Multidimensional perspective of Corporate Capital Efficiency and Financial Risk policies lead on Capital misallocation: The case of Pakistan

Abstract

This work uses innovative and traditional analyses and explores innovative financial frameworks to increase capital efficacy, decrease financial risks, and address capital mismanagement issues. The analysis is carried out on Pakistan's listed non-financial companies' data, obtained from the Pakistan stock exchange (PSX). Pooled OLS and the robust, truncated, random-effect regression model were used for the analysis. According to the findings, capital mismanagement was quantified through the asset returns' dispersion and return on capital employed. Capital mismanagement was higher in the traditional analysis and lower in the innovative analysis. Traditional financial analysis shows a significant and positive relationship between capital efficiency and capital mismanagement, while innovative financial analysis shows a negative relationship. In contrast, according to innovative financial analysis, financial risk and capital mismanagement have a negative relationship. Capital mismanagement was a major impediment to firms moving towards greater capital efficiency. Policy evaluation should contrast changes in two financial analytic approaches for measuring capital and resource mismanagement.