Performance evaluation of Modaraba Companies in Pakistan

Abstract

Over the last three decades, Modaraba companies in Pakistan are the part of financial institutions. Among other, Modaraba companies are not performing well. Previously 52 modaraba companies were in Pakistan, however, at present only 26 companies are operative. Keeping in this view, the study understands that it is imperative to measure the performance of these modaraba companies. To measure the performance of modaraba companies in Pakistan during the period 2002-2009, three valuation models; Sharpe measure, Treynor measures and abnormal returns are calculated. Out of 26 companies, 14 are the part of the study due to their active trading on the stock market. The results indicate that only three companies are outperformed while the performance of the remaining companies is deteriorating. The study also highlights number of factors in respect of poor performance made by this important sector of the economy.