Effect of Industry-Level Factors on Profitability of Manufacturing Sector: Evidence from Pakistan

Abstract

The systematic and non-systemic dynamics influence the performance and efficiency of the overall industry. The management makes competitive strategies to get a competitive advantage in the condensed marketplace. To analyze this phenomenon the study considers a few firm-level factors to check the cause and effect on the profitability of the firms. The required data for the study have been collected from the balance sheet analysis (SBP). The analysis regression models were used after the execution of diagnostic tests. The test results found that the random effect mode is more appropriate than the other models. The findings reveal that debt ratio has a negative and significant effect on profitability when the debt portion will incline the profitability will decrease it is also supported by the pecking order theory. In addition, tangibility of assets and effectiveness and efficiency have a positive and significant influence on performance, the size is an insignificant determinant of the study. Thus, the top management should not rely on debt financing it can increase the percentage of equity financing