IMPACT OF FINANCIAL CONSTRAINTS ON FIRM’S INVESTMENT DECISION & STOCK RETURNS; EVIDENCE FROM MANUFACTURING SECTOR OF PAKISTAN

The most important thing to start and operate a business is finance. Those factors which can restrict a firm from obtaining finance referred to as financial constraints. Purpose of this study is to investigate the relationship of financial-constraints with investment & stock returns. Study used regression analysis for testing the relationship of dependent & independent variables by using 6 years (2011-2016) secondary data of 105 manufacturing firms listed at Pakistan Stock Exchange. Variables used as financing constraints indicators are debt ratio, sales ratio, cash-flow ratio, Tobin's Q, dividend-payout ratio, firm's size and firm's age. Findings of the study showed that sales ratio, cash flow ratio & firm's size having positive and significant impact on investment while debt ratio, Tobin's Q, dividend-payout ratio & firm's age having negative and significant impact on investment. Furthermore, debt ratio, sales ratio, cash-flow ratio, Tobin's Q, dividend-payout ratio representing positive impact on stock returns while firm's size & firm's age representing negative impact on stock returns.