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DO THE INVESTMENT DISTORTIONS AFFECT THE PERFORMANCE OF NONFINANCIAL FIRMS OF PAKISTAN

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39 Pages : 392 - 405

http://dx.doi.org/10.31703/gssr.2021(VI-II).39      10.31703/gssr.2021(VI-II).39      Published : Jun 2

Do the Investment Distortions Affect the Performance of Non-financial Firms of Pakistan?

Abstract

    The investment decisions are very important for investors as it directly affects the firm's future profitability and shareholder's wealth. Firm managers are involved in making inefficient investment decisions in imperfect capital markets. This study aims to examine how the inefficient investment decisions influence the firm performance after controlling for the financial factors. The two steps System Generalized method of moments is used to examine the impact of investment distortion on firm performance. The empirical analysis is based on unbalanced annual panel data set of a sample of 324 non-financial firms listed on the Pakistan Stock Exchange for the period 2015 to 2017. The results show that investment distortion is negatively affecting the performance of non-financial firms in Pakistan; irrespective of the proxy used to measure the firm performance. These results support the information asymmetry theory and agency theory, which explains why managers are involved in making sub-optimal investment decisions at the cost of shareholders' wealth and why their inefficient investment decisions can damage the value of the firm.

    Agency Theory, Information Asymmetry, Investment Distortions, Performance

    (1) Sameen Aftab
    Lecturer, Faculty of Management Sciences, International Islamic University, Islamabad, Pakistan.
    (2) Faisal Rizwan
    Associate Professor, Faculty of Management Sciences, International Islamic University, Islamabad, Pakistan.
    (3) Abdul Rashid
    Professor, International Institute of Islamic Economics (IIIE), International Islamic University, Islamabad, Pakistan.
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Cite this article

APA

    APA : Aftab, S., Rizwan, F., & Rashid, A. (2021). Do the Investment Distortions Affect the Performance of Non-financial Firms of Pakistan?. Global Social Sciences Review, VI(II), 392 - 405. https://doi.org/10.31703/gssr.2021(VI-II).39

CHICAGO

    CHICAGO : Aftab, Sameen, Faisal Rizwan, and Abdul Rashid. 2021. "Do the Investment Distortions Affect the Performance of Non-financial Firms of Pakistan?." Global Social Sciences Review, VI (II): 392 - 405 doi: 10.31703/gssr.2021(VI-II).39

HARVARD

    HARVARD : AFTAB, S., RIZWAN, F. & RASHID, A. 2021. Do the Investment Distortions Affect the Performance of Non-financial Firms of Pakistan?. Global Social Sciences Review, VI, 392 - 405.

MHRA

    MHRA : Aftab, Sameen, Faisal Rizwan, and Abdul Rashid. 2021. "Do the Investment Distortions Affect the Performance of Non-financial Firms of Pakistan?." Global Social Sciences Review, VI: 392 - 405

MLA

    MLA : Aftab, Sameen, Faisal Rizwan, and Abdul Rashid. "Do the Investment Distortions Affect the Performance of Non-financial Firms of Pakistan?." Global Social Sciences Review, VI.II (2021): 392 - 405 Print.

OXFORD

    OXFORD : Aftab, Sameen, Rizwan, Faisal, and Rashid, Abdul (2021), "Do the Investment Distortions Affect the Performance of Non-financial Firms of Pakistan?", Global Social Sciences Review, VI (II), 392 - 405

TURABIAN

    TURABIAN : Aftab, Sameen, Faisal Rizwan, and Abdul Rashid. "Do the Investment Distortions Affect the Performance of Non-financial Firms of Pakistan?." Global Social Sciences Review VI, no. II (2021): 392 - 405. https://doi.org/10.31703/gssr.2021(VI-II).39