Impact of investment decisions and interest rate on firm’s financial performance of fuel and energy sector of Pakistan

Abstract

The purpose of this study is to examine the investment decisions and financial performance of the 21 companies listed on the Karachi Stock Exchange of the fuel and energy sectors over the six years (2013-2018) and to establish relationships between investment decisions. This study uses static panel and dynamic panel analysis on cross-sectional time series. The capital structure included long-term loan plus short-term liabilities that is equal to total debt after this we add total equity i.e. equal to total assets as well. While returns on assets and return on equity are evidence of a firm's financial performance. Literature shows fixed assets as tangibility, tax paid, business risk, and liquidity as capital structure determinants whereas the firm's age and size, exchange rate are some extra determinants those have an extraordinary impact on investment choices, they will be incorporated in the investigation as they are supposed to affect firm's performance. Outcomes show that performance of the firm's in fuel and energy sector of Pakistani is strengthening when they withdraw from debt and work based on owners' equity. Though, this appears that fuel and energy firms do not possess enough own funds to tackle secure investments and cause improper use of their assets. When of an increase in taxes and high exchange rates volatility, profit-making corporations reduce their assets to reducing their input costs. There is evidence of risky performance in fuel and energy firms; It reveals a needs of decision about debt at the time when firms face financial challenges circumstances and they are suffering extra risks, or if they cannot resolve their obligations due to a shortage of cash in hand. Due to lacking data concerning debt-equity ratios, results are negatively significant. Besides, the empirical regression analysis relating to return on equity demonstrates a diminished proportion of its difference. © 2020 SERS.