Firm Characteristics and Cash-Cash Flow Sensitivity of the Manufacturing Sector of Pakistan

Abstract

This paper investigates the sensitivity of corporate cash holdings to cash inflows (CFSC). The study also aims to investigate the differential effects of CFSC across financially-constrained and unconstrained-firms and across firms having high and low- Tobin's Q. The study uses GMM model on unbalanced firm-level data of all manufacturing firms listed at the Pakistan Stock Exchange over the period 2000-2014. The results show that financially-constrained firms are more likely to hold extra cash out of their cash inflows than their unconstrained counterparts. Further, the sensitivity of cash holdings to cash inflows is more in growing firms than other firms.