DefinePK

Abstract

<jats:p>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</jats:p>