Does Political Instability Affect the Profitability of Cement Industry: An Empirical Evidence from Pakistan.

Abstract

The study examines the influence of political instability on the profitability of Pakistan's cement industry. Pakistan is known for its significant political volatility, making it an ideal context to study the impact of such instability on a key sector within a developing economy. Using Return on Equity (ROE) and Return on Assets (ROA) as measures of profitability, alongside data on political instability sourced from the World Bank Development Indicators, we also incorporate company size and leverage as control variables. Our analysis spans eleven years (2010–2020) and focuses on a sample of ten cement manufacturing companies. Employing a random effect panel regression model following the Hausman test, our results indicate that political unrest markedly diminishes profitability, as evidenced by both ROE and ROA. Notably, this impact is more pronounced in smaller firms, suggesting that larger firms exhibit greater resilience to political instabilities. Consequently, our findings underscore the importance of a stable political environment for fostering growth and fostering a conducive climate for business operations within the country.