POLITICAL REGIMES, INTERNAL FUNDS AND INVESTMENT BEHAVIOUR: AN EMPIRICAL ANALYSIS OF MANUFACTURING SECTOR FIRMS IN PAKISTAN

The prime objective of this study is to estimate the relationship between financial status and investment behaviour of the firms in manufacturing sector of pakistan across different political regimes using data of 498 firms from 1973-2010. the study finds that cash flow is the most important factor affecting the firm’s investment behaviour. investigation of the possible effect of political regimes on the nexus between investment and cash flow of the firms confirms that changes in political regimes have affected the investment behaviour of firms in manufacturing sector of pakistan. the estimates for the post 1990s era suggest that investment is positively related to both the internal cash flow and tobin’s q. this indicates that governments should pursue liberal corporate policies in a deregulated environment to channelize internal funds of the firms into effective investment expenditures.