IMPACT OF INVESTMENT AND FINANCIAL RISKS ON FINANCIAL INDICATORS OF INVESTMENT AND SECURITIES FIRMS IN
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
Ahmed, A., Rehan, R., Chhapra, I. U., &Supro, S. (2018). Interest Rate and Financial Performance of Banks in Pakistan. International Journal of Applied Economics, Finance and Accounting, 2(1), 1-7.
Ali, M., &Puah, C. H. (2019). The internal determinants of bank profitability and stability: An insight from banking sector of Pakistan. Management Research Review, 42(1), 49-67.
Amin, M. A. M., Sanusi, N. A., Kusairi, S., &Abdallah, Z. M. (2018). Inverse relationship of financial risk and performance in commercial banks in Tanzania. Innovations, 11, 4-1.
Barry, T. A., Tarazi, A., &Wachtel, P. (2018).Falling under the control of a different type of owner: risk-taking implications for Banks. Applied Economics, 51(8), 831-847.
Bikker, J.A &Metzemakers P.A.J (2005). Bank Provisioning Behaviour and Procyclicality, Journal of International Financial Markets, Institutions and Money, 15(2), 141-157.
Chol, B. B., Nthambi, E., K. &Kamau, J., N. (2019). Influence of bank stability on the financialperformance of commercial banks in southsudan. American Journal of Finance, Vol.4,(1), pp 20-30.
Cooperman, E., Mills, D., & Gardner, J. (2000).Managing Financial Institutions. An Asset/Liability Approach.
Crowther, D. & Lancaster, G. (2008) “Research Methods: A Concise Introduction to Research in Management and Business Consultancy” Butterworth-Heinemann
Das, C. P., & Swain, R. K. (2018).Influence of Capital Structure on Financial Performance. Parikalpana-KIIT Journal of Management, 14(1), 161-170.
Ding, N., Fung, H. G., &Jia, J. (2017). Comparison of Bank Profitability in China and the USA. China & World Economy, 25(1), 90-108.
Ekanayake, E. M. N., &Wanamalie, H. A. (2017). Income Diversification and Bank Risk-Return Trade-Off: Evidence from an Emerging Economy. Asian Economic and Financial Review, 7(7), 644-655.
Ezenwakwelu&Chinweobi (2018).Capital Structure and Commercial Banks Performance in Nigeria.International Journal of Social Sciences and Humanities Reviews, Vol.8 No.2, p.226 – 241.
Figner, B., & Weber, E.U. (2011). Who takes risks when and why? Determinants of risk taking.Current Directions in Psychological Science, 20, 211-216.
Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance.Pearson Higher Education AU.
Gujarati, D. N., & Porter, D. C. (2009). Basic Econometrics (5th edition). Kuala Lumpur: McGraw-Hill Higher Education.
Gul, S., Irshad, F., &Zaman, K. (2011).Factors Affecting Bank Profitability in Pakistan. Romanian Economic Journal, 14, 39.
Gull, A. and Zaman, A. (2013). Interest rate fluctuations and financial outcomes of banking sector: A case study of Pakistan. International Journal of Research in Commerce & Management, 4(07), 125-129.
Gathara, Z. M, Kilika, J. M., &Maingi, J. N. (2019). Effect of Leverage on Financial Performance ofSelected Companies Listed in the Nairobi SecuritiesExchange, Kenya.Int. J. Innovative Finance and Economics Res. 7(1); 10-33.
Hafeez, M. M., Khan, H. H., Majeed, F., &Azeem, A. (2018). Impact of Capital Structure on Islamic Banks Performance: Evidence from Asian country. Global Journal of Management and Business Research.
Hussain, A., Hussain, AB., & Khan, Y. (2017) Risk taking behavior of commercial banks in Pakistan. City University Research Journal, 7, 317.
Ibrahim, M. H., &Rizvi, S. A. R. (2018). Bank lending, deposits and risk-taking in times of crisis: A panel analysis of Islamic and conventional banks. Emerging Markets Review, 35, 31-47.
Islam, M. A., Sarker, M. N. I., Rahman, M., Sultana, A., &Prodhan, A. S. (2017).Determinants of Profitability of Commercial Banks in Bangladesh. International Journal of Banking and Financial Law, 1(1), 1-11.
Josef, A.K., Richter, D., Samanez-Larkin, G.R., Wagner, G.G., Hertwig, R., & Mata, R. (2016). Stability and change in risk-taking propensity across the adult life span. Journal of Personality and Social Psychology, 111, 430-450.
Khan, W.A &Sattar, A. (2014).Impact of Interest Rate Changes on the Profitability of four major commercial banks of Pakistan.International Journal of Accounting and Financial Reporting, 4(1), 142.
Lee, C. C., Hsieh, M. F., & Yang, S. J. (2014). The relationship between revenue diversification and bank performance: Do financial structures and financial reforms matter? Japan and the World Economy, 29, 18-35.
Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77-91.
Modigliani, F., & Miller, M. H. (1958).The cost of capital, corporation finance and the theory of investment. The American, 1, 3.
Moudud-Ul-Huq, S. (2019). Can BRICS and ASEAN-5 emerging economies benefit from bank diversification? Journal of Financial Regulation and Compliance.
Moudud-Ul-Huq, S., Ashraf, B. N., Gupta, A. D., &Zheng, C. (2018). Does bank diversification heterogeneously affect performance and risk-taking in ASEAN emerging economies? Research in International Business and Finance, 46, 342-362.
Nassar, S. (2016). The impact of capital structure on Financial Performance of the firms: Evidence FromBorsa Istanbul. Journal of Business and Financial Affairs, 5(173), 2167-0234.
Nepali, S. R. (2018). Income diversification and bank risk-return trade-off on the Nepalese commercial banks. Asian Economic and Financial Review, 8(2), 279-293.
Odonkor, T. A., Osei, K. A., Abor, J., &Adjasi, C. K. (2011).Bank risk and performance in Ghana. International Journal of Financial Services Management, 5(2), 107-120.
Ogunbiyi, S. S., &Ihejirika, P., (2014). Interest Rates and Deposit Money Banks' Profitability Nexus: The Nigerian Experience. Arabian Journal of Business and Management Review, 34(2350), 1-16.
Paulinus, E. C., & Jones, A. S. (2017). Financial Risk Management and Corporate Performance Of Deposit Money Banks In Nigeria. Archives of Business Research, 5(12).
Platanakis, E., Sakkas, A., & Sutcliffe, C. (2019). Harmful diversification: Evidence from alternative investments. The British Accounting Review, 51(1), 1-23.
Pomorina, M.A. 2014. The concept of strategic financial management in banking.Palmarium
Academic Publishing, 534.
Rahman, S. M. K. (2018). Impact of Debt Financing on Financial Leverage Risk of Firms: A Comparative Study between Listed MNCs and Domestic Companies of Bangladesh. Global Journal of Management and Business Research.
Righi, M. B., &Borenstein, D. (2018). A simulation comparison of risk measures for portfolio optimization. Finance Research Letters, 24, 105-112.
Rusanov, Yu.Yu. 2004. Theory and practice of risk management of credit institutions in
Russia. Moscow, Economist, 190.
Sabin, D., &Miras, H. (2015). Debt level and firm performance: A study on low-cap firms listed on the Kuala Lumpur stock exchange. International Journal of Accounting, Business and Management, 1(1), 1-17.
Sarmiento, M., &Galán, J. E. (2017). The influence of risk-taking on bank efficiency: Evidence from Colombia. Emerging Markets Review, 32, 52-73.
Sivalingam, L., &Kengatharan, L. (2018). Capital Structure and Financial Performance: A Study on Commercial Banks in Sri Lanka. Asian Economic and Financial Review, 8(5), 586.
Song, W. Y. (2017). The Performance and Risk of Heineken Malaysia Berhad.MPRA Paper.
Tan, Y. (2016). The impacts of risk and competition on bank profitability in China. Journal of International Financial Markets, Institutions and Money, 40, 85-110.
Tarraf, H., &Majeske, K. (2013).Impact of risk taking on bank financial performance during 2008 financial crisis. Journal of Finance and Accountancy, 13, 1-18.
Trabelsi, M. A., &Trad, N. (2017). Profitability and risk in interest-free banking industries: a dynamic panel data analysis. International Journal of Islamic and Middle Eastern Finance and Management, 10(4), 454-469.
Van Horne, J. C., &Wachowicz, J. M. (2005). Fundamentals of financial management.Pearson Education.
Wisdom, M. O., &Isiaka, M.A (2018).Risk management and financial performance of deposit money banks in Nigeria.European Journal of Business, Economics and Accountancy, 6, 2.
Zhou, P. (2018). The Impact of Institution Factors on Commercial Banks’ Risk in China. Journal of Financial Risk Management, 7(02), 157.
- There are currently no refbacks.