Abstract
The study explores the moderating role of firm size on the relationship between capital structure and performance of the Pakistani textile sector. The study extracted statistics from the annual reports of the textile firms listed at the Pakistan Stock Exchange (PSE) from 2010–2017. The study applies several panel data diagnostic tests and then projected a feasible generalized least square (FGLS) regression model for testing primary and moderated effects of firm size on capital structure-performance relation by taking asset tangibility as a control variable. The study outcomes depict that 65% of assets of Pakistani textile companies are financed by debt, suggesting that textile companies are functioning with high levels of financial leverage. The total debt ratio of firms is moderately highly leveraged, as the average value is around 65%. The research has important practical consequences that will help textile industry financial managers adopt the optimal mix of capital structure when debt borrowing could enhance performance.