INTERNAL FINANCIAL CONSTRAINTS, EXTERNAL FINANCIAL CONSTRAINTS AND INVESTMENT CHOICE: EVIDENCE FROM PAKISTANI FIRMS
►Muhammad AZAM and Syed Anum SHAH
The purpose of this study is to analyze the impact of internal and external financial constraints on investment choice. The data have been taken from 9 major sectors (52 listed firms in the Karachi Stock Exchange) namely; Pharmaceutical & Bio Technology, Textile, Sugar, Tobacco, Chemicals, Oil and Gas, Fixed line Telecommunication, Industrial metal and Mining, and Cement sectors for the time period 2004 to 2010 on annual basis. Multiple regression analysis has been done to examine the relationship among firm’s size, dividend payout ratio, firm’s age, and investment. The empirical findings show that there is positive relationship between the firms’ size and investment while a negative relationship exists between firms’ age and investment. It also reports that there is negative relationship between dividend payout ratio and the investment. This shows that if a firm grows old or high dividend payout ratio then it will tend to spend less for expansion as compared to the young firms.
Key Words: Internal Financial Constraints, External Financial Constraints, and Investment