(2), 25-30.
Raza, S. A., Farooq, M. S., & Khan, N. (2011). Firm and Industry Effects on Firm Profitability: An Empirical Analysis of KSE. International Research Journal of Finance and Economics .
Rizvi, K. R. (2019). Pakistan's textile sector exports decline 1.42 percent in FY19. Pakistan: customnews.pk.
Saleem, Q., & Rehman, R. U. (2011). Impacts of liquidity ratios on profitability (Case of oil and gas companies of Pakistan). Interdisciplinary Journal of Research in Business , 1 (7), 95-98.
?amilo?lu, F., & Demirgüne?, K. (2008). The Effect of Working Capital Management on Firm Profitability in Turkey. The International Journal of Applied Economics and Finance , 2 (1), 44-50.
Short, B. K. (1979). The Relation between Commercial Bank Profit Rates and Banking Concentration in Canada, Western Europe and Japan. Journal of Banking and Finance , 3, 209-219.
Shrivastava, P. (1995). The role of corporations in achieving ecological sustainability. Academy of Management review , 20, 936-960.
Siddique, Rizwan, D., Shaheen, Iffat, Akbar, Waseem, et al. (n.d.). Textile Sector is the backbone of Pakistan’s economy. The ills faced by the sector and its contribution towards economic development. syndicate Report.
Singh, J., & Pandey, S. (2008). Impact of Working Capital Management in the Profitability of Hindalco Industries Limited. The Icfai University Journal of Financial Economics, 6(4), 62-72.
Smirlock, M. (1985). Evidence on the (Non)Relationship between Concentration and Profitability in Banking. Journal of Money, Credit and Banking, 17, 69-83.
Tradingeconomics. (2019). Pakistan Cement production. Pakistan: tradingeconomics.com.
Vernon, J. R. (1971, January). Separation of Ownership and Control and Profit Rates, the Evidence from Banking: Comment. Journal of Financial and Quantitative Analysis, 6(1), 615-625.
Ahmed, Y. (n.d.). Textile Industry of Pakistan. Report on Textile Industry of Pakistan, Horizon Securities (SMC-Pvt) Ltd.
Allen, A. J., Shaik, S., Myles, A. E., & Yeboah, O.-A. (2011, February). Determinants of Profitability Perf ormance: An Analysis of Class I Railroads in the United States. Southern Agricultural Economics Association Annual Meeting, Corpus Christi, TX .
Bagchi, B., & Khamrui, B. (2012, May). Relationship between Working Capital Management and Profitability: A Study of Selected FMCG Companies in India. Business and Economics Journal .
Blossfeld, -P. H., Mills, M., & Bernardi, F. (2006). Globalization, Uncertainty and Men’s Careers: An International Comparison. Cheltenham and Northampton, MA: Edward Elgar.
Bøhren, L., & Schindele, I. (2010, September). Is there a relationship between growth and profitability: Evidence from a large sample of Norwegian private firms. BI Norwegian School of Management GRA 1900 Thesis .
Boulding, W., & Staelin, R. (1990, October). Environment, Market Share, and Market Power. Management Science, 36(10), 1160-1177.
Bourke, P. (1989). Concentration and Other Determinants of Bank Profitability in Europe, North America and Australia. Journal of Banking and Finance, 13, 65-67.
Brüderl, J. (2005, March). Panel Data Analysis. University of Mannheim.
Castilla, J. E. (2004). Organizing Health Care: A Comparative Analysis of National Institutions and Inequality over Time. International Sociology, 19(4), 403–35.
Coad, A. (2007). Testing the principle of ‘growth of the fitter’: The relationship between profitas and firm growth. Structural Change and Economic Dynamics , 18 (3), 370-386.
Dechant, K., Altman, B., Downing, R., & Keeney, T. (1994). Environmental leadership: From compliance to competitive advantage. Academy of Management Executive , 8 (3), 7-28.
Dougherty, C. (2011). Introduction to Econometrics. Oxford University Press.
Emery, J. T. (1971, March). Risk, Returns, and the Morphology of Commercial Banking. Journal of Financial and Quantitative Analysis, 6(2), 763-776.
Erikson, R., & Goldthorpe, H. J. (1992). The Constant Flux: A Study of Class Mobility in Industrial Societies. Oxford: Oxford University Press.
Fitzsimmons, J. R., Steffens, P., & Douglas, E. J. (2005, February). Growth and Profitability in Small and Medium Sized Australian Firms. AGSE Entrepreneurship Exchange, Melbourne.
Foley, C. F., Hartzell, J. C., Titman, S., & Twite, G. (2006, October). Why do firms hold so much cash? A tax-based explanation. NBER Working Paper No. 12649.
Fraile, M., & Ferrer, M. (2005). Explaining the Determinants of Public Support for Cuts in Unemployment Benefits Spending across OECD Countries. International Sociology, 20(4), 459–81.
Fraser, D. R., & Rose, P. S. (1971, January). More on Banking Structure and Performance: The Evidence from Texas. Journal of Financial and Quantitative Analysis, 6, 601-611.
Fraser, D., Philips, W., & Rose, P. (1974). A Canonical Analysis of Bank Performance. Journal of Financial and Quantitative Analysis, 9, 287-295.
Gallup & Gilani. (2019). Pakistan Economic survey 2018-19. Pakistan: Gallup & Gillani Pakistan.
Genchev, E. (2012). Effects of market share on the bank’s profitability. Review of Applied Socio- Economic Research , 3 (1), 87.
Guru, B. K., & Staunton, J. (n.d). Determinants of Commercial bank Profitability in Malaysia.
Haron, P. S. (2004, March). DETERMINANTS OF ISLAMIC BANK PROFITABILITY. Global Journal of Finance and Economics. USA, 1(1).
Hart, S. (1995). A natural-resource-based view of the firm. Academy of Management Review , 20, 986-1014.
Hayajneh, O. S., & Yassine, F. L. (2011). The Impact of Working Capital Efficiency on Profitability – an Empirical Analysis on Jordanian Manufacturing Firms. International Research Journal of Finance and Economics (66).
Heggested, A. A. (1977). Market Structure, Risk, and Profitability in Commercial Banking. Journal of Finance , 32, 1207-1216.
Hoffmeyer-Zlotnik, J. H., & Wolf, C. (2003). Advances in Cross-National Comparison: A European Working Book for Demographic and Socio-Economic Variables. New York: Kluwer and Plenum.
Jensen, M. C. (1986). Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. American Economic Review, 76, 323-329.
Kessides, I. N. (1990). Internal Versus External Market Conditions and Firm Profitability: An Exploratory Model. Economic Journal , 100 (402).
Khan, A. A., & Khan, M. (2010). Pakistan Textile Industry Facing New Challenges. Research Journal of Internat?onal Stud?es(14).
Khan, Z., Jawaid, S. T., Arif, I., & Khan, M. N. (2012). Working capital management and firm’s profitability in Pakistan: A disaggregated analysis. African Journal of Business Management , 6 (9), 3253-3261.
Koehn, M., & Santomero, A. (1980). Regulation of bank capital and portfolio risk. Journal of Finance, 35, 1235-1250.
Kwast, M. L., & John, T. R. (1982). Pricing, Operating Efficiency, and Profitability among Large Commercial Banks. Journal of Banking and Finance , 6 (2), 233-254.
Lee, S. (2010). Effects of Capital Intensity on Firm Performance: U.S. Restaurant Industry. Journal of Hospitality Financial Management , 18 (1).
Levy, H. (1997). Risk and Return: An Experimental Analysis. International Economic Review, 38(1), 119-149.
Lucius, H. W., Habte-Giorgis, B., & Lee, J. (n.d). Empirical Study of the Strategic Impact of Major Marketing Factors on Firms Accounting Performance in The Pharmaceutical Industry.
MacMillan, I. C., & Day, D. (1987). Corporate ventures into industrial markets: Dynamics of aggressive entry. Journal of Business Venturing, 2(1), 29-39.
Miller, M. H., & Orr, D. (1966, August). A Model of the Demand for Money by Firms. Quarterly Journal of Economics, 80, 413-35.
Molyneux, P., & Thornton, J. (1992). Determinants of European Bank Profitability: A Note. Journal of Banking and Finance, 16(6), 1173-1178.
Molyneux, Philip, William, D. L., & John, T. (1994). Competitive Condition in European Banking. Journal of Banking and Finance , 18 (3), 445-459.
Mullineaux, D. (1978). Economies of Scale and Organizational Efficiency in Banking: A Profit-Function Approach. Journal of Finance, 33, 259-280.
Musa, M. M. (2005). Comparative Evaluation of Profitability Determinants: Evidence of Non-Finance Versus Finance Firms. Master thesis, Universiti Utara Malaysia .
Nagy, N., Newman, D., & Nelson, D. (2009). Determinants of Profitability: What factors play a role when assessing a firm's return on assets? The University of Akron .
Nandi, K. C. (2012). TRENDS IN LIQUIDITY MANAGEMENT AND THEIR IMPACT ON PROFITABILITY: A CASE STUDY. Great Lakes Herald, 6(1).
Obert, M., & Olawale, F. (2010). Does debt really matter on the profitability of small firms? A perspective on small manufacturing firms in Bulawayo, Zimbabwe. African Journal of Business Management , 4 (9), 1709-1716.
Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (1999). The Determinants and Implications of Corporate Cash Holdings. Journal of Financial Economics, 3-46.
Peltzman, S. (1968). Bank Stock Prices and the Effects of Regulation of the Banking Structure. The Journal of Business, University of Chicago press, 41, 413.
Perry, P. (1992). Do banks gain or loss from inflation. Journal of retail banking, 14(2), 25-30.
Raza, S. A., Farooq, M. S., & Khan, N. (2011). Firm and Industry Effects on Firm Profitability: An Empirical Analysis of KSE. International Research Journal of Finance and Economics .
Rizvi, K. R. (2019). Pakistan's textile sector exports decline 1.42 percent in FY19. Pakistan: customnews.pk.
Saleem, Q., & Rehman, R. U. (2011). Impacts of liquidity ratios on profitability (Case of oil and gas companies of Pakistan). Interdisciplinary Journal of Research in Business , 1 (7), 95-98.
?amilo?lu, F., & Demirgüne?, K. (2008). The Effect of Working Capital Management on Firm Profitability in Turkey. The International Journal of Applied Economics and Finance , 2 (1), 44-50.
Short, B. K. (1979). The Relation between Commercial Bank Profit Rates and Banking Concentration in Canada, Western Europe and Japan. Journal of Banking and Finance , 3, 209-219.
Shrivastava, P. (1995). The role of corporations in achieving ecological sustainability. Academy of Management review , 20, 936-960.
Siddique, Rizwan, D., Shaheen, Iffat, Akbar, Waseem, et al. (n.d.). Textile Sector is the backbone of Pakistan’s economy. The ills faced by the sector and its contribution towards economic development. syndicate Report.
Singh, J., & Pandey, S. (2008). Impact of Working Capital Management in the Profitability of Hindalco Industries Limited. The Icfai University Journal of Financial Economics, 6(4), 62-72.
Smirlock, M. (1985). Evidence on the (Non)Relationship between Concentration and Profitability in Banking. Journal of Money, Credit and Banking, 17, 69-83.
Tradingeconomics. (2019). Pakistan Cement production. Pakistan: tradingeconomics.com.
Vernon, J. R. (1971, January). Separation of Ownership and Control and Profit Rates, the Evidence from Banking: Comment. Journal of Financial and Quantitative Analysis, 6(1), 615-625.
Published
2020-03-06
How to Cite
Mansoor, H. (2020). Determinants of Profitability: A Comparative Study of Textile and Cement Sector of Pakistan. Information Management and Business Review, 11(4(I), 13-26. https://doi.org/10.22610/imbr.v11i4(I).2935
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Research Paper
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