Financial Constraints and Investment Choice: Evidence from Pakistani Firms

Sarfaraz A. Bhutto, Zulfiqar Ali Rajper, Syed Muhammad Muqeem Rizvi And Dr. Riaz Ahmed Mangi

Abstract

The main purpose of this study is to investigate that what types of financial constraints a firm faces in the process of investment moreover, this study also measured the impact of Internal Financial constraints (IFC) and External Financial Constraints (EFC) on investment choice among Pakistani firms. This study consist of secondary data and research design is explanatory. Following purposive sampling, 52 listed companies (listed at Pakistan Stock Exchange) is sampled, these firms are chosen from 9 major economic groups which are currently producing output in Pakistan, these are categorized as Chemicals, Telecommunication, Textile, Pharmaceutical, Metal and Mining, Tobacco, Fuel and Energy, Cement industry and Sugar. The study includes five years data throughout 2013-2017. The findings reveal a positive association between the size of firm and investment. Furthermore, a negative relationship is investigated between the age of firm and investment. Moreover, another negative relationship is observed between the dividend payout ratio and investment. The findings are crucial for managerial
practices in anticipation of appropriate investment choice. The outcomes reveal that if the size of firm increases at that time firms would take part in investment choice, contrary the negative relationships expresses that when the firms get matured, then they tend to invest less in the expansion of the business. The financial constraints and investment choice are hardly studied specifically in the context of Pakistan. This study provides a prospect for financial managers to
invest in right time along with an appropriate choice of investment for generating returns and minimizing risk.
Keywords: Financial Constraints, Investment Choice, Dividend Payout