IDEAS home Printed from https://ideas.repec.org/a/asi/aeafrj/v12y2022i11p969-981id4660.html
   My bibliography  Save this article

The Impact of Investment Decisions on Firm Financial Performance Moderated by Economic Policy Uncertainty: Evidence from the Manufacturing Sector of Pakistan

Author

Listed:
  • Abdul Quddus
  • Drahomira Pavelkova
  • Sarfraz Hussain
  • Tien Phat Pham

Abstract

The study examines the link between firm-level investment and firm performance moderated by economic policy uncertainty in the manufacturing sector of Pakistan across the six years from 2015–2020. The System-GMM estimation has been employed to demonstrate the problem of endogeneity with dynamic linear and non-linear models. The study revealed that the moderating impact of economic policy uncertainty has negative and significant impact on investment (investment in tangible assets, investment in intangible assets, and financial leverage) and firm performance (Tobin’s Q). Similarly, economic policy uncertainty regarding investment and firm performance (ROA) is negative and significant in investment in tangible assets, but positive and significant in financial leverage. Our findings remain constant over a range of variable characteristics, even after accounting for endogeneity issues. Our main contribution is the finding that investment and firm performance have a negative and significant relationship with economic policy uncertainty. As economic policy uncertainty raises the firm level, investment decreases, which ultimately impacts firm performance negatively. Thus, the study advises that policymakers make an effort to minimize the effect of economic policy uncertainty at a certain level. They must keep this uncertainty within a reasonable range since increased economic policy uncertainty will push businesses to minimize their short-term and long-term investments.

Suggested Citation

  • Abdul Quddus & Drahomira Pavelkova & Sarfraz Hussain & Tien Phat Pham, 2022. "The Impact of Investment Decisions on Firm Financial Performance Moderated by Economic Policy Uncertainty: Evidence from the Manufacturing Sector of Pakistan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 12(11), pages 969-981.
  • Handle: RePEc:asi:aeafrj:v:12:y:2022:i:11:p:969-981:id:4660
    as

    Download full text from publisher

    File URL: https://archive.aessweb.com/index.php/5002/article/view/4660/7341
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dinh Cong Hoang & Dinh Cong Tuan, 2023. "Evaluating the Role of Green Financing, International Trade and Alternative Energies on Environmental Performance in Case of Chinese Provinces: Application of Quantile Regression Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 13(2), pages 500-508, March.
    2. Citra Sukmadilaga & Srihadi Winarningsih & Ivan Yudianto & Tri Utami Lestari & Erlane K. Ghani, 2023. "Does Green Accounting Affect Firm Value? Evidence from ASEAN Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 13(2), pages 509-515, March.
    3. Richard Arhinful & Mehrshad Radmehr, 2023. "The Impact of Financial Leverage on the Financial Performance of the Firms Listed on the Tokyo Stock Exchange," SAGE Open, , vol. 13(4), pages 21582440231, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:asi:aeafrj:v:12:y:2022:i:11:p:969-981:id:4660. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Robert Allen (email available below). General contact details of provider: https://archive.aessweb.com/index.php/5002/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.