About Author: Nosheen Saba is doing MS in Project Management from Shaheed Zulfikar Ali Bhutto Institute of Science and Technology (SZABIST), Islamabad, Pakistan. Her main area of interest includes leadership, risk management and monitoring; evaluation of project management.

Research Paper-II

 The impact of firm and country level financial factors on firms’ financial performance under different economic conditions: A Case of Pakistan Cement Sector

Nosheen Saba

Registration No.



Masters in Sciences (Project Management)

Supervisor’s Name

Dr. Muhammad Naveed



SZABIST Islamabad Campus 



I hereby declare that this research paper, neither as a part nor as a whole has been copied from any source. It is further declared that I have developed this research paper on the basis of my sincere efforts and kind guidance of my supervisor. No portion of this work has been submitted in fulfilment of any other degree or qualification or in any other university. If this work found to be copied or used in prior fulfilment of any other degree or qualification in any other university, I will take the full responsibility and am liable for the consequences. Furthermore, the similarity index generated by Turnitin online plagiarism check software is within the acceptable range as per the SZABIST, Islamabad guidelines.


With the name of Almighty ALLAH the Most Gracious, the Most Merciful.

First of all I am quite grateful to Allah who gave me the courage and made me capable to accomplish this tiresome task of doing research, being a compulsory part of my degree and let his creature to be the source for my help.

I also pay my special thanks and deep oblige to my respectable supervisor for her interest and supervision with her great encouragement.

I am thankful to my beloved parents who appreciate me and their prayers greatly assist me to bring the fruitful result and my friends especially their support, encouragement and cooperation in every step of my research.

I also wish to express my special appreciation to all those other friends and colleagues who helped me in one or other way in this work.

Nosheen Saba


Originality Declaration 

I, hereby declare that the research submitted to R & DD by me, is my own original work. I am aware of the fact that in case my work is found to be plagiarized or not genuine, R&DD has the full authority to cancel my research work and I am liable to penal action.


Table of Contents


Acknowledgement iv
Originality Declaration v
Certificate of Approval vi
Abstract 9


1.1 Introduction
1.2 Background 12
1.2.1 Overall Condition of Pakistan Economy 13
1.3 Problem Statement 25
1.4 Research Questions 27
1.5 Research Objectives 27
1.6 Scope and Significance of Study 28
1.7 Gap Analysis 29
1.8 Aim of the Study 31


2.1 General Overview 33
2.2 Macroeconomic Indicators 34
2.2.1 Gross Domestic Product (GDP) 34
2.2.2 Inflation and CPI (Consumer Price Index) 35
2.2.3 Interest Rates 36
2.3 Firm Level Factors 37
2.3.1 Financial Model of Firm (Debt and Equity) 37
2.3.2 Firm Size 39
2.3.3 Business Risk 40
2.4 Theoretical Framework 41


3.1 Research Design 42
3.2 Research Approach 42
3.2.1 Sampling method 42
3.2.2 Sampling technique 42
3.2.3 Population frame 42
3.2.4 Sample of the study 43
3.2.5 Period of Study 43
3.2.6 Nature of Data 43
3.2.7 Source of Data 43
3.2.8 Data collection duration 44
3.3 Variables Formulation Table 44
3.4 Data Analysis Tool 45
3.5 Statistical Tools Applied 45
3.6 Econometric Model 45


4.1 Descriptive Statistics 46
4.2 Correlations 48
4.3 Regression 49


5.1 Conclusion 52
5.2 Limitations 53
5.3 Recommendation 54





Progressive economic growth in a county is essential for effective and sound financial performance of firms operating under different sectors. On the one hand firm’s level environment influence firms critical decisions and on the other, economic indicators drive an economy on the road to a certain direction and play a vital role influencing the firms’ performance. The financial performance of firms is dependent on internal and external factors which strategically influence firm’s decision making. This study has mainly focused on how different Macro Economics Indicators affect the firms’ financial performance and their effect on the corporate success of cement manufacturing firms. This study will therefore be relevant and beneficial to the finance managers of the concerned companies along with potential investors in stock market. Financial performance reacts differently under diverse economic conditions, this paper contributes showing how sensitive a firm could be towards different economic situations. By employing statistical tools (fixed estimator) on the data collected, empirical findings demonstrate that the key economic factors have an influence on capital structure decisions. Findings showed that GDP growth rate of Pakistan has a significant positive association with return on equity ratio whereas mix results are found while examining the relationship between macroeconomic indicators, firms’ level factors and return on equity (ROE) ratio. A negative association of consumer price index (CPI) with return on equity ratio shows lower return on equity of the firms when CPI escalates. The population of the study is the cement sector of Pakistan whereas the sample of the study is 20 listed companies of the same sector. The secondary data is collected form audited reports and economic surveys of Pakistan.

Keywords: Macro level indicators ꞏ﮳ Firm level factors ꞏ Firms’ financial performance ꞏ Financial ratios ꞏ Pakistan Cement Sector

Chapter 1


1.1      Introduction

The cement industry is usually referred to as the building block of a nation’s construction industry (Portland Cement Association, 2013). This is mainly due to the fact that there are very few construction projects that can occur without the use of cement in their structure. Usually utilization of cement is reliant on the time during the year and the prevailing weather setting (Portland Cement Association, 2013). The construction industry which relies heavily on the use of cement in most of their activities, plays an imperative part in the economy since these activities in the industry take part in a exceptionally imperative function in the attainment of country’s development goals in terms of providing shelter, infrastructure and employment (Mature, 2017). The services provided by the construction and engineering industry take part in a task in the economic growth and progress of a country (Mature, 2017).

Globally, the cement and construction industry is considered to be the largest fragmented industry. It is estimated that the annual global cement production is around 4.6 billion tones which translated to a 6.3% increase when compared to the 4.3 billion tones that was recorded in the year in 2014 (Association Européenne du Ciment the European Cement Association; CEMBUREAU, 2015). This is as a result of the increasing demand for cement in major emerging economies despite a global economic slowdown which occurred in the last quarter of 2015. The largest cement manufacturing country is China despite their economy experiencing a recession in the same year. Among the emerging economies the countries that experienced a growth in their cement production is Argentina and Saudi Arabia, while India suffered from a recession (Association Européenne du Cement the European Cement Association; CEMBUREAU, 2015).

At this particular point in time, construction industry is flourishing in Pakistan and is likely to make progress in the same or even with more vigor in the upcoming time. Though, to maintain vigorous capacity consumption tariffs, increased exports are required to be enhanced. The acceleration in construction segment movement and the government’s setup and housing initiatives has perceived cement feasting growing by 17.6 per cent in 2016 to reach 34.7Mt (Mt: million tons). Evolution in the cement sector has been reinforced by healthy internal demand, which has permitted local producers to rise capacity utilization tariffs. In the foremost 10 months (July-April) of FY16-17 (FY: fiscal year), the industry delivered 33.8Mt cement, showing overall YoY (YoY: Year over year) growth of 6.21 per cent with local ingestion increased by 10.74 per cent. (Sep 18, 2017; abbasisecurities.com/Cement%20Sector.pdf).







1.2 Background

As preceding number of years show, a variety of literatures have exposed that still there is still no unblemished compromise If the profitability elements of commercial banks are specific or macro-oriented to banks in Nigeria, because the readings at this time are very hazy.  Even though it has been dignified and hypothesized in various diverse means, typically, in developed economies, the link still remains a challenging construct in emergent economies. In other words, there have been quite a lot of presentations in diverse mediums, these are hypothetical in number and not experimental.

The commercial banks are the most vigorous commercial intermediaries which accomplish critical financial functions in divergent financial systems worldwide; they fit into place in risk rearrangement, handle with multipart monetary instruments and marketplaces, deliver marketplace visibility, provide imbursement method in its operations, to compete and measure resources and demand in monetary markets and also perform risk management functions.

Although new strategies for commercial banks have been introduced, especially in the development of products, market penetration strategies and facilities of various organizations, they have also helped bring with it new hazards as well, which banking institutions are required to be dealt with and overcome (Kenny, Jumoke, & Faderera, 2014).

The effectiveness of financial intermediation can also lead to the country’s economic progress and affect its long-term strength as banking institutions play an important role in the behavior of most countries as financial intermediaries.

Besides, any financial systems which may have a versatile consumer banking sector are superiorly capable to take over negative jolts and throw into the strength of the economic arrangements, therefore, bankruptcies of banks can bring about a systemic crisis (Olusanmi, 2015). Therefore, it is very important to comprehend the causes of success in the banking sector.

The commercial banks in Nigeria became more exposed to diverse varieties of hazards predominantly as a result of exceptional change over the time with respect to the number of bodies, ownership structure and control, and the level of functions (Olalere, 2016). The deregulation of the financial sector effects the variations in the sector, which escorted in plentiful prospects (Uwuigbe, 2015).

As a result, the technological progression, acceptance of regulatory guiding principles and the globalization of procedure in the area that adapts to worldwide standard are the far-reaching change that also stimuluses changes in the sector. Since a result of numerous financial hazards, bank turmoil and letdowns in 2005 and 2011 occurred and they exhibited the significance of risk management in financial institutions and the businesses in the real sector (Wan, 2016).

The Nigerian banking system has conventionally experienced a number of reconstructs in the former few years counting the era of widespread banking arrangement that legally permits commercial banks to service various sorts of activities in economic markets. Banks finalize most of the transactions and activities in the money and capital markets, and the consumer banking sector is one of the extremely essential mechanism towards financial evolution in Pakistan.


1.2.1 Overall Condition of Pakistan Economy:

Pakistans’ economy is the 5th prevalent on the whole planet and 42nd largest in terms of gross domestic product (GDP). This country is populated around 207 million (world’s 5th-largest) inhabitants, providing a supposed GDP per capita of $1,629, that positions 147th around the globe for the year 2016. Yet, Pakistan’s undocumented wealth is appraised as 36% of its entire financial system which is not engaged in attention once manipulating for each capita earnings. This country is an emerging state along with being one of the Next Eleven, the eleven nations which poses latent to be amongst the globes’ great economies into the 21st century.

Although in a later phase of conflict and social insecurity since 2013, there has been a huge shortage of elementary equipment such as rail and electricity. The economy is semi-volatile and the growth points are along the Indus River.

The development sites of the Pakistani wealth are on the Indus River. Diverse market of Karachi and the large metropolitan areas of Punjab coexist by way of the less industrial areas in supplementary parts of the state.

October 2016, more overseas exchange treasury $24 billions, which leads to a stable Outlook on the long-term evaluation in accordance with the standard & Poor’s long term rating. At the same time, Pakistan was named as one of the eleven rising economies by BMI research report with a particular spotlight on its manufacturing hub.

IMF chief Christine Lagarde established at the end of the year in 2016, economic assessment in Islamabad with the purpose of country’s financial system was “not in the crisis,” the World Bank expects with the aim of, by 2018 growth of Pakistan’s economy will breed by “reliable” 5.4% owing to a larger inflow of overseas investments, to be precise, the Sino-Pakistan trade and industry passage. As per the World Bank, the poverty rate in the country has decreased in massive substance, the financial arrangement in Pakistan progresses rapidly, at the same time as the finances shortfall declined from 6.4% in 2013, 4.3% in 2016 improvement in the macroeconomic position of the country has led to the modernization of Pakistan’s debt Moody prospects to “stable”.

-Low interest rates that have affected the 4-5 percent low encourage clandestine venture and increase in development.
– Returns expansion was still strapping. Tax revenue increased by 14% per annum

-Despite the post-earthquake relief and reconstruction costs, the shortfall stayed underneath or lowers 4% of GDP.

– In manufacturing sector, the gross domestic product share has increased from 14.7 percent to 19.1 percent in 2007.
-The savings rate rose to 23 percent in 2007, as average 18.6 percent in excess of preceding 03 years reflected a 4.4 percent dot increase in the speculation / GDP proportion.

-During this period, a considerable increase for overseas investment flows was observed, which sum to about 13.5 billion US dollars..

-The fiscal policy succeeded in boosting the economy at that time it was stumpy within the stumpy inflationary symmetry. Then, the strategy tightened so that inflationary pressures can be controlled by reducing the basic inflation. Nevertheless, the target of inflation has dropped due to comprehensive product prices growth over and above the ineffectiveness of wholesalers along with trade markets

-Capitalization of the capital market touched $ 7.51 billion and reached $ 65.9 billion by the end of 2007. During this period 60 new Mortgage Gross Markets were listed and 48 corporate bonds were issued.

-The average tariff is considerable. The average import tariff is 7.6%, the import duty on industrial machinery and equipment is reduced to 5%, the import tariff on agriculture is 0%, and the initial depreciation rate is allowed to be 50%. Free trade agreements were signed with Iran, Malaysia, Sri Lanka, China and Mauritius.

-Agricultural acclaim payment by financial institutions has increased multi times, and most loans went to diminutive farmers. in the same way, supplementary 1.2 million small loans without any guarantee of Finance has received a loan.

-Pakistan’s foreign currency earnings increased from approximately $ 16.8 billion to $ 46.0 billion. Except for overseas loans plus administrator expenditures, this amplified from $ 14.3 billion to $ 42 billion.

Before 2003:

Various external shocks and extreme an environment of uncertainty caused by the growth of a modest pickup next worse by the events of September 11 of the fiscal year 2001-02.
The economic downturn worsened by the events of September 11, the proliferation of catastrophic drought conditions and an increase in tension with India after the December 13 events are the major shocks that Pakistan prevented from rising economic growth in fiscal year 2001 to achieve a higher growth.

The outgoing fiscal year was the hardest and difficult time on behalf of the global economy in wide-ranging and Pakistan in meticulous. Certain epoch-making events have been deployed on the intercontinental panorama with serious economic consequences. It is well-known that the global economy has already experienced a synchronized delay, along with the weakening in trade growth and declining commodity prices since late 2000.

In most cases, this synonym is the result of oil prices increase and the impact of a common storm with information technology (IT) bubble trap, both of which have had a global impact. For the first time since 1974-75, the world’s main economy had shrunk a lot.

2003 onwards until 2007-08 (Growth period)

In this sub-time, Pakistan’s economic performance is remarkable in stipulations of for each capita income, employment creation and poverty diminution. The rate of GDP intensification has increased by 6.3 per cent annually intended on behalf of few years, and the per capita earnings in up to date dollars is raised in folds. GDP growth was 3.1 percent in 2001/02, rising 7 percent in 2006/07.

-Foreign swap over reserves increased to US $ 14 billion, including six-month imports from US $ 6.4 billion in fiscal year 2002

-Revenue augmentation remains physically powerful. income tax revenue doubled by 14% per annum in five years.

-The monetary policy was initiated by the start of the economy when it was underpinned by lower inflationary balance. The policy will be cut short by lowering inflationary pressures by decreasing central part in price rises. On the other hand, the price increases intention has been lost for the reason to the rise in international article of trade prices in addition to inefficiencies in across-the-board and put on the markets.

– Standard rates decreased considerably. Import rates of an average of 7.6 per cent and import, machinery and equipment imports were condensed to 5% and for the agricultural part to zero %, while 50% opening downgrading payment was allowed. Complimentary do business agreements have been established with several other countries.

-Agricultural credit payments through financial institutions increased six times in addition to the largest part of the credit increased to diminutive farmers. Similarly, added 1.2 million borrowers acknowledged micro financing.

– Pakistan’s overseas trade pay packet almost tripled on or after $ 16.8 billion within FY05 to $ 46.0 billion. exclusive of foreign loan payments and authorized grants, the increase recorded was $ 14.3 billion to $ 42 billion.

2007-08 onwards until 2011-12 (Crisis Era)

From 2007-08 has been a problematic time meant for the country’s financial system. It is necessary to know that the centerpiece of development is decreasing and that short-term defeats from the troop have been accomplished. In the past nine months, the economy has been able to master the following:

– Monetary shortfall but not limited in the approaching three months, would go beyond 7-8 percent of GDP rupturing the maximum value recommended in the Fiscal Accountability Act.

-Deteriorating traffic disproportion is stimulating exterior existing version shortfall to surpass 6 percent of GDP.

– Overseas investment increases necessary to backing the in progress financial credit deficit are lower than most recent time and are likely to not assemble the funding prerequisite.

– Inflationary compressions have exaggerated fundamentally for the purpose to extraordinarily far above the ground food price rises that is throbbing the underprivileged and the unchanging revenue groups severely.

-As communal spending exceeded income recovery, management loans from the State Bank of Pakistan rose in the opening 09 months of fiscal year to Rs.359 billion, compared with Rs.26 billion in the consequent phase of the previous economic year.

-The result of such excessive government loans was a spiky expansion in currency make available to 17.6% which remunerated the Central Bank’s hard work to squeeze fiscal policy.


2012-13 onwards- until 2016-17 (recovery period)

Whilst existing government came to influence in 2013, it devoted a great deal of attention to the resumption of the economy and achieved considerable amounts in a short time and restored economic stability. Then, with the procedures to re-establish macroeconomic strength, the management takes a central spotlight on elevated GDP levels, which will improve the cost of livelihood for people with higher levels of overnight stays, more work, etc. After 2013-2014, the economy showed a slightly rising upward trend. The Real Cemetery program was more than four hundred in 2013-14 and rose steadily to 5.28 percent in 2016-17, the highest in 10 years

Pakistan has a huge potential economic opportunity. Price Water House Coopers released in 2017 that by 2030, Pakistan will turn out to be the 20th largest economy in the world and 16 in 1650. Many other popular international publications such as Brukburg, economist, etc.. have mentioned Pakistan over the last four years in the same regard. The development of flexible financial policies, the development of money, the private sector loan, the focus of small-scale activities, the realization of real growth in the sector, such as the aid measures, especially for the agricultural sector, is this remarkable growth.

The outbound exercise has seen an remarkable escalation in agricultural production and the service segment in the running financial year. The agricultural segment has achieved its growth target of 3.5%, assisted by the State prop up policy and the increase in agricultural acclaim payments. In 2015-16, the agricultural line of credit was in close proximity to to RS 600 billion, while in 2016 the goal was greater than before to Rs 700 billion. In July-March 2016-17, the benefit was pragmatic at 23 percent superior compared to the preceding year. These developments, as well as the Prime Minister’s Kissan package of agriculture, as well as other mitigation actions, began with optimistic results. Large-scale production is based mainly on quantum indices (QIM) manufacturing data, which shows an augment of 5.06% between July 2016 and March 2017. The main contributors to this growth are sugar (29.33%), cement (7.19%), tractors (72.9%), trucks (39.31%) and buses (19.71%). The strong growth of sugar is based on the production of 73.9 million tons of sugarcane compared to 65.5 million tons last year, representing a raise of 12.4 percent.


The overall picture could be appreciated as follows:

A downward go round has been knowledgeable by the cost-cutting measure throughout 2006-207. The year 2008-09 came in the midst of exceptional challenge for the economy, fading the spot of numerous financially viable variables in the country. Up till now the financial system appears on the trail and a reclamation configuration from the time when 2009-10 over and done.








Interest Rate

2003 4.70 3.10 0.231
2004 7.70 4.57 0.456
2005 7.52 9.28 1.911
2006 5.56 7.92 6.774
2007 5.54 7.77 4.189
2008 4.99 12.00 0.237
2009 0.36 17.03 5.079
2010 2.58 10.10 2.88
2011 3.62 13.66 4.368
2012 3.84 11.01 7.125
2013 3.68 7.36 4.693
2014 4.05 8.62 4.02
2015 4.04 4.81 5.807
2016 4.71 3.20 8.164


Table: 1 GDP, CPI, IR per Year

Above table shows the GDP, CPI and interest rate from 2003 till 2016.








1.3 Problem Statement

Kenya National Bureau of Statistics (2016) mentions in its report, the structure business are one of the sectors that is currently enjoying a continued state of growth. The consumption of cement in the country has as a result also increased in tandem with the growth in the building and construction sector. There are currently no studies on the effects of macroeconomic indicators on the financial performance of firms in this sector.

The effectiveness of Macro Economics Indicators on Financial Performance of firms has been considered to be vital, in every enterprise because the challenge of Macro Economics Indicators become to save you and locate fraud inside the firm. Internal controls are set to make sure secure custody of all property, to avoid misappropriation of the firm’s property and to come across and protect in opposition to probable frauds. Every firm whether production or non-production, ought to have control of the very best qualifications, quality and determination considering its inception. The management need to meet regularly to check the affairs of the firm and to direct the strategic course of the company and additionally make sure continued intention congruence (Olalere, 2016).

(Wan, 2016) carried out a look at and determined out that some of the demanding situations skilled in regard to Macro Economics Indicators encompass; struggles with liquidity problems, economic reports aren’t made well timed, accountability for economic assets is trying, frauds and misuse of institutional assets have been unearthed and a number of selections made have now not yielded the anticipated outcomes.

Olalere (2016) stated that size and evaluation of performance is valuable to managers, and addresses the questions what took place, why it passed off and what to do about it. Monetary overall performance gives quick time period comments to the manipulate structures  as  they  reveal  the  implementation  of  strategic targets  by using  checking  the  organizations role,  speaking  the  position, confirming  priorities  and  compelling  development (Uwuigbe, 2015).

This study therefore aims to bridge the gap by undertaking on the same. The corporate objective of firms is to maximize the profits and shareholder’s wealth. Thus this study has mainly focused on how different Macro Economics Indicators affect the various financial performance ratios and their effect on the corporate success of cement manufacturing firms. This study will therefore be relevant and beneficial to the market (Olusanmi, 2015).

The objective of this paper is to identify key drivers of profitability in the cement sector in the five-year period from 2003 to 2016. The analysis will be presented on available data from 20 cement companies representing approximately 87% of the industry sales.

This research paper will consider the empirical evidence those macroeconomic factors such as GDP, interest rate and inflation with reference to their perspective impact on the firms’ performance. Using a sample size of 20 companies from cement sector constituting approximately 87% of sectors’ sales, considering the direct and inverse relationships of variables, demonstrate the findings of research




1.4 Research Questions

  • What is the impact of macroeconomics indicators on firms’ performance in Pakistan’s’ cement sector?
  • What is the impact of firm level factors on firms’ performance in Pakistan’s cement sector?
  • Whether and how the impacts of different economic conditions on financial performance of cement sector remain same or different?

1.5 Research Objectives

  • To investigate the impact of macroeconomics indicators on firms’ performance in cement sector of Pakistan?
  • To explore the impact of firm level factors on firms’ performance in Pakistan’s cement sector?
  • To find out whether and how the different economic conditions impact on firms’ performance of cement sector in Pakistan i.e. it remains same or different?


1.6 Scope and Significance of Study

This research is beneficial to stakeholders with the highest stake in the company. Interest rates are changing for Cement as well as interest rates. Investors will invest in this sector during the implementation of this sector. This study is useful for students seeking guidance for their future research and for entry into this category. With this research, financial support from cement sector is supported. Policy makers are also buttressed by this study.

1.7 Gap Analysis

Macroeconomic factors such interest rate, gross domestic product (GDP), exchange rate, inflation and money supply affects the financial performance of cement industry particularly and any other segment generally in a number of ways. Financial results are more often than not referred to analyzing and interpreting fiscal statements, it is interrelated to the progression of decisive a business’s weaknesses by establishing premeditated relationships between financial strength and line items balance, income statement and any other operating combustion data

This allows the management of the company to be able to better understand the relationship between component parts of a financial statement so as to better understand the position of the firm. The main objective of the financial examination is to clarify the information present in the accounts to accurately identify the effectiveness and solvency of the company. In a broader sense, financial results refer to the extent that the company’s financial goals are consummated (Devi & Sabari Nathan, February 2015).

Kenya National Bureau of Statistics (2016) mentions in its reports that the production industry is one of the sectors that is currently enjoying a continued state of growth. The consumption of cement in the country has as a result also increased in tandem with the growth in the building and construction sector. There are currently no studies that have been conducted on the effect of internal factors on the trade and industry recital of firms in this subdivision.

The effectiveness of Macroeconomic factors on economic overall performance of the firm has been considered to be vital, in every enterprise because the challenge of Macroeconomic factors become to save you and locate fraud inside the firm. Macroeconomic factors are set to make sure secure custody of all property, to avoid misappropriation of the firm’s property and to come across and protect in opposition to probable frauds. Every firm whether production or non-production, ought to have control of the very best qualifications, quality and determination considering its inception. The management needs to meet regularly to check the affairs of the firm and to direct the strategic course of the company and additionally make sure continued intention congruence (Mature, (2017).

A study by Loh, C. Z. (2017) was conducted on Risk factors, macroeconomics factors and on profitability and suggested to conduct further studies on same topic but in different sector.

Another study Yahya, Akhtar & Tabash (2017) conducted a study on political volatility, macroeconomic and bank-specific factors on the productivity of Islamic financial institution, this study also suggested strong need to conduct study on different sector with checking different macro-economic factors impact on different financial indicators.

Loh, C. Z. (2017) conducted a study to check relationship between financial performance, leverage and inflation. This suggested that there is need to conduct more studies on macroeconomics factors in different sector and with different macroeconomics factors.

Many studies in past were conducted on macroeconomics factors in banks and stock market while checking their impact only on ROA, leverage cash management. (Cashin, Mohaddes, & Raissi,. (2017) and (Ji, X., Martin, and J. S., & Yao, Y. (2017). So current study will be first of its nature and will also follow previous studies suggestions to cover aspects which they couldn’t cover.

There was therefore a gap in literature as far as the study on the effects of macroeconomic variables on monetary presentation of cement segment in Pakistan as there no study on cement sector where impact of macroeconomic variables on financial performance is seen. Thus this study sought to fill this research gap by answering the following question: How do macroeconomic variables affect the financial performance of cement zone in Pakistan?

1.8 Aim of the Study

The endeavor of this paper is to investigate the effect of macro level indicators on performance of firms in the cement sector in Pakistan. There are several number of macroeconomic factors which exist (like) but we are focusing of three of them as GDP, interest rate and inflation reason being these are the factors normally studied based on the literature review up to my knowledge (which could possibly be limited).

The main objective of the study is to find the impact of macroeconomics to investigate the fixed performance relationship, to measure the impact of macroeconomic on business performance and to highlight the impact of macroeconomics. In addition, this study also tends to give recommendations for top management and decision makers of the cement sector to deal with macroeconomic variables under management and / or not. This study provides guidance to the cement industry to improve the financial performance of their company.

Pakistan’s economy continues to achieve grip as it is the greatest game of its best intensification in existence. Outcomes of the gregarious financial time point out that Pakistan’s exciting economic momentum remains on track. Economic growth accelerated to 7.0 per cent in 2006-07 despite strong escalation in crop growing, industrialization and services. Pakistan’s expansion concert over the past five years is remarkable. Standard factual GDP increase in 2003-07 was the most excellent show in view of the fact that a lot of decades, and Pakistan at the present seems to have conked out of the low expansion advantage

With monetary development of 7.0 percent in 2006-07, Pakistan’s actual GDP grew 7.0 percent a year over the precedent five years (2003-07), 7.5 percent in the last four years (2004-07). Compared to further economies in Asia, Pakistan represents one of the best ever upward economies in the region, with China, India, and Viet Nam.



Chapter 2


2.1 General Overview

Chioma, Eyisi & Ebue (2015) said inflation had an impact in four ways that could cause an amendment in profitability, with the first ways to change the fund’s cost of financing the company, secondly the rising cost of raw material, labor and also the product, third is the amount of tax that has to be paid and finally the level of demand. While inflation based on research Sukri (2015) said that price rises has given the negative relationship with the credit threat.

Profitability is the primary objective of all business enterprises. Without profit, the company will not survive long-term. Measuring current and past profitability and anticipating future profitability is very important. Profitability is measured with earnings and expense. Revenue is money that is generated from the company’s activities. For example, if crops and livestock are produced and sold, revenue is generated. But the money that comes through activities such as borrowing money does not generate income. It is simply a cash transaction between a company and a money provider to raise money for managing a business or buying assets.               Profitability can be viewed at the same time as a measurable relation idiom in provisions of profit and its relationship to other fundamentals that can openly pressure revenue. Productivity is the association between revenue and a balance sheet measure that indicates the relative capacity to make profits on assets. Regardless of the fact that profitability is an important aspect of the business, it may face some weakness, for example, the covering of monetary connections and the use of different accounting principles. (Waemustafa, 2015)


2.2 Macroeconomic Indicators

2.2.1 Gross Domestic Product (GDP)

(GDP) is the most commonly used macroeconomic indicator for measuring total economic activity in an economy. The GDP growth rate reflects the state of the business cycle and is expected to have an impact on the demand for bank loans. Economic conditions and the specific market environment would affect the mix of assets and liabilities of the bank. Nadeem M., Ahmad R., Ahmed A., Ahmad N., Batool S.R., and Rehman K. U. (2015) suggested that GDP should influence many factors related to the supply and demand of loans and deposits.Favorable economic conditions will positively affect the demand and supply of banking services. The growth and profitability of the Bank is limited by the rate of growth of the economy. If the economy grows at a good pace, a well-run bank would benefit from securities lending and sales. Economic growth can improve the bank’s profitability by increasing the demand for financial transactions, that is, the demand for loans from households and businesses. Solid economic conditions also characterized by strong demand for financial services, increasing cash flows, profits and non-interest income of the bank. There is therefore a positive relationship between the gross domestic product growth rates and the bank’s profitability. In this study, profitability should have a significant positive relationship with GDP growth. The positive impact of GDP growth supports the argument of the positive correlation between growth and financial sector performance and is also confirmed by Batool & Rehman (2015). GDP is expected to affect the demand for bank loans, as the increase in bank loans increases the profitability of the bank.


2.2.2 Inflation and CPI (Consumer Price Index)

In general, CPI is associated with high interest rates and high income. Loh, (2017) stated that the expected inflation is positive, while unexpected inflation negatively affects the profitability of the banks. There is a positive correlation between the expected inflation and the performance of the bank, because this gives banks the opportunity to adjust the interest rate accordingly, so that revenues rise faster than the costs. This means higher profits and, conversely, the unexpected inflation indicated a positive relationship between inflation and bank profitability. Higher inflation leads to higher credit rates and therefore higher income will be generated by the bank. 8 Inflation has a negative effect on the profitability of banks if wages and other costs (overhead) grow faster than inflation. Yao, (2017).               Claims also that the effect of inflation on the bank’s performance depends on whether or not expected inflation is expected. If inflation is expected to be fully and the interest rate will be adjusted accordingly, a positive impact on profitability will be shown. Alternatively, an unexpected increase in inflation causes cash flow difficulties for borrowers, which may lead to early termination of loan agreements and the reduction of loan losses. In fact, if banks are slow in adjusting their interest rates, there is a possibility that banks’ costs may rise faster than bank revenue. Raise (2017) also concludes that high and variable inflation can lead to difficulties in planning and negotiating loans. The results of the relationship between inflation and profitability are mixed. Empirical studies of Cashin, (2017) for Malaysia and Akhtar (2017) to Hong Kong show that high inflation rates lead to higher banks’ profitability. However, the survey of Yahiya (2017) reports a negative inflation factor for European countries. In addition, Tabash (2017) states that banks in developing countries tend to be less profitable in inflationary environments, especially when they have a high capital ratio. In these countries, bank costs actually increase faster than bank revenue.

2.2.3 Interest Rates

Interest rate is the price a borrower pays for the use of money he borrows from a lender / financial institution, or the fee for borrowed property. Chioma, (2015) Interest can be considered as a “money rent”. Interest rates are fundamental to a “capitalist society” and are usually expressed over a period of one year as a percentage. The interest rate as a monetary price reflects market information about the expected change in the purchasing power of money or future inflation (Ebue, 2015). It is generally accepted that fluctuations in market interest rates have a significant impact on the performance of commercial banks. “According to Samuelson Moturi, (2017) In general conditions, banks’ profits are rising as interest rates rise The entire system is no longer significantly affected by a rise in interest rates.

2.3 Firm Level Factors

2.3.1 Financial Model of Firm (Debt and Equity)

A company’s capital structure is referred to the company’s funding through various sources such as equity (common and preferred equity) and debt (short and long term). The company calibrates its debt option to finance its transactions by issuing bonds to the public with the specific fixed interest rate or borrowing from the banks in the form of banknotes classified as long-term debt; another option to finance the company’s operations is from equity source by Issue common stocks and preferred stocks to the public. A company’s capital structure also includes short-term debt in the form of corporate capital requirements. Capital structure refers to as the organization’s mix of debt and equity financing, as they finance their funds for investment from two sources either to borrow from the bank called debt or issue their shares to the public called equity financing.

According to Saleem (2013), the company’s capital structure is defined as the different financing options for the assets used by the company. The combination of debt and equity to finance the company’s long-term assets has been reported as the company’s capital structure. Debt and share capital are the basic components of the company’s capital structure. According to Lim (2012), the company makes up its money to finance its operations and how it balances its financing options, refers to the company’s capital structure. It represents the company’s entire capital in debt and equity trading to finance its business.   According to San & Hang (2011) to fund the company’s overall operation and growth by financing the assets from different sources, the company’s capital structure depends. According to Umar (2012), debt and equity are the most important financing options used by all companies. In order to run a company, the intensity of debt or stock options that the company uses for financing the company’s business represents the capital structure. If the organizations fund through debt, they must pay the interests of the banks and if they fund through equity, they must give the shareholders a share of their profits and sometimes generate the retained earnings account which they have not distributed to shareholders but reflect their profits.

The association linking debt and profitability of companies has been a focus for a lot of researchers for decades, but there is a dissimilarity of belief stuck between various researchers regarding the job of debt, some researchers found negative (Abor 2005), some found positive (Margrates & Psillaki 2010 ), while some mixed results of debts found profitability (Weill 2008). This disagreement is due to many reasons, including different types of variables, sample size (countries, industries / sectors, companies and periods) and methodologies.

Wippern (1966) exercised debt on the equity ratio and examined a number of industries in the earnings market relationship and established that there was a encouraging relationship amid liability and profitability. Abor (2005) research proved to be the similar. He considered more than a few of Ghana’s publicly traded companies and found that there is a positive relationship between short-term debt and balance sheet total and return on equity. Gill, et al., (2011) tried to use Abor (2005) research by investigating a 272 New York listed service and manufacturing company. His outcome showed correspondence with Abor’s research. Margrates & Psillaki (2010) moreover bring into being a positive impact and showed that the debt proportion has a positive impact on the company’s performance. Holz (2002), Sarkar and Zapatero (2003), Dessi & Robertson (2003), Baum et al. (2006), and many other researchers also found a positive impact. Contrary to a positive relationship; The pessimistic outcome of the liability on profitability was also strengthened. Mendell (2006) studied 20 forest industry companies. His fallout reflected the existence of a negative relationship between debt and profitability. Mohammad & Jaafer (2012) studied 39 Amman listed companies and analyzed the role of debt profitably. His results showed a important, but depressing, relation linking short-term liability, long-term debt, totality of debt and pay back on equity.

Kebewar (2013) made a study on French companies. His research was based on 2,232 trading companies for eight years, 1999-2006, that the debt negatively affects profitability. Anandasayana & Subramaniam (2013) considered industrialized companies scheduled on the Colombo Stock Exchange and established a significant relationship between debt and profitability. Wali, Fatima & Mehboob (2012) studied seventeen (17) textile companies who were listed on KSE’s long-term data in 2003-2007 and found that short-term liabilities pessimistically affect abundance.

Cheng, Liu & Chien (2010) examined 650 Chinese companies and the results showed a favorable relationship when the debt ratio (53.97% -70.48%) was found to be negative when the debt ratio exceeded 70.48%. Dwilaksono.H (2010) investigated the impact of the short and long-term debt on the profitability of the mining companies quoted on the Indonesian Stock Exchange in 2003-2007 and found a negative but significant relationship between long-term debt and profitability.

2.3.2 Firm Size

Magnitude of the effect on debt ratios is theoretically unclear; a number of authors have a positive relationship between size and leverage; several others noted a unconstructive relationship, and others also found a statistically insignificant relationship between them. Mary et al. (2011) on recent activities in actively listed companies in Egypt, the findings of the estimated model and various other tests confirm a significant positive relationship between the size of the business and the debt-to-equity ratio. This finding meets the results of other empirical studies around the world. These results also confirm that big companies take on higher debt because they are less risky and diverse (static compromise theory). In addition, bigger companies prefer to issue more debt because it reduces the costs of bankruptcy directly due to market reliability. Moreover, smaller companies prefer to acquire lower debt, as these companies could be in danger of being liquidated in times of financial difficulty during the financial crisis. Contrary to the above, Faris (2010) found that leverage and corporate size were negative. Dilek et al (2009), using panel data analysis for Turkish companies in the period 2000-2007, was quite different. And they claim that the company size coefficient is statistically insignificant and also its coefficient is about zero



2.3.3 Business Risk

Despite the broad consensus that fixed risk is an important inverse determinant of corporate debt policy, empirical investigation has led to conflicting results. For example, unusual Rafiq et al. (2008) found a positive relationship between gearing and risk. Similarly, an empirical study by Mary et al. (2011) on the determinants of the capital structure of listed Egyptian companies also indicates a positive correlation between business risk and leverage, which contradicts the theoretical background and results in most developed and developing countries. However; most theories and empirical findings (Titman & Wessels 1988) indicate a reverse relationship between risk and debt ratio.





2.4 Theoretical Framework















Independent Variables (IVs)                                                            Dependent Variable (DV)



H1: GDP impacts firms’ performance

H2: CPI impacts firms’ performance

H3: Interest rate impacts firms’ performance

H4: Firms’ financial model impacts firms’ performance

H5: Firms’ size impacts firms’ performance

H6: Business risk impacts firms’ performance



Chapter 3



3.1 Research Design

The current study is a descriptive study and deductive in nature, the reason for using this type of study is to describe the relationships of the research variables. Descriptive research does not fit neatly with the definition of quantitative or qualitative research methodologies, but rather uses elements of both, often within the same study.

. This study is particularly quantitative based on secondary data and availability of balanced data.

3.2 Research Approach:

3.2.1 Sampling method

In this study non-probability sampling method is used. A key feature of non-probability sampling techniques is that samples are chosen based on the subjective judgment of the researcher, rather than random selection. This study contains data based on the availability of balanced data (A balanced data set is a set containing all elements in all timeframes) of the company.

3.2.2 Sampling technique

The convenience sampling technique is used in this study because elements selected are accessible for the study and ideal for meeting objectives.

3.2.3 Population frame

In this study the population of the study is whole cement sector of Pakistan as the reason to select this population is to make study generalize.

3.2.4 Sample of the study

The sample of this study is 19 companies working in cement sector of Pakistan (which are listed in Pakistan Stock Exchange limited) representing approximately 87% of the industry sales.

3.2.5 Period of Study

In this research the data will be studied from 2003 till 2016.

3.2.6 Nature of Data

In this research paper, secondary data will be used which refers to the data that was collected by someone other than the user (i.e. myself) for the same or some different purpose.

3.2.7 Source of Data

Data will be collected from:

3.2.8 Data collection duration

Data was collected in a semester time i.e. four months

 3.3 Variables Formulation Table

    Independent Variable Measurements Empirical Evidence


Macro Economics Indicators


·       GDP





·       Inflation (CPI)





·       Interest Rate



Firm Level Indicators

·       Financial model of firm




·       Firm s’ size



·       Business Risk



Annual growth rate of economy


Annual consumer price index



Nominal interest rate



Debt/Equity or Assets (whichever is available)

Annual Sales


Steady sales every year



Osamwonyi, I. O., &Michael, C. I. (2014).


Osamwonyi, I. O., &Michael, C. I. (2014).


Osamwonyi, I. O., &Michael, C. I. (2014).



Mohammad & Jaafer (2012)


Kinde, M. B. A. (2013)


Kinde, M. B. A. (2013)

Dependent Variable Measurements Source

Firms’ Performance


Return on Equity (ROE)


Kanwal, S., & Nadeem, M. (2013).


3.4 Data Analysis Tool

In this study data will be analyzed by using SPSS 22 to make study customized and get statistical significant result of the study.

3.5 Statistical Tools Applied

  1. Descriptive Statistics
  2. Correlation Matrix
  3. Regression Analysis (fixed effect regression)

3.6 Econometric Model

The regression equation will appear as:

Y= Constant+ B1X1+ B2X2+ B3X3+B4X4+B5X5+B6X6+Error term


= α + GDP +  CPI +  Interest rate+ Firms’ financial model

+  Firms’ size+   Business risk+ ꞓ

Chapter 4


4.1 Descriptive Statistics


Descriptive Statistics

Obs        Mean       Std. Dev.          Min                  Max



Dependent variable

ROE                212      10.90052       50.71592         -22.57345          29.89587

Macro level indicators

GDP                224     4.508437        01.809548        00.36                07.7

CPI                  224     6.486339        01.682847        03.1                  17.03

IR                    224     3.935982        02.494872        00.231              08.164

Firm level factors

logSAL            224     15.60599        01.245103        12.10349          18.29303

DE                   224      0.5811557     00.2456461      00.0857143      00.9717804

BRisk              215     0.9076174      00.8757697      00.0119027      04.530733


Descriptive statistics analyzes the average value, range and dispersion of values of the underlying variables. The mean values of variables demonstrate the average value of all firms included in the sample for each year.

Standard deviation among variables represents the extent of dispersion in the data from the mean value.

The values of range shows the difference between the highest and lowest values in the observation a variable attained in the sample data.

The debt-to-equity ratio (D / E) is a financial relationship indicating the relative ratio of shareholders equity and debt used to fund a company’s assets. Closely related to lever action, the ratio is also known as risk, lever or lever. It has mean value of 10.9. The dispersion is 50.71 which is very high as the sample contains all the firms with different sizes. Here the min value of ROE is -22.573 showing there are certain companies which are in loss as having negative value of return on equity.

Pakistan average GDP remained around 4.5 showing a very less variation of around 1.8 in all last thirteen years of time.

Whereas Consumer price index (inflation) and interest rate showed an average value of 6.48% and 11% respectively during last thirteen years. Also the number of observations is also different at diverse places as there was data of few of the companies was missing.



  • Correlations



   ROE       logSAL     DE      BRisk     GDP      CPI       IR


Dependent Variable

ROE                            1.0000

Macroeconomic indicators

GDP                            0.2245    0.0302    -0.1007   0.0529    1.0000

CPI                              -0.0628   0.0176    0.0228    -0.0030   -0.0976   1.0000

IR                                -0.40     0.0183    -0.5585   -0.0115   -0.3711   0.2560   1.0000

Firm level factors

logSAL                        0.1780    1.0000

DE                               0.0975    0.3294    1.0000

BRisk                          -0.4715   -0.4401   -0.2048   1.0000

Correlation analysis confirms the level of association among variables. The table reveals positive correlation between return on equity and size i.e. 178. Business risk and Interest rate are negatively related to return on equity.

GDP and ROE are positively related to each other which shows with the increase of GDP return on equity goes up, explains if the health of economy is good, business flourish and ultimately firms make profits with higher ratio of ROE.

CPI and ROE are negatively related to each other explaining in case of rise in inflation, raw material and wages get expensive and ultimately return on equity goes down.

Interest rate goes up and firms’ expenses increase in terms of paying back the interest on debt taken from the banks, eventually making the returns on equity less.

In the same manner, if the business risk is higher, returns of equity shrinks.


  • Regression


Fixed effects are used when time invariant characteristics are expected to influence the outcome. In this study every company has its own individual characteristics that may or may not affect the lagged value of dividends and investments. It is assumed while using fixed effect that something within the organization may have an impact on dividends and investment values or return on assets and that should be accounted for. This is the rationale behind the assumption of the correlation between company’s error term and lagged value of dividends and investments.  The use of fixed effect regression eliminates the impact of those time-invariant characteristics from the independent variables. This enables to capture the true effect of independent variables on the dependent variable.




Fixed-effects (within) regression             Number of obs        =    209

Group variable: id                                    Number of groups  =    20

R-sq:  = 0.4529                                           F (6,120)                  =    3.89


Fixed Effect Regression (2003-2016)


Coef.       Std. Err.                  t       P>|t|         [95% Conf. Interval]



Macroeconomic indicators

GDP       0.9665214     00.2520141        -03.83    0.000      -2.65412      3.774711

CPI         0.5476147     00.25470451      02.17     0.761      -4.007158    5.462387

IR           -0.7367908    00.3797891        -01.94   0.075      -2.717873   0.5298454

Firm level factors

logSAL      -5.484541     06.421256           -0.85      0.395     -18.19818    7.229099

DE         16.26785       28.96644            0.56       0.575      -41.0836     73.61937

BRisk        -1.35066        00.5194873        -02.60    0.010     -1.80178      2.230811

Const          130.1384       101.1001            01.29     0.200      -70.03283   330.309


Regression analysis technique is utilized to analyze the dependent-independent relationship in the model. Before conducting the regression analysis, the existence of any multicollinearity among the variables was examined. In this concern, a correlation analysis was performed. The results of correlation analysis confirmed the nonexistence of multicollinearity.

For further study, fixed effect regression analysis was performed. Value of R-square shows that 45% variation in the dependent variable is explained by the model. Furthermore, at 5% level of significance GDP and bussiness risk appears significant and interest rate seems significant at 10%. Business risk and interest rate have negative impact on profitability, whereas GDP has significant positive impact on financial performance.



To check the economic sesitivity of macro and firm level on cement we have segregatted the periods in three eras, i.e.

  • 2003-2008 (Growth)
  • 2009-2011 (Crisis)
  • 2012-2016 (Recovery)

The data has been divided accordingly and the fixed effect regression is run on it seperatly to find out the effect of macro and firm level indicators and factors respectivly, how the different factors (variables prooved to be significant or insignificant under diverse circumstanses).




Fixed-effects (2003-2008) regression

                                                                         Number of obs         =    90

Group variable: id                                            Number of groups =    19

R-sq:  within  = 0.2774   


Fixed-effects (2003-2008) regression

         ROE |      Coef.   Std. Err.             t            P>|t|            [95% Conf. Interval]

BRisk   |  -.389103     .3006181       -0.13      0.897         -1.413623     5.635418

DE    |   1.550984   3.941172       0.39       0.695         -6.347302      9.44927

logSAL|   1.535082   3.977938       0.39        0.701         -6.436884     9.507048

GDP  |   1.245802   .3161934       3.94        0.000        -2.851581    7.343185

CPI    |   1.257126   1.014995      1.24         0.221        -.7769694    3.291221

IR     |  -1.823785   1.248326      -1.46       0.150        -4.325487    0.677917

_cons   |  -21.64297   64.13982     -0.34        0.737           -150.182         106.8961

F test that all u_i=0:     F(18, 55) =     5.36              Prob > F = 0.0000


For further study, fixed effect regression analysis was performed on the first period i.e. 2003 to 2008 also called the growth period. Value of R-square shows that 27% variation in the dependent variable is explained by the independent variable.

Number of groups are 19 comprising 90 obervations in total. Furthermore, at 5% level of significance, there is only one variable i.e.  GDP appears significant and impacts on financial performance of the firms. It shows during the growth period when GDP was going up due to huge foriegn investment and caused by an increase in agreggate demand, firms were making huge profits ultimatly ensuring high return on equity.


Fixed-effects (2009-2011) regression

           Number of obs         =        46

Group variable: id                                                   Number of groups   =        18

R-sq:  within  = 0.4327                        


Fixed-effects (2009-2011) regression

        ROE |       Coef.           Std. Err.        t          P>|t|          [95% Conf. Interval]

BRisk  |      -1.886793    0.4904243     -3.84    0.040      -2.8603687   7.260812

DE    |      3.200222     1.940059       1.65     0.115      -1.045338     4.007602

logSAL|     3.838277      1.455461       2.64     0.016      .791963        6.884591

GDP  |     0.9669318    .8417694      1.15      0.265      -.7949118    2.728775

CPI    |     0.1821749    .7951445      0.23      0.821      -1.482082    1.846431

IR     |     -.8693625     2.019788      -0.43    0.672      -5.096828     3.358103

_cons   |     -54.26982     25.30325      -2.14    0.045      -107.2301    -1.309504

F test that all u_i=0:     F(17, 19) =     4.14              Prob > F = 0.0019


Again, fixed effect regression analysis was performed on the second period i.e. 2009 to 2011 also crisis period. Value of R-square shows that 43% variation in the dependent variable is explained by the independent variable.

Number of groups are 18 comprising 46 obervations in total. Furthermore, at 5% level of significance, there are two variables i.e.  Business Risk and Firm Size which appear significant and impacts on financial performance of the firms. It shows during the crisi period when Business Risk was higher due to huge reducedforiegn investment and very less growth  caused by an a smaller amount in agreggate demand, firms were making undersized profits ultimatly ensuring low return on equity.Sales also decreased due to low foreign and local investment ultimatly consequential low return on equity.




Fixed-effects (2012-2016) regression

            Number of obs        =     73

Group variable: id                                                    Number of groups  =     19

R-sq:  within = 0.5726                       


Fixed-effects (2012-2016) regression

         ROE |        Coef.         Std. Err.            t           P>|t|            [95% Conf. Interval]

BRisk   |      -.4318672    0.1966902       -2.20      0.033        -5.112693      7.514984

DE    |     1.201145      3.134814         0.38       0.703         0.0357128      1.828021

logSAL |     -1.123267     2.845434        -0.39      0.695         -6.854265      4.607732

GDP  |      11.49748      9.909467        1.16        0.252        8.461212       31.45617

CPI    |      -.0297958    1.102771         -0.03      0.979         -2.25089        2.191298

IR     |      -2.953433    1.495643         -1.97      0.054         -6.083838      .1769731

_cons   |      3.929101       59.7663          0.07       0.948        -116.4464      124.3046

F test that all u_i=0:     F(18, 45) =     9.10              Prob > F = 0.0000


The third time, fixed effect regression analysis was performed on the next period i.e. 2012 to 2016 also called recovery period. Value of R-square shows that 57% variation in the dependent variable is explained by the independent variable.

Number of groups are 19 comprising 73 obervations in total. Furthermore, business risk is significant at 5% whereas interest rate is found to be significant at 10% level of significance.




Anticipated Hypothesis Actual Hypothesis Accepted/Rejected
H1: GDP impacts firms’ performance H1: GDP impacts firms’ performance Accepted
H2: CPI impacts firms’ performance H2: CPI impacts firms’ performance Rejected
H3: Interest rate impacts firms’ performance H3: Interest rate impacts firms’ performance Accepted
H4: Firms’ financial model impacts firms’ performance

H5: Firms’ size impacts firms’ performance

H6: Business risk impacts firms’ performance


H4: Firms’ financial model impacts firms’ performance

H5: Firms’ size impacts firms’ performance

H6: Business risk impacts firms’ performance








Chapter 5


5.1 Conclusion

The aim of this study is to analyze the impact of macro level indicators and firm factors on performance of firms in the cement sector of Pakistan. There are a number of macroeconomic factors which exist (like Gross National Product, Gross Domestic Product, Stock Market, Manufacturing Activity, Inventory Levels, Retail Sales, Building Permits, Housing Market, Level of new business Startups, Income and Wages, Interest Rate, Corporate Profiles, Balance of Trade, Unemployment Rate, Consumer Price Index (Inflation), Currency Strength, Value of Commodity Substitute to U.S. Dollar etc) but we are focusing on three of them as gross domestic product, interest rate and inflation reason being these are the factors normally studied based on the literature review up to my knowledge (which could possibly be limited).

On the other hand firm level factors are; the supplier, reseller, customers, competitors, the general public, firm size, sales, profitability, growth, tangibility, liquidity etc, but we have chosen three of them; firm size, debt to equity and business risk.

Now we discuss the findings and its historical evidences from previous researches. Batool & Rehman (2015) confirmed positive impact of GDP growth supports the argument of the positive association between growth and firms’ financial performance.

The study of Yahiya (2017) nevertheless reports an irralavant coefficient of inflation for European countries. The same has been proved in Pakistani industory context with the background of cement sector in (in our study) in a way that CPI proved to be insignificant viewing that whether there is high or low inflation which might impact on the commodities used on a daily basis but in construction/cement utilization it has no effect. If a house construction has been decided, it will be built regardless of cements’ prices if it’s free or at the price that hit the air. Resultantly return on equity will stay irrelevant of high or low inflation.               Rosli (2017) found a positive relationship between interest rates and return on equity an indication that when interest rates increase commercial banks should put in place mechanism to deal with non-performing loans to minimize the adverse effects on bank performance. This research paper furthermore endorses this relation as the same has been proved by us, i.e; there is  a relationship between interest rate and return on equity.                There is differentiation of belief stuck between dissimilar researchers in relation to the function of debt, some researchers establish negative (Abor 2005), some institute positive (Margrates & Psillaki 2010), while some found miscellaneous outcome of debt on profitability (Weill 2008). This disparity of outlook is due to numerous reasons together with diverse types of variables, sample size (countries, industries/sectors, firms and periods), and methodologies. This papers’ research, data composed related to cement sector and the statistical tools applied on it, provide evidence that return on equity is irresponsive towards debt to equity ratio of the firm which demonstrates that whatever is the capital structure (debt to equity of the firm, whether it is higher debt or higher equity), the return on equity is unconcerned to this symphony.               The effect of size on debt ratios is ambiguous from the theoretical point of view; some authors encountered a positive relation between size and firms’ financial performance; some others reported negative relation and others also found statistically insignificant relationship between them Mary et al. (2011). Same is the case in current research paper, the firm size stays indifferent towards return on equity.               Rafiq et al. (2008) bring into being affirmative connection among return on equity and risk. Likewise, an empirical study by Mary et al. (2011) on the determinants of capital structure in listed Egyptian Corporations also indicates a positive relation between business risk and return on equity. This research paper verifies that there is some connection between business risk and return on equity at the same time as the re;lation has prooved significant amongst both.

The major aim of this study is to find the effect of macro-economic indicators and firm level factors on firm performance which was measured via return on equity in this paper. A smooth pattern of economic growth is crucial for the growth of our cement sector. Being a developed country, Pakistan has been facing a lot of social and economic challenges since the day it came into being.

A widespread investigation of economic factors from Pakistan’s economy points out that in spite of having lots many evil spots in the economic history, our economic condition exhibits up gradation in country’s active segments since the beginning of 2010. However, it is vital for our economy to track a recovery pattern subsequently coming out from a deep slump. For this, we requisite to have an active control over most important issues, like; the intensifying political strains between the political parties, terrorist happenings, fuel and energy crises, electricity shortages and increasing poverty etc. Structural improvements and technological improvements should bring about the cement firms. Only then we would be able to bring noticeable improvements among all economic sectors. Efficient and effective projections are necessary for the economists as well as financial analysts in order to drive our economy on the roads to success.

Moreover, this study also tends to provide recommendations for top management and decision makers particularly the people who wants to invest their money in stock market in cement sector. They have to understand the macro-economic variables which are and/or not under the control of management and firm level factors could possibly be under control of management.

As mentioned earlier in the gap analysis, ‘according to the Kenya National Bureau of Statistics (2016), the construction industry is one of the sectors that is currently enjoying a continued state of growth. The consumption of cement in the country has as a result also increased in tandem with the growth in the building and construction sector. There are currently no studies that have been conducted on the effect of internal factors on the financial performance of firms in this sector’ this paper has covered this gap by analyzing the firm level factors in relation to its effect on firms’ performance.




5.2 Limitations

In this study only three of country level and firm level factors on firms with factor were chosen and only their effect on firms’ performance was checked. There could be more indicators and factors included which would have result in further generalized findings.

Results were used in this study. In this study only 14 years data is taken on annual basis. In this study only cement sector was selected with 19 companies.

The Current research encountered the time constraint, only 14 years data is taken on annual basis, the future researchers can conduct the study by overcoming this constraint.

Further we investigated the impact of only one financial ratio i.r. debt to equity (at firm level and check its effect on return on equity. However, future researchers could be conducted by considering other dimensions of leverage/debt management

Lastly the study was conducted on cement sector of Pakistan. The future researcher can conduct this study in other sectors predominantly banking, pharmaceutical, Food & Beverages.

5.3 Recommendation

The major contribution of this paper towards literature is the probing of response of firm’s financial performance towards diverse firm and country level indicators and factors, showing how sensitive a firm could be towards different economic situations.

The major beneficiaries of this paper would be the financial managers working in cement sector of Pakistan. The potential investors of stock market could also get advantage of this paper understanding the future trends of firm and deciding whether to invest in a particular sector under certain economic conditions or not.

Moreover, this study also tends to provide recommendations for top management and decision makers particularly the people who wants to invest their money in stock market in cement sector. They have to understand the macro-economic variables which are and/or not under the control of management and firm level factors could possibly be under control of management.





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