<b>The Nexus Between Capital Structure, Firm Specific Factors, Macroeconomic Factors, and Financial Performance of The Textile Sector of Pakistan</b>

The study aimed to analyses the role of the capital structure in the financial performance of 27 textile firms listed in Pakistan Stock Exchange (PSX) during the period 2019–2023. The dependent variable was return on equity as a proxy for financial performance. The independent variables were the debt to equity, asset turnover ratios, sales growth, inflation, and GDP growth, as a control variable. The panel regression estimation technique was employed for analysis purposes, and both cross-sectional and time series data were collected for this study. This study used the random-effect regression estimation model based on the Hausman diagnostic test statistics. The results indicate that the capital structure has a negative and insignificant relationship with financial performance while the asset turnover ratio, sales growth and GDP showed a positive and statistically significant relationship and inflation showed a significant but negative relationship with firm performance in favor of our alternative research hypothesis, better corporate governance and managerial ownership strategy and mitigation of risk can improve firm performance and economy stability. Keywords: Capital structure, financial performance, return on equity (ROE), debt-to-equity ratio, asset turnover ratio, sales growth, firm-specific factors, pakistan stock exchange (PSX), inflation rate, gross domestic product (GDP), textile sector of Pakistan, operational efficiency, profitability, equity financing, debt financing, macroeconomics, random effects model, Economic growth, trade-off theory, spinning industry, business management.