Main Article Content
The current research investigates Econometric Analysis of Investment and Internal Finance under Asymmetric Information: A Case Study of Manufacturing companies of
Pakistan. This study also aims to explore the relationship between internal finance and corporate investment outlays of Pakistani manufacturing firms in the presence of asymmetric information in the capital market. The fixed effect model has been employed on a sample of conveniently selected 272 listed manufacturing firms (with 2720 observations) over the period 2001 to 2010. Two different proxies of asymmetric information (i.e. Firm size & age) are used. Based on each of these two measures the sample is split into two subsamples (i.e. Small & large size and young & old firms respectively). Firms with small size and young firms are facing the asymmetric information while the other two subsamples are not considered so. The results based on all of the two measures indicate that there is a statistically significant and positive relationship between investment and internal finance or the cash flows. The investment of those firms where there is asymmetric information (i.e. small size, and young firms) such firms are more sensitive to the changes in their internal finance.
Authors retain the copyright of their manuscripts, and all Open Access articles are distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided that the original work is properly cited.
The use of general descriptive names, trade names, trademarks, and so forth in this publication, even if not specifically identified, does not imply that these names are not protected by the relevant laws and regulations. The submitting author is responsible for securing any permissions needed for the reuse of copyrighted materials included in the manuscript.
While the advice and information in this journal are believed to be true and accurate on the date of its going to press, neither the authors, the editors, nor the publisher can accept any legal responsibility for any errors or omissions that may be made. The publisher makes no warranty, express or implied, with respect to the material contained herein.
2. Agca, S., & Mozumdar, A. (2007). The impact of capital market imperfections on investment-cash flow sensitivity. Journal of Banking & Finance., 32 (2), 207-216.
3. Aivazian, V. A., Ge, Y., & Qiu, J. (2005). The impact of leverage on firm investment: Canadian evidence. Journal of Corporate Finance, 11, 277-291.
4. Allayannis, G., & Mozumdar, A. (2000). Cash Flow, Investment, and Hedging. Working Paper , 1-45.
5. Almeida, H. (1999, April). Financial Constraints, Asset Liquidity and Investment. Working Paper, University of Chicago .
6. Almeida, H., & Campello, M. (2007). Financial Constraints, Asset Tangibility, and Corporate Investment. The Review of Financial Studies, 20 (5), 1429-1460.
7. Almeida, H., Campello, M., & Weisbach, M. S. (2004). The cash ﬂow sensitivity of cash. Journal of Finance, 4, 1777-1804.
8. Alti, A. (2003). How Sensitive Is Investment to Cash Flow When Financing Is Frictionless? The Journal of Finance, 58 (2), 707-722.
9. Arslan-Ayaydin, Ö., Ozkan, A., & Florackis, C. (2006). The Role of Cash Holdings in Reducing Investment-Cash Flow Sensitivity: Evidence from a Financial Crisis Period in an Emerging Market. Emerging Markets Review, 7 (4), 1-33.
10. Arslan-Ayaydin, O., Ozkan, A., & Florackis, C. (2006). The Role of Cash Holdings in Reducing Investment-Cash Flow Sensitivity: Evidence from a Financial Crisis Period in an Emerging Market. Emerging Markets Review, 7 (4), 1-33.
11. Ascioglu, A., Hegde, S. P., & B, M. J. (2007, october). Information asymmetry and investment–cash ﬂow sensitivity. Journal of Banking & Finance , 1036–1048.
12. Ascioglu, A., Hegde, S. P., & McDermott, J. B. (2007, october). Information Asymmetry and Investment-Cash Flow Sensitivity. Journal of Banking and Finance , 1036–1048.
13. Athey, M. J., & Reeser, W. D. (2000). Asymmetric Information, Industrial Policy, and Corporate Investment in India. Oxford Bulletin of Economics and Statistics, 62 (2), 267-292.
14. Baddeley, M. (2003). Investment Theories and Analysis. Cambridge: Palgrave Macmillan.
15. Baker, M., Stein, J., & Wurgler, J. (2003). When does the market matter? Stock prices and the investment of equity-dependent firms. Quarterly Journal of Economics, 118 (3), 969-1006.
16. Beck, T., Demirguc-kunt, A., Laeven, L., & Maksimovic, v. (2006). The Determinants of Financing obstacles. Journal of International Money and Finance, 25, 932-952.
17. Bernanke, & Gertler. (1990).
18. Bessler, W., Drobetz, W., & Grninger, M. C. (2011). Information Asymmetry and Financing Decisions. International Review of Finance, 11 (1), 123-154.
19. Bessler, W., Drobetz, W., & Gruninger, M. C. (2011). Information Asymmetry and Financing Decisions. International Review of Finance , 123-154.
20. Bhaduri, S. (2005). Investment, Financial Constraints and financial Liberalization: Some stylized facts from a developing economy. Journal of Economics, 16, 704-718.
21. Bharath, S. T., Pasquariello, P., & Wu, G. (2008). Does Asymmetric Information Drive Capital Structure Decisions? The Review of financial studies, 22, 3211-3243.
22. Bilsborrow, R. E. (1977). The Determinants of Fixed Investment by Manufacturing Firms in a Developing Country. International Economic Review, 18 (3), 697-717.
23. Bond, S., & Meghir, C. (1994). Dynamic Investment Models and the Firm's Financial Policy. journal Review of Economic Studies, 61 (2), 197-222.
24. Buchanan, J. M. (1976). Barro on the Ricardian Equivalence Theorem. Journal of Political Economy, 84 (2), 337-342.
25. n, I., & Jiang, W. (2007). Price Informativeness and Sensitivity to Stock Price Investment. The
26. Whited, T. M. (1992). Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data. The Journal of Finance, 47 (4), 1425-1460.
27. Whited, T. M. (1992). Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data. The Journal of Finance, 47 (4), 1425-1460.
28. Xu, N., Xu, X., & Yuan, Q. (2011). Political Connections, Financing Friction, and Corporate Investment: Evidence from Chines Listed Family Firms. European Financial Management , 1-28.
29. Xu, N., Yuan, Q., & Xu, X. (2011). political Connections, Financing Friction, and Corporate Investment: Evidence from Chinese listed Family Firms. European Financial Management , 1-28.
30. Yoshikawa, H. (1980). On the ''q'' Theory of Investment. American Economic Review, 70 (4), 739-743.
31. Yuan, J., Jiang, Y., & Cai, Y. (2009). Research on the Relation between Accounting Information Quality and Over-investment. JournalofManagement, 3, 367-372.
32. Yu-Jun, L., & Jian, C. (2007). Investment - Cash Flow Sensitivity Financial Constraints or Agency Costs. Journal of Finance and Economics, 2.