THE IMPACT OF FINANCIAL FACTORS ON CORPORATE INVESTMENT

This study investigates the impact of various financial factors on the investment behavior of manufacturing firms in Pakistan using data for 209 firms listed on the Karachi Stock Exchange the period 2002-2008. We find evidence in favor of the proposition that financial factors, including Tobin’s Q , cash flow, stock of debt, stock of liquid assets and sales, are important determinants of investment. Moreover, the degree of sensitivity of investment to these factors is not the same for all types of firms. Firms with lesser investment opportunities are more responsive to changes in financial factors as compared to those with more investment opportunities.