IMPACT OF INVESTMENT AND FINANCIAL RISKS ON FINANCIAL INDICATORS OF INVESTMENT AND SECURITIES FIRMS IN

Fahad Khan Afridi

Abstract


The aim of this study is to investigatethe impact of investment and financial risks on financial indicators of investment and securities companies listed in Pakistan Stock Exchange after global financial crisis (2009-18) with help of Weighted Least Square regression analysis in SPSS-20. The sample selected through simple random sampling technique and consists of twenty firms, both large and small investment and securities firms. The accounting risks measure as investment risks;standard deviation of return on assets has significantly positive, while standard deviation return on equity significantlynegative related to profitability of investment firms. Similarly standard deviation of return on assets significant negatively and standard deviation of return on equity has significant positively related to the shareholder returns. The results identified that lower investment risk leadsto higher returns and higher riskleads tolower profitability. Most of the investment firms are in continues loss due to high investment risk level after global financial crisis. So investment firms should minimize their investment risk level with innovative, flexible, better, identifiable market based systemof revenues diversification to obtain higher profitability in Pakistan.

The financial leverage risk debt ratio has significantly negative related to ROA and significantly positive related to ROE. But debt to equity ratio has insignificantly related to financial indicators. Higher debt ratio leads to the lower profitability (ROA),but increasesshareholder returns. The higher financial leverage risk increases profit variations and further increasesthe risk but generates more returns to shareholders and less to the overall earnings. So it is important for management to hedge, design and allocate innovative and optimal financing mix that affected positively a firm performance. An interest rate has significantly negative related to the profitability, while insignificantly found to the shareholder returnsand firm size has insignificant relationship to the financial indicators.An innovative and better risk management system should be adopted by these investment firms to reduce and control different risks factors for long run profitability, stability and financial growth.

Key words: Investment Risks, Financial Risks, Interest Rate, Size, Financial Indicators, and Weighted Least Square Regression


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