Effect of Energy Crisis on Performance of Export and Non-Export Oriented Textile Companies in Pakistan

Abstract

Energy plays a pivotal role in industrial and economic progression of any country. Pakistan has been observing a persistent energy shortfall during last few decades. This energy crisis negatively affected the performance of many units and sectors of the economy. The present study aimed at investigating the overall and relative effect of energy crisis on performance of export and non-export oriented non-financial companies in Pakistan. The sample of the study was comprised of 118 listed companies selected from the textile sector. In the study, annual firm level data of 2004-2015 were utilized and empirical analysis was conducted by using panel data technique. Return on assets was the dependent variable and used as a proxy of financial performance for sample companies. Other firm level and macroeconomic variables having certain impact on performance of the companies were used as explanatory and control variables.  Effect of the energy crisis on performance of the companies was captured by adding a dummy variable in panel regression model. Relative effect across export and non-export oriented companies was examined with the help of interaction terms. Results of this study revealed that the performance of companies declined significantly during episodes of energy crisis in the country. The comparative analysis, however, didn’t report any significant difference for export and non-export oriented companies in terms of bearing the consequences of crisis. The study concluded that energy crisis negatively affected all the companies and sectors of the economy in Pakistan. Remedial measures should be taken to overcome the energy deficiency for stimulating the industrial and economic growth in the country.