Impact of Cash Flow Volatility on Corporate Investment and Dividend Payment: A Case Study of Non-Financial Sector of Pakistan
Author: Sardar Ali

This study examines the impact of cash flow volatility on the corporate investment behaviour and dividend decision of Pakistan’s non-financial firms. The study also aims to explore whether the impact of cash flow volatility on investment spending varies across financially constrained and unconstrained firms. To identify the two set of firms; we use the Total Assets and Dividend Payout ratio methods. We employ Generalize Method of Moments (GMM) to deal with problem of endogeneity and utilize 274 non-financial firms’ data over the period 2006 to 2015. The overall results confirm that volatility in cash flow adversely effects investment and dividend decisions of the firms. It is further confirmed that investment behaviour of the two set of firm’s response differently to cash flow volatility. However, the magnitude of response directly influenced by the criteria used for the separation of the two set of firms. Financially constrained firms are more sensitive to cash flow variation, as these firms significantly reduce their investment whenever experience a volatile cash flow. Supervisor:- Dr. Karim Khan

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Supervisor: Karim Khan

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