Impact of China–Pakistan Economic Corridor on Pakistan stock market and firm performance

Abstract

China–Pakistan Economic Corridor (CPEC) is game changer series of projects for Pakistan initiated by China under its main project of One Belt One Road (OBOR). It is the largest investment ever made in Pakistan by a single foreign country. This study contributes in literature by examining the impact of CPEC on stock returns using event study approach. Sample period under investigation is since 2013 (inception of CPEC) to 2019. To further analyze whether this effect differs across sectors, we estimate the cumulative abnormal returns over sectors. Moreover, this paper attempts to explore whether the impact of CPEC is penetrated even to firm level or not. For this purpose, the median equality test is used to examine the impact of CPEC on financial and operational performance of non‐ financial firms listed in Karachi Stock Exchange. It is found that the impact of CPEC on stock market is positive but insignificant which shows that exceptionally good performance of stock market may not be attributed to CPEC. The effect of CPEC is mixed at sectoral level too. Nevertheless, significant positive effect is observed at financial and operational performance of firms.