Impact of Financial Decisions on Firm Performance in Financial Distressed Firms Listed On Pakistan Stock Exchange

Abstract

The basic objective of this study is to examine the effect of financial decisions on firm financial performance in distressed firms listed in Pakistan stock exchange. Three main financial decisions are investigated in this research paper dividend, capital structure and investment decision. Balance sheet analysis was used in order to gather the relevant data required for the companies taken from Pakistan stock exchange list. A sample for this study involves the inclusion of 185 non-financial firms have been listed in PXE over the latest last eight years (2010-2017) panel data. OLS technique was used to check the regression analysis. The results from this investigation show that Dividend policy has statistically significant and positive effect on return on asset and has statistically insignificant positive effect on return on equity. The effect of capital structure on firm performance in distressed firm is also investigated with data of recent years (2010-2017) and the findings show that Capital structure has insignificant and negative effect on return on asset. Furthermore, other control variables included tax show highly significant positive relation with both return on asset and return on equity. Tangibility has negative relation with return on asset and return on equity in financially distressed firm. In relation to ROE the results show negative and highly significant relation of long-term debt with ROE. While for control variables liquidity and tangibility effect is negative on ROE. This study also investigated the effect of over investment on firm performance in distressed firms of the results shows that it has significant and positive effect on return. Under investment shows that it has significant and positive effect on return on asset and insignificant positive effect on return on equity.