Investment Cash Flows Sensitivity

Abstract

Investment cash flows sensitive firms are those firms which are totally relying on their own cash flows because they do not borrow external funds or in fact lenders do not lend their money to constrained firms. Moreover; sometimes non-constrained firms also rely on their own internal cash flows just like in Pakistan due to Islamic culture and conservative nature of firms. This study is conducted to explore the effect of earnings volatility on investment cash flows sensitivity of Pakistani firms.one hundred and twenty-nine non-financial companies are taken from twenty-five sectors registered in Pakistan stock change. This research explored that earnings volatility conditions force companies to hold their cash for two reasons. One of them is to invest from their own internal cash flows and second is to keep reserves to avoid the bankruptcy.