DefinePK

Abstract

This study aims to evaluate the impact of financial leverage and COVID-19 on the profitability of the firms. A sample of 119 textile firms listed on the Pakistani stock exchange are selected for the analysis. The data utilized for the study is obtained from the firm's annual reports, which made public by the State Bank of Pakistan in its annual FSA report. The dataset on textile firms covers the period from 2016 to 2020. An OLS regression model and various other analytical techniques have been used to carry out the analysis. The findings indicated that firms using long-term loans for business expansion have a negative impact on their profitability. This study further revealed that managers should minimize their dependence on loans to finance their growth, especially asset growth. They should make their assets equity-based instead of loan-based. Additionally, the COVID-19 pandemic surprisingly positively impacted Pakistan's textile sector. Local mills flourished during COVID-19 due to receiving international textile contracts. Therefore, the firms experienced a significant increase in profits. This analysis can help the senior executives of the textile firms. They can make better decisions between short and long-term financing options. Thus, choosing the right financing option can increase the firm's financial stability.