Financial Health and Exports Sales: Evidence from Pakistan’s Manufacturing Sector

Purpose: Many developing countries are espousing export promotion strategies for accelerating growth. All the firms in a country are not exporting due to various factors and characteristics. One of the factors is finance or balance sheet that affects the investment decisions and export tendencies and intensities of the firms. This study aims to explain the link between financial health and exports sales. Design/Methodology/Approach: We have applied the fixed-effect model and Granger Causality test to find the results. We have taken the data of 190 firms related to the manufacturing sector of Pakistan from 2005 to 2016. Findings: We have taken four financial ratios to measure the financial health of the manufacturing sector of Pakistan. Debt to equity ratio and financial leverage ratio has shown negative sign with the exports sales while coverage ratio and liquidity ratio have appeared with a positive sign with exports sales. Moreover, the effect of total assets, concentration ratio, capital-output ratio and exchange rate have also been probed. Implications/Originality/Value: The study suggests that the financial health of the firm is an important factor in determining export sales so the financial health of the firm should be good and sound so that export sales may be enhanced