The Impact of Managerial Shareholding and Financial Constraints on Investment Decisions
- Muneezay Tariq
- muneezy95@hotmail.com
- Research Scholar, School of Social Sciences & Humanities, National University of Sciences and Technology, Islamabad, Pakistan.
- Muhammad Zubair Mumtaz
- mmumtaz@uob.edu.bh
- Associate Professor, College of Business Administration, University of Bahrain, Sakhir, Bahrain.
- (Corresponding Author)
- Nouman Afgan
- drnoumanafganaustriaeducation@gmail.com
- Professor Department of Economics, Hajvery University, Lahore, Pakistan.
Submitted
November 22, 2023
Accepted
November 22, 2023
Accepted
November 22, 2023
- Received
- 31 March 2024
- Revised
- 11 July 2024
- Accepted
- 26 October 2024
Abstract
Agency conflicts arising from asymmetric information between insiders and outsiders affect
company investment decisions in imperfect capital markets. This study examines the influence of
managerial shareholding and financial constraints on investment choices. Utilizing panel data from 60
nonfinancial firms listed on the Pakistan Stock Exchange from 2011 to 2020, we employ the system GMM
technique. Our findings indicate that both managerial shareholding and financial constraints
significantly impact corporate investment decisions. Increased managerial ownership aligns incentives
favorably, helping to mitigate agency problems and enhance the quality of investment projects. The
reliance on internally generated funds for investments points to a high investment-to-cash-flow
sensitivity, which reflects financial constraints. This study further investigates the factors influencing
investment decisions in the manufacturing and energy/power sectors. Our results show that firms in the
energy/power sectors are not financially constrained in their investments, while manufacturing firms
exhibit a strong dependence on cash flows, indicating higher investment cash flow sensitivities.
Keywords
Managerial shareholding
financial constraints
corporate investment
Pakistan Stock Exchange
This work is licensed under LJB.
- Citation
Tariq, M., Mumtaz, M. Z., & Afgan, N. (2024). The Impact of Managerial Shareholding
and Financial Constraints on Investment Decisions. The Lahore Journal of Business, 12(1), 65-90.
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