Impact Of Firm Age On Investment And Firm Performance: An Analysis Of Listed Non-financial Firms In Pakistan

ABSTRACT

Pakistan has grappled with a significant investment issue over the past few decades. This study endeavors to elucidate the impact of firm age on both investment and performance utilizing data from all non-financial firms listed on the Pakistan Stock Exchange (PSE) ranging from 2010 to 2022. For the analysis, the study employed both fixed effects and random effects models followed by the application of the Hausman test. The results show that there is a positive relationship between firm age and investment (working capital) which represents the short-term investment of a firm, in overall panel as well as at sectoral level. The study also revealed that there is also a positive relationship between firm age and investment (non-current assets) which indicates the long-term investment of the firm in overall panel as well as at sectoral level. Conversely, the study also investigate the impact of firm age on firm performance and find that in overall panel there is a negative relationship between firm age and performance. Sector-specific analysis further clarifies this relationship. In the textile, paper, food, information, communication, and transport services, as well as minerals manufacturing, petroleum, and motor vehicles, trailers, and auto parts sectors, firm age negatively impacts performance. However, in the sugar, cement, chemical products, pharmaceuticals, and electrical machinery and apparatus sectors, there is a modest improvement in firm performance over time.This study holds significant importance as it highlights the intricate issues related to investment and performance as a firm’s age. The findings suggest the necessity for policies that can aid Pakistani firms in enhancing their performance with increasing age. It will also provide financial incentives, grants, and access to capital for young firms to boost their investment capabilities and drive their growth and innovation it will also helps to promote the hiring and development of young talent in older firms. This can bring fresh perspectives and skills, potentially boosting performance and mitigating the adverse effects of aging.

Meta Data

Author: Wajeeha Zainab
Supervisor: Omer Siddique
Internal Examiner: Ahmed Fraz
External Examiner: Abdul Jalil

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