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

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.