The corporate governance and interdependence of investment and financing decisions of non-financial firms in Pakistan

Abstract

This study investigates the interdependence between financing and investment decisions in the presence of corporate governance factors of three hundred non-financial companies listed on the emerging market of Pakistani Stock Exchange (PSX). The sample is chosen randomly over a five-year period from 2012 to 2017. Using a panel data methodology, the regression models are derived based on the simultaneous equation modeling. Four factors of corporate governance mechanisms are identified: family ownership, managerial ownership, board size and board composition. This is among the earliest studies in Pakistan to consider simultaneity of financing and investment decisions by adopting Panel Data estimation technique. The major contributions of this study are: first, financing and investment decisions must be determined simultaneously. The results show that both investment and financing have positive impacts on each other and there exists a simultaneity among them.