The Effect of Cash Flows on Investment Evidence from Textile Sector of Pakistan

Abstract

The objective the study is to analyze the impact of cash flows on investment decision in textile sector of Pakistan. The study utilizes sample data of fifty companies in textile companies and annual data for variables is collected from 1999 to 2014. Multiple linear regression method is used to test the hypothesis. Two models are tested with dependent variables of Inventory and Fixed Assets. In both models the independent variables are Free Cash Flow and Market to Book Ratio. The results of both models are significant except the impact of Market to Book Ratio on Fixed Assets. The results of study show that Free Cash flows has significant positive impact on Inventory whereas MBR shows negative impact on inventory. The results show that investment and cash flow are strongly linked after controlling for a firm’s investment opportunities.

Keywords; Fixed assets, Inventory, Market to book ratio, Free cash flows