Impact of Capital Adequacy, Management Soundness, and Sensitivity to Market Risk on Firm Financial Performance with a mediation of Dividend Policy: Empirical Evidence from Pakistan

Abstract

The Purpose of this research is to find out more about the impact of Capital adequacy, Management Soundness, Sensitivity to market risk and Dividend Policy on firms’ financial performance using data of 101 listed companies of Pakistan base on their market capitalization, over a period from 2013 to 2018. Regression model analysis (GLS), fixed effect model analysis and random model analysis are employed while using different variables Firms’ performance is considered as the dependent variable and is measured by, Return on Asset (RoA) and Returns on equity (RoE). Capital adequacy (CA) includes total asset and total equity of the firm and same with management soundness used total operational income with respect to total operational expenses and sensitivity to market risk uses total asset of the firm with total asset of the sector and Dividend pay-out ratio (DIV). The findings reveal that sensitivity to market risk has negative significant impact on FFP and management soundness has positive significant impact on FFP and Capital adequacy has negative insignificant impact on FFP. The results shows that dividend policy significantly positively mediate between CA and FFP and same with ME and SE but significantly negatively mediate.