Capital Market Imperfections, Investment and complementarities Between Debt and Equity Evidence from Pakistan: Data Analysis of Non-Financial Firms of Karachi Stock Exchange
Author: Khizar Salman

The rationale behind this study is to analyse investment and financing decisions of corporate sector in Pakistan. This study is to explore the impact of internal and external financial limitations on investment choice of firms. The data have been taken from 20 non -financial industries of Pakistan; 100 listed firms in the Karachi Stock Exchange for the time period 1999 to 2011 on the annual basis. Two models have been employed by the study of which one includes q-model of investment and second comprises of the simultaneous equation model. The technique of Generalized Method of Moments and Two-stage least square (2SLS) methods have been used in the study respectively. The Q-model of investment has successfully picked up the market imperfections as the impact of these imperfections is significant. No doubt, these imperfections influence investment activities of firm. However, this affect is not evenly distributed in the market. Thus the capital market flaws do have differential effects on investment behaviour of non-financial firms listed in KSE. The study also employs balance sheet variables that are different of all industries. Our approach highlights the connection between imperfections generating financing constraints and investment wavering with time across the industries. In a nutshell, all the non-financial firms listed in Karachi stock Exchange use debt and equity as complementarities and not as substitutes. This study has provided evidence that the capital structure of the corporate sector is actually its complementarities attitude and that all industries have different investment structures defining their own imperfections and financing constraints. Supervisor:- Dr Arshad Hassan

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Keywords : Capital Market Imperfections, Corporate Investment Behaviour, Debt And Equity
Supervisor: Arshad Hassan

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