Decoupling Investment Efficiency under the Influence of Information Asymmetry and Agency Issues and Moderating Role of Financial Liberalization in Pakistan Non-Financial Firms

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Rukhsana Jabeen
Syed Zulfiqar Ali Shah


This research has examined the impact of investment efficiencies under the influence of information asymmetry and agency issues of non-financial firms of a developing country (Pakistan). Specifically, this study has examined the moderating effect of financial liberalization, which can alleviate investment inefficiencies when the firm faces agency conflicts and information asymmetry. This study is designed to show that economic liberalization weakens investment inefficiencies by taking data from 2009 to 2020 of non-financial firms listed on Pakistan Stock Exchange. Our study provides empirical evidence that financing constraints are positively associated with under-investment, and free cash flow is positively associated with over-investment in an emerging economy. The financial reforms of developing country by strengthening and broadening financial system can mitigate investment inefficiencies. As there are many factors of agency cost, which directly or indirectly effect investment-inefficiencies. A fixed effect model is conducted to show the relationship between variables. Our result countenance previous researches that financial development reduces the effect of inefficient investment by reducing financing constraints. By covering the aspect of the financial liberalization it is suggested to boost the economic growth through liberalizing financial markets and enhance the level of firm’s investment efficiencies. This investigation will present contribution in investment efficiency decisions. In the developing countries, there exists scarce literature at the firm’s level to boost investment efficiencies.

Financial liberalization, over-investment, under- investment, free cash flow, information asymmetry, financing constraints

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Jabeen, R., & Shah, S. Z. A. (2021). Decoupling Investment Efficiency under the Influence of Information Asymmetry and Agency Issues and Moderating Role of Financial Liberalization in Pakistan Non-Financial Firms. Asian Journal of Economics, Finance and Management, 5(4), 127-141. Retrieved from
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