Abstract
AbstractResearch in corporate finance suffers from bounded rationality due to static modeling. Adopting factor analysis, an unsupervised machine learning approach, and balance sheet information (accounts) over time, we find underlying dynamic latent corporate finance decisions. Our study identifies three latent corporate finance decisions adopted by executives in Pakistan, (1) long-term capital investment, (2) short-term debt credit, and (3) financial flexibility. The order of the decisions and the empirical tests highlight agency problems rooted in familial ownership concentration. We find that long-term capital investment and short-term debt credit decisions significantly reduce the firms’ present and future performance. Conversely, managers do not embrace financial flexibility, despite its ability to improve performance. The study highlights a contradiction, firms bounded by ownership concentration prefer control over performance and do not make decisions to optimize and protect minority shareholders’ wealth, depicting a moral hazard problem.
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call