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

article

Abdul Quddus¹  Drahomira Pavelkova¹  Sarfraz Hussain²  Tien Phat Pham³ 

[1] Faculty of Management and Economics, Department of Finance & Accounting Tomas Bata University in Zlin;Azman Hashim International Business School, University of Technology Malaysia;Faculty of Management and Economics, Tomas Bata University in Zlin, The Czech Republic School of Economics, Can Tho University

关键词: Economic policy uncertainty;    Financial leverage;    Firm performance;    Intangible assets;    Investment;    Pakistan.;   

DOI  :  10.55493/5002.v12i11.4660

学科分类：社会科学、人文和艺术（综合）

来源: Asian Economic and Social Society

【 摘 要 】

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.

【 授权许可】

CC BY