IMPACT OF INVESTOR SENTIMENTS ON FIRM’S FINANCIAL DECISIONS AND PERFORMANCE: A CASE OF PAKISTAN

Abstract

This research attempts to explain the impact of investor sentiment on firms' financial decisions. By employing data of 217 non-financial listed companies of the Pakistan stock exchange, between 2011 to 2023, we attempted to uncover the impact of firm-specific investor sentiments on firms’ financial decisions and performance. Result of research reveals a significant negative relationship between firm-specific investor sentiment and financial decisions. This certainly shows that due to market imperfections, investor sentiments may affect and reduce the investment tendency. This is due to misalignment between the firm’s strategies and investor expectations. It is linked with macroeconomic structure, like capital constraints of the country, which generate a misfit between the firm's financial need and limited capital access. But found a significant positive relationship with firm performance. In addition to that, surprisingly, one of the investor sentiment measures shows an insignificant relation with financial decisions and performance. This research will help the investor to make an informed choice while investing.