IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/127314.html

Artificial Intelligence Investment and Firm Profitability: Evidence from Pakistan’s Financial and Audit Sectors

Author

Listed:
  • Amir, Muhammad Sikander
  • Ali, Amjad
  • Audi, Marc

Abstract

This study investigates the impact of artificial intelligence investment on firm profitability in Pakistan’s accounting, finance, and external audit sectors by introducing a composite metric called adjusted artificial intelligence investment. The data of 28 Pakistani firms from 2020 to 2024 has been used for empirical analysis. The research integrates technological infrastructure, cybersecurity risk, and regulatory support into a unified econometric framework. The study is anchored in the technology acceptance model and the resource-based view theory to explain the strategic value and adoption dynamics of artificial intelligence. Using panel least squares, fixed effects, and random effects regressions, the results consistently reveal that adjusted artificial intelligence investment and technological infrastructure significantly enhance firm profitability, while cybersecurity risk negatively influences it. Regulatory support exhibits mixed effects, being negatively associated in pooled models but positively in fixed effects analysis, highlighting the contextual role of governance frameworks. These findings carry significant implications for multiple stakeholder groups. For firm managers, the results underscore the importance of adopting a strategic, infrastructure-backed approach to AI implementation, prioritizing integration with secure digital environments. Policymakers must move beyond generic regulatory frameworks and instead focus on designing sector-specific policies that promote innovation without compromising compliance. Investors, too, can benefit from evaluating AI maturity as a key indicator of future profitability. Therefore, the study not only confirms the financial value of AI but also highlights the ecosystem-level support needed to realize its full potential. This research fills a key gap by holistically evaluating artificial intelligence's role in shaping firm performance in a developing economy context and offers actionable insights for businesses and regulators aiming to enhance profitability through technological integration.

Suggested Citation

  • Amir, Muhammad Sikander & Ali, Amjad & Audi, Marc, 2025. "Artificial Intelligence Investment and Firm Profitability: Evidence from Pakistan’s Financial and Audit Sectors," MPRA Paper 127314, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:127314
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/127314/1/MPRA_paper_127314.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Khalid Jamil & Wen Zhang & Aliya Anwar & Sohaib Mustafa, 2025. "Exploring the Influence of AI Adoption and Technological Readiness on Sustainable Performance in Pakistani Export Sector Manufacturing Small and Medium-Sized Enterprises," Sustainability, MDPI, vol. 17(8), pages 1-28, April.
    2. Cheng Hsiao, 2007. "Panel data analysis—advantages and challenges," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 16(1), pages 1-22, May.
    3. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    4. Paul Turner, 2020. "Critical values for the Durbin-Watson test in large samples," Applied Economics Letters, Taylor & Francis Journals, vol. 27(18), pages 1495-1499, October.
    5. Pesaran, M. Hashem & Vanessa Smith, L. & Yamagata, Takashi, 2013. "Panel unit root tests in the presence of a multifactor error structure," Journal of Econometrics, Elsevier, vol. 175(2), pages 94-115.
    6. Xin Du & Hengming Zhang & Yawen Han, 2022. "How Does New Infrastructure Investment Affect Economic Growth Quality? Empirical Evidence from China," Sustainability, MDPI, vol. 14(6), pages 1-30, March.
    7. Arellano, M, 1987. "Computing Robust Standard Errors for Within-Groups Estimators," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(4), pages 431-434, November.
    8. Viswanath Venkatesh & Fred D. Davis, 2000. "A Theoretical Extension of the Technology Acceptance Model: Four Longitudinal Field Studies," Management Science, INFORMS, vol. 46(2), pages 186-204, February.
    9. Birger Wernerfelt, 1984. "A resource‐based view of the firm," Strategic Management Journal, Wiley Blackwell, vol. 5(2), pages 171-180, April.
    10. Muhammad Khalid Anser & Muhammad Asif Khan & Mohammed Arshad Khan & Wang Huizhen & Ahsanuddin Haider, 2024. "The effectiveness of emerging markets’ legal structure in explaining financial development," PLOS ONE, Public Library of Science, vol. 19(4), pages 1-19, April.
    11. Wamba, Samuel Fosso & Gunasekaran, Angappa & Akter, Shahriar & Ren, Steven Ji-fan & Dubey, Rameshwar & Childe, Stephen J., 2017. "Big data analytics and firm performance: Effects of dynamic capabilities," Journal of Business Research, Elsevier, vol. 70(C), pages 356-365.
    12. Abdulkarim Hamdan J. Alhazmi & Sardar M. N. Islam & Maria Prokofieva, 2025. "The Impact of Artificial Intelligence Adoption on the Quality of Financial Reports on the Saudi Stock Exchange," IJFS, MDPI, vol. 13(1), pages 1-38, February.
    13. Cheng Hsiao, 2007. "Rejoinder on: Panel data analysis—advantages and challenges," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 16(1), pages 56-57, May.
    14. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dinesh Ramdas Pai & Siddharth Bhatt, 2023. "Is suggestive selling effective in increasing sales? Investigating its role in store promotion strategy using retail chain data from the U.S," Journal of Marketing Analytics, Palgrave Macmillan, vol. 11(1), pages 32-40, March.
    2. Shahzad, Umer & Madaleno, Mara & Dagar, Vishal & Ghosh, Sudeshna & Doğan, Buhari, 2022. "Exploring the role of export product quality and economic complexity for economic progress of developed economies: Does institutional quality matter?," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 40-51.
    3. Hafiz M. Sohail & Mirzat Ullah & Muhammad Shahzad Nazir & Canqing Tang, 2025. "Unveiling the financial pathway to human development: insights from non-linear ARDL and Granger causality analysis," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-17, December.
    4. Alshubiri, Faris, 2021. "Financial deepening indicators and income inequality of OECD and ASIAN countries," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).
    5. Faris Alshubiri, 2022. "The Impact of the Real Interest Rate, the Exchange Rate and Political Stability on Foreign Direct Investment Inflows: A Comparative Analysis of G7 and GCC Countries," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(3), pages 569-603, September.
    6. Austmann, Leonhard M. & Vigne, Samuel A., 2021. "Does environmental awareness fuel the electric vehicle market? A Twitter keyword analysis," Energy Economics, Elsevier, vol. 101(C).
    7. Kouton, Jeffrey, 2019. "The asymmetric linkage between energy use and economic growth in selected African countries: Evidence from a nonlinear panel autoregressive distributed lag model," Energy Economics, Elsevier, vol. 83(C), pages 475-490.
    8. Christopher Dick-Sagoe & Ernest Ngeh Tingum & Peter Asare-Nuamah & Denis N. Yuni & Nicholas Baidoo, 2025. "Central transfers and incentives to collect local revenue among the Central Region of Ghana’s local government officials: analysing the flypaper effect," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-12, December.
    9. Hany Eldemerdash & Hugh Metcalf & Sara Maioli, 2014. "Twin deficits: new evidence from a developing (oil vs. non-oil) countries’ perspective," Empirical Economics, Springer, vol. 47(3), pages 825-851, November.
    10. Noor Zainab.Tunggal & Shariff Umar Shariff Abd. Kadir & Venus-Khim Sen Liew, 2018. "Panel Analysis of Monetary Model of ASEAN-5 Exchange Rates," International Business Research, Canadian Center of Science and Education, vol. 11(11), pages 1-7, November.
    11. Martey, Edward & Etwire, Prince Maxwell & Abdoulaye, Tahirou, 2020. "Welfare impacts of climate-smart agriculture in Ghana: Does row planting and drought-tolerant maize varieties matter?," Land Use Policy, Elsevier, vol. 95(C).
    12. Faris Alshubiri, 2022. "The financial competition, concentration and structure of financial performance nexus in the financial sector of Oman," Economic Change and Restructuring, Springer, vol. 55(2), pages 681-714, May.
    13. Naeem Tabassum & Satwinder Singh, 2020. "Corporate Governance and Organisational Performance," Springer Books, Springer, number 978-3-030-48527-6, January.
    14. Pei-Tha Gan, 2019. "Economic uncertainty, precautionary motive and the augmented form of money demand function," Evolutionary and Institutional Economics Review, Springer, vol. 16(2), pages 397-423, December.
    15. Alexandra Lavinia Horobeț & Irina Mnohoghitnei & Emanuela Marinela Luminița Zlatea & Alexandra Smedoiu-Popoviciu, 2023. "Determinants of E-Government Use in the European Union: An Empirical Analysis," Societies, MDPI, vol. 13(6), pages 1-17, June.
    16. Hyunsoo Kang, 2021. "CO 2 Emissions Embodied in International Trade and Economic Growth: Empirical Evidence for OECD and Non-OECD Countries," Sustainability, MDPI, vol. 13(21), pages 1-20, November.
    17. Ryan H. Murphy & Colin O’Reilly, 2019. "Applying panel vector autoregression to institutions, human capital, and output," Empirical Economics, Springer, vol. 57(5), pages 1633-1652, November.
    18. Vithessonthi, Chaiporn & Tongurai, Jittima, 2015. "The effect of firm size on the leverage–performance relationship during the financial crisis of 2007–2009," Journal of Multinational Financial Management, Elsevier, vol. 29(C), pages 1-29.
    19. Bhatt, Siddharth & Pai, Dinesh R. & DelVecchio, Devon, 2023. "The dark side of multiunit discounts: Multiunit discounts reduce rest of basket revenue," Journal of Retailing and Consumer Services, Elsevier, vol. 72(C).
    20. Vyshnevskyi, Iegor & Jombo, Wytone & Sohn, Wook, 2024. "The clarity of monetary policy communication and financial market volatility in developing economies," Emerging Markets Review, Elsevier, vol. 59(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:pra:mprapa:127314. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    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.