Do Investment Efficiency and Earnings Quality Matter for Firm Performance? Evidence from an Emerging Economy

Abstract

Firms need efficient investment decisions and reliable financial reporting to improve performance. Poor investment decisions and weak reporting quality can decrease the profitability and investor confidence. This study examines the effect of investment efficiency and earnings quality on the firm performance of non financial listed firms in Pakistan. The study uses panel data from 350 firms covering the period from 2020 to 2025. The study applies two-step system GMM regression analysis. The findings show that investment efficiency has a positive and significant effect on firm performance. The results also indicate that earnings quality positively affects firm performance. The study concludes that efficient investment decisions and high-quality financial reporting improve profitability and financial performance. The findings support the agency theory and provide recent evidence from an emerging economy. The study offers useful implications for policymakers in improving corporate performance and financial reporting practices in Pakistan.