Abstract
This paper contributes that existing knowledgeby augmented the model proposed by alameda et al with the variable of cash flow volatility and diversification. The panel data analysis revealed that Pakistani firms are highly dependent on cash and hold more cash out of their operational cash flow. Further cash flow volatility has proven to be insignificant contributor of higher cash flow by Pakistani firms in the presence of diversification. The interactive dummy of diversification exhibits a negative significant coefficient indicating that diversified firms hold less cash out of their cash flow and thus do not need huge cash holding.
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