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Significance of Internal Cash Flows on Investment of a Firm and Use of Cash Flow Sensitivity as Financial Constraints: A panel data Analysis
This paper tested the sensitivity of investment to the cash flow in non-financial (manufacturing and utility/service) companies listed at KSE from 2004 to 2011, using fixed effect model and GMM. Investment decisions in real assets of an organization are very crucial and are treated at the hub of an organization. Investments are financed by internal and external sources of financing. The internal source of financing is basically cash flows generated by a firm from its operations. The results reveal that the sensitivity is significantly higher for younger and low dividend payout companies. However, sensitivity with respect to size was not found significant, which means size of a firm has no impact on investment sensitivity due to its internal cash flows in Pakistan.
Dr. Allah Bakhsh
Assistant Professor, Department of Commerce, Bahauddin Zakariya University, Multan, Pakistan
Dr. Syed Zulfiqar Ali Shah
Associate Professor, Faculty of Management Sciences, International Islamic University, Islamabad, Pakistan
Muhammad Arif Nawaz
Ph. D Scholar, Department of Commerce, Bahauddin Zakariya University, Multan, Pakistan
Investment, Cash-flow, Tobin’s q, financial constraints