DefinePK

Abstract

Purpose: This study examines the relationship between competition in the product market (PMC), financial flexibility (FF), and business strategies in Pakistan, providing both theoretical and practical implications for companies. It contributes to the body of knowledge on strategic management, particularly related to emerging markets, and addresses the institutional voids impacting firms.
Design/Methodology: For data collection, 200 companies listed on the Pakistan Stock Exchange (PSX) were chosen via using the systematic elimination method for 2010-2020. Since the study involved binary dependent variables, probit and logit regression models were applied to test the hypothesis. The study adopted Ittner and Larcker (1997), Herfindahl-Hirshchman Index (HHI), and Frank and Goyal (2009) models to assess Business Strategy, PMC, and FF respectively.
Findings: PMC has a significant impact on companies to adopt a certain business strategy (i.e., defensive, opportunistic, analytical, and invasive) and the level of financial flexibility.  Similarly, financial flexibility provides companies to adapt defensive and opportunistic strategies, and it also make companies decrease the adaptation of analytical and invasive strategies.
Originality: This study endeavors to provide a significant insight for companies to focus on the importance of PMC and keep track of their level of financial flexibility. The study also suggests that exploring the opportunities of investment, which are competitive in nature, can be effective and helpful in selecting the appropriate business strategy. Following this roadmap, companies can better be able to maximize their performance and value to sustain their competitiveness.