The Lahore Journal
of Business

The Lahore Journal
of Business

Lahore Journal of Business

(HEC recognized journal in “Y” category)

The Lahore Journal of Business is aimed at providing a specialized forum for dissemination of qualitative and quantitative research in various areas of business administration. The LJB invites researchers, policy makers and analysts to submit original theoretical and empirical papers that explore and contribute to the understanding of various areas in the business domain. The Journal aims at bringing together state-of-art research findings, particularly from emerging markets, in various business disciplines including (but not limited to) accounting, banking, management, marketing, finance, investments, human resource management and organizational behavior.

The Impact of Managerial Shareholding and Financial Constraints on Investment Decisions

https://doi.org/10.35536/ljb.2024.v12.i1.a3

  • 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
  • Download
Full text PDF

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.

https://doi.org/10.35536/ljb.2024.v12.i1.a3

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