Exploring Effects of Firm, Industrial, Market and Macroeconomic Volatility on Firm Sales Growth under Heterogeneity in Pakistan

Abstract

The impact of industrial, firm, macroeconomic and market volatility on growth of 457 non-financial firms listed at Pakistan Stock Exchange (PSX) is examined by using annual unbalanced panel data over the period 1988-2017. Further, we categorize firms into constrained and unconstrained firms based on Whited and Wu (2006) index. In addition, the differential effects of firm, industrial, market and macroeconomic volatilities are also explored for constrained and unconstrained firms. we find that constrained firms are positively affected by macroeconomic and firm level volatility and unconstrained firms are negatively affected by macroeconomic and firm level volatility. On the basis of the empirical findings, it is recommended that the decision makers should take into account the heterogeneity of firms (based on financial constraints) while making decisions. Finally, to achieve higher growth of the firms as well as the economic growth prudent and investors friendly policies should be designed