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Sensitivity of Firms’ Investment and Cash Flow: A Case Study of Manufacturing Sector of Pakistan

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  • Mughees Tahir Bhalli
  • Shahid Mansoor Hashmi
  • Arslan Majeed

Abstract

This study investigates that either the firms in manufacturing sector of Pakistan are facing external financial constraints or not along with that this study also explores investment cash flow sensitivity in different regimes. We used a panel data of 500 manufacturing sector firms over the period of 1974 to 2010 and the sample is divided into different time periods on the basis of different political regimes, pre and post financial sector reform era in the history of Pakistan. Generalized Method of Moments, one step and two step estimation techniques have been applied for analysis. Results obtained for the full sample indicates that overall firms are not facing external financial constraint. The analysis of financial constrains in different political regimes reveals that merely from 1978 to 1988 firms were facing external financial constraints whereas empirical results for pre and post financial sector reform periods reveals that firms were facing tight external financial constraints in pre financial sector reform era as compared to post financial sector reform era.

Suggested Citation

  • Mughees Tahir Bhalli & Shahid Mansoor Hashmi & Arslan Majeed, 2017. "Sensitivity of Firms’ Investment and Cash Flow: A Case Study of Manufacturing Sector of Pakistan," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 20(64), pages 28-47, June.
    • Handle: RePEc:rej:journl:v:20:y:2017:i:64:p:28-47
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    More about this item

    Keywords

    Credit Constraints; External Financial Constraint; Investment Cash Flow Sensitivity; Pre and Post Financial Reforms; Political Regimes;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C87 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Econometric Software
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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