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This paper examines the relationship between the investment opportunities and liquidity
constraints in the two South Asian emerging markets, i.e. India and Pakistan, over the period
of 2010–2015. It reveals that there is a significant relationship between a firm investment
opportunities and liquidity constraints. Using pooled OLS fixed effect model, we find a significant negative association between stock illiquidity (external liquidity constraint) and investment opportunities in both BSE and KSE firms. We also find a significant impact of firm’s cash
flow to total assets ratio (internal liquidity) on firm’s investment opportunities. The results are
statistically significant for both internal and external liquidity and investment opportunities in
the presence of control variables like market-to-book ratio, size, leverage, and dividend
payout ratio. Similarly, the results are robust for both emerging markets. The findings of this
study are consistent with the findings of previous literature that liquidity is positively related
to firm’s investment opportunities. Our study further clarify that both internal and external
liquidity are important for firm’s investment opportunities.
Dr. Muhammad Sadiq Shahid, Dr. Faid Gul . (2017) Investment Opportunities & Liquidity Constraints: Evidence from Two Emerging Markets, India and Pakistan, Journal of Independent Studies and Research-Management, Social Sciences and Economics, Volume-15, Issue-1.
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