International Journal of

Homepage: http://ijmres.pk/
Management Research E-ISSN: 2313-7738, ISSN: 2223-5604
and Emerging Sciences Vol 10, No 3, 2020 September, PP. 88-98

EXPLORING FINANCIAL CONSTRAINTS AS MODERATOR ON NEXUS

BETWEEN EXCESS CASH HOLDING AND FIRM’S PERFORMANCE
1
Dr. Muhammad Wasim Jan Khan, 2Mr. Gohar Sulaiman, 3Mr. Zujaj Ahmed, 4Mr. Israr Ali
1
Assistant Professor: Department of Management Sciences,
University College of Zhob, BUITEMS (BUITEMS Sub-Campus Zhob) Balochistan. Email: wasimjanpk@yahoo.com
2
PhD Scholar: Department of Management Sciences, Iqra National University Peshawar. Email: Goharsulaiman4@gmail.com
3
Department of Business Administration & Commerce, Institute of Southern Punjab, Multan, Pakistan. Email: zujaj.ahmed@gmail.com
4
PhD Scholar: Department of Management Sciences, Iqra National University Peshawar. Email: Israrali618@gmail.com

ARTICLE INFO ABSTRACT

Article History: Proficient working capital administration is getting significant for café firms
Received: 19 Dec 2019 adapting to frail money related conditions and expanded monetary
Revised: 21 Mar 2020 vulnerability. The study is coordinated on the basis of information of 56 firms
Accepted: 10 Jun 2020 in Pakistan gathered over the period of 10 years 2009-2018 to discover the
Available Online: 15 Sep 2020
relationship of holding excess cash and firm’s performance in the presence of
Keywords:
financial constraints. Two speculations were created for examination, how
Financial Constraints, Excess abundance money holding impact venture and furthermore to inspect the
Cash Holding, Return on association under the moderation role of financial constraints. Holding of
Assets, Firm’s Performance, excess cash, income, market to book proportion were taken as self-ruling
Return on Equity, Leverage elements while adventure of complete assets, return on value, return on
resources and influence were taken as dependent components and money
JEL Classification: related necessities, for instance, liquidity was taken as coordinating variable
O15, D53 while firm age, firm size and benefit were taken as control factors. The first
outcome was that we recognized the speculation that there was a remarkable
influence of excess cash holding for financial impediment firms. As the second
outcome was, that there was balanced impact of financial need in the affiliation
between holding of excess cash in regard with firm’s performance.
© 2020 The authors, under a Creative Commons Attribution-Non-Commercial 4.0

1. INTRODUCTION
In corporate finance, it becomes difficult to perceive how complement process is done among the determinants
to impact a company's venture choices. Different powers keep a firm from seeking after its impeccable hypothesis
stage when the supposition of an ideal market is manhandled. Data asymmetries and affiliation issues are the most
noteworthy factors influencing adventure capability (Stein, 2003), while money property is emphatically identified
with a company's speculation when confronting these erosions. From one perspective, the antagonistic choice issue
emerges, on the grounds that administrators are hesitant to issue underestimated protections on account of data
asymmetries which prompt underinvestment. Such a marvel along these lines makes a speculation touchy to money
possessions. Then again, inclinations in realm building contribute to over investment (Jensen, 1986). This additionally
prompts higher venture in view of money possessions. McLean et al. (2012) demonstrate that financial specialist
insurance influences firm-level asset assignment. They give proof by investigating an enormous example of firms
from 44 nations “during the period 1990–2007” and demonstrating that speculation affectability to outer account
comparative with more grounded in nations with more noteworthy speculator securities, since high firms can
undoubtedly get outside money to subsidize ventures, while speculation affectability to income is higher in nations
with less financial specialist assurances. Their discoveries feature that solid speculator security laws anticipate precise
offer costs decrease budgetary imperatives and energize productive venture.
Forgoing investigation opens new discoveries and ideas that how overabundance money holding is related with
venture, influence, return on value and profit for resources in budgetary requirements. Abundance money allows
monetarily important businesses to profit worth-while included speculation openings (Denis & Sibilkov, 2010). Cash
holding are progressively huge for money related restriction firm (Faulkender & Wang, 2006; Pinkowitz et al., 2004).
Financial requirement is likewise an issue for producing positive net benefit esteem (NPV) ventures. Money related
imperative is hypothetical factor for an organization choice. Firms may put their overabundance money in gainful
undertaking. Financial imperative firms put their abundance money in worth expanding ventures, which produce
positive net benefit esteem (NPV) (Denis & Sibilkov, 2010). A firm with lacking money prompts liquidation, yet

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different issues like reckless money spending can look by firm in the event that they are having overabundance
measure of money. Corporate money holding straightforwardly influence firms to keep up liquidity and venture
openings in this way it’s appropriate administration is basic (Campello et al., 2011). Past literature reveals that excess
of cash holding is the most preferred factor for all companies. Excess of cash holding lead to firm performance
however the underlying mechanism due to which excess of cash holding have positive or negative effect on firm
performance are still not yet clear and nobody explain it (Das & Goel, 2019). Now a days, most of the firms facing
different types of problems due to which their performance is going down day by day. Primary reasons of the lower
execution are absence of abundance of money holding, income and Market to book proportion which prompts lower
execution of the organizations (Hadi et al., 2018). To discover how money holding impact corporate speculation choice
is significant issue for analysts. That is on the grounds that there are numerous variables that influence a firm from
ideal degree of speculation. In these elements, fever data and office strife have restricted companies to access to outside
financing and breaking point the inner supports is the reason firms leave best chances of ventures. In Pakistan
numerous organizations confronting similar issues, i.e., abundance of money holding, income and market to book
proportion which thought about the principle reasons of lower execution of the organizations.
Cash holding is a significant segment of company's benefits. Overabundance money enables firms to benefit the
best venture open doors that expansion the stock estimation of the firm. A firm with deficient money prompts
liquidation; however different issues like flighty money spending can look by firm on the off chance that they are
having abundance measure of money (Opler et al., 1999). Corporate money holding straightforwardly influence firms
to keep up liquidity and venture openings along these lines, its legitimate administration is basic (Campello et al.,
2011). Hadi et al. (2018) suggested that there are some financial constraints in the market due to which firm
performance can be increased or decreased. So, it is important for firm to find those constraints and it can lead to some
beneficial results for the firm. Das and Goel (2019) conducted study in India and their study concluded that those
firms who have ample of cash have leverage and high return on equity. This study highlighted the significance that
how firm with maximum cash holding have greater impact on firm performance. Moreover, these scholars highlighted
that firm with excess of cash holding might have greater effect on firm performance and also suggested that what will
be the possible financial constraints that increase or decrease the firm performance. Jebran et al. (2019) conducted
study on Pakistani non-financial firms with cash holding as dependent variable and capital expenditure growth, cash
flow, tangibility, leverage, size, liquidity and cash flow volatility as independent variable and suggested that in future
scholars can conduct study on holding excess cash with other factors. In this research, holding of excess (cash flow,
market value relative to its book value) is independent variable, firm’s performance, i.e. (investment of total assets,
return of equity, return on assets, and leverage) is dependent variable and financial constraint, i.e., (liquidity) is
moderator variable.
Research Questions
• Is there any relationship between holding of excess cash and company performance?
• Do financial constraints moderate the link b/w excess cash and company performance?
Research Objectives
• To ascertain relationship between holding of excess cash and company performance.
• To identify financial constraints as moderation factor on the link b/w excess cash and company
performance.
2. LITERATURE REVIEW
Pecking Order Theory
The theory by Pecking is further developed by Myers and Majluf (1984) at that they discussed that worth is a
lesser amount of sustained plans to increase capital later when administrators (who are trusted upon to ponder clear
condition of the firm than examiners) issue new worth, budgetary authorities acknowledge that executives feel that
the firm is overstated and boss are misusing this over-valuation. Pecking demand speculation was first suggested by
Donaldson in 1961 and it was re-suggested by Myers and Majluf (1984) and Whited (2006). Thusly, inside resources
are used first, and when that is depleted, commitment is given, and when it isn't sensible to give any more commitment,
esteem is given.
Financial Constraints
Increases of a venture Euler condition that record for money related imperatives improve its fit. The inquiry
remains whether these impacts are evaluated in resource markets (Love, 2003; Bond & Meghir, 1994; Whited, 1992).
At the end of the day, do budgetary imperatives influence resource returns; and provided that this is true, is this hazard

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diversifiable? Cash related requirements dependent on relapse coefficient gauges (Kaplan & Zingales, 1997; Lamont
et al., 2001).
Excess Cash Holding
Money the executives is a basic activity that numerous entrepreneurs embrace from an enthusiastic point of view.
Poor money the executives can hurt the organization's exhibition in both unpretentious manners and evident ones.
Issues don't simply emerge from a lack of money; having an excessive amount of money can likewise contrarily
influence a business. Holding abundance money can resemble expanding the expense of products without an
expansion in costs (Drobetz & Grüninger, 2007).
Cash Flow
At the point when chiefs' goals vary from those of investors, the nearness of inside produced income in abundance
of that required to keep up existing resources set up and money new positive NPV activities makes the prospective
for those assets to be dissipated. Second, the positive connection displays capital market flaws, where expensive outer
financing makes the potential for inside created incomes to extend the attainable venture opportunity (Fazzari et al.,
1988; Hubbard, 1998).
Market to Book Ratio
The expense to book extent, similarly called the P/B or market to book extent, is a money related valuation
gadget used to survey whether the stock an association is done or disparaged by taking a gander at the expense of each
and every excellent idea with the net assets of the association. This is the worth that the market thinks the association
is worth (Myers & Majluf, 1984). Without endeavoring to outline the broad writing on bookkeeping conservatism, we
observed that parts of the hypothetical writing on unqualified ideology takes a market-to-book proportion more
noteworthy than one as an appearance of preservationist bookkeeping (Ohlson & Gao, 2006; Feltham & Ohlson, 1995,
1996).
Firm Performance
Financial examiners have focused on the costs of diffused offer belonging; that is, the impact of ownership
structure on execution. For example, preferred firm execution leads over a development in the estimation of venture
openings asserted by the board which, at whatever point worked out, would manufacture their offer belonging (Berle
& Means, 1932). Ownership structure of the firm may be endogenously directed by the affiliation's contracting
condition which differentiates across over firms in perceivable and subtle habits (Himmelberg et al., 1999).
Investment of Total Assets
Absolute resources incorporate a wide range of advantages, for example, money and transient ventures, all out
records receivable, inventories, net property, plant and gear (PP&E), speculations and advances, impalpable resources
like generosity, and unmistakable resources (Jun &Yang, 2015). Money lenders utilize physical resources as an
assurance that at any rate a segment of cash loaned can be recovered through the clearance of the sponsored resource
for the situation that the credit itself can't be reimbursed (Myers & Majluf, 1984).
Return on Equity
Return on Equity (ROE) is an extent of cash related implementation managed by isolating vigorously pay by
explorers’ worth. As financial consultants’ worth is proportional to an affiliation's focal points short its responsibility,
ROE could be thought of as the appearance on net resources (Stein, 2003). Return on Equity (ROE) regarded favored
or tragic will rely on what's common for a stock's companions. An improvement or retail firm with littler asset report
accounts close with net increment may have regular ROE levels of 18% or more (Jensen, 1986).
Return on Assets
ROA gives researchers and examiners an idea with respect to how significant a connection's affiliation is at using
its focal concentrations for make advantage. Bit of leeway for assets is appeared as a rate (Harford, 1999).
Organizations (at any rate the ones that endure) are at last about productivity: crushing the most out of constrained
assets. Benefit for assets (ROA) is the clearest of such corporate incentive for-the-cash measures (Huang & Ritter,
2009).
Leverage
Impact can moreover suggest the proportion of commitment a firm uses to back assets. Right when one insinuates
an association, property or theory as "significantly used," it infers that thing has more commitment than esteem
(Franzoni, 2009). Goedhuys and Mohnen (2017) marked that productivity proportions are a proportion to survey a
firm’s capacity to acquire benefits and measure the degree of the executive’s adequacy of an organization”. The point

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is to see the advancement of the organization in a specific time, both reduction and increment, and discover the reason
for change. Our outcomes additionally bear on the ongoing proof that haphazardly created influence alteration sweep
yield experimental outcomes that take after influence focusing on and incomplete modification conduct (Chang &
Dasgupta, 2009; Iliev & Welch, 2010). The coming about proof affirms the presentation of an incomplete change
model in a more refined condition than concentrates that gauge a similar change speed across all example firms.
Besides, the enormous evaluated alteration paces contrast extraordinarily in financial centrality from the modification
velocities created by the Chang and Dasgupta (2009) reproductions. Keynes (1936) depicted three principle
explanations behind holding money. First exchange thought processes incorporate day by day working exchange for
instance buying crude material, paying interest and profit and so forth. Second, one is preparatory thought processes
in unforeseen occasions. Third one is Speculative intentions incorporate benefiting beneficial venture openings that
all of a sudden emerge in the market. Organization keeps low degree of money in those circumstances when
approaching transient account.
Theoretical Framework

Fig. 1. Theoretical Framework

3. RESEARCH METHODOLOGY
This examination is done to discover the directing impact of monetary requirements on the relationship among
abundance money property of Non-Financial Firms. Discoveries produced using concentrating the gathering that can
be sum up to the bigger populace. Test size of our investigation is 56 non-financial related organizations enlisted in
Pakistan Stock trade out of 397 for the time of 2009-2018.
Excess Cash
Abundance of money possessions may be increasingly relevant for compulsory firms as they allow the business
to contribute when different asset sources are exorbitant, restricted or inaccessible. At the end of the day more
prominent money possessions permit firms that experience outer budgetary imperatives to maintain a strategic distance
from underinvestment and diminished development. Abundance money determined as the leftover of determinants of
money holding.
Financial constraints
3.2.1 Liquidity
Liquidity refers to the availability of cash or currency equivalents in order to satisfy current working needs. As
such, "liquidity is the indicator of available flexible capital to pay costs" and commitments as they become due.
Apparently, money is the fluids tool of everything. The reasons for liquidity's gainful impact are researched: Liquidity
builds the data substance of market costs and of execution delicate administrative remuneration (Fang et al., 2009).

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3.2.2 Panel Data

Board information is said to be multi-dimensional information. Board information rehashed proportion of
elements conduct. Elements might be organizations, people or nations. Board information additionally called cross-
sectional or longitudinal information. Time arrangement and Cross-sectional information are extraordinary instance
of board information. Board information contains perception on factor in various time of same firms or people. While
speculating the connection between abundance money and venture, the normal conduct analyzed under Panel
information strategies.
3.2.3 Fixed Effect Model
Using fixed-impacts (FE) at whatever point you may be simply enthused about exploring the impact of
components that move after some time. FE examines the association among pointer and result factors inside a
component (country, individual, association, etc.). Each component has its own one of a kind individual characteristic
that could affect the marker factors.
3.2.4 Random Effect Model
The justification behind irregular impacts model is that, not run of the mill for the fixed impacts model, the
changeability transverse over segments is acknowledged discretionary and uncorrelated with the marker or free
calculates fused the model. Self-assertive effects expect that the substance's misstep term isn't related with the pointers
that award time-invariant factors to accept a vocation as illustrative elements.
4. DATA ANALYSIS AND RESULTS
This part incorporates the determined outcomes.
Table 1. Regression
SIZE DIVIDEND AGE
Variables Fin. Constraints Fin. Constraints Fin. Constraints
Investment Return on Equity Return on Assets
Coeft-valuep-value Coef t-valuep-value Coeft-valuep-value

Excess cash 0.348 4.90 0.001 0.389 4.81 0.001 0.501 4.391 0.001

Cash Flows 0.007 0.99 0.34 -0.003 -0.51 0.589 0.007 0.60 0.561

MTB 3E-06 0.60 0.608 -3.45 -0.05 0.891 3E-06 0.45 0.601
R² 0.188 0.200 0.0798
F 8.04 3.01 3.89
p-value 0.001 0.001 0.001
Table1 indicates the common effect model. Results displays that excess cash holding have positive and
substantial association with investment of total assets, excess cash holding and return on equity have affirmative and
substantial association with each other and with return on assets a significant and positive relationship is also observed.
Cash flow has no significant association with investment of return on equity and total assets have no substantial
association cash flow and also return on assets has no significant relationship with cash flow. Market to book
proportion has no significant relationship with investment of return on equity, total assets and return on assets.
Furthermore, overall results show good model because the f value reveals that over all model is fit and p value is less
than 0.05. Overall outcome reveals the significance of cash holding for all financial constraints.
Table 2. Breusch-Pagan /Hat Test
Variables SIZE DIVIDEND AGE
Fin. Constraints Fin. Constraints Fin. Constraints
Chi² 377.21 108.19 180.70
Prob >Chi² 0.000 0.000 0.000
Table 2 shows that hat test of all constraint firms. The results indicate that chi²<0.05 which shows that there is
no problem of heteroscedasticity. Moreover, the aforementioned results indicate that dividend, size and age of the
constraints firm have less chi² value from 0.05 and p value is also equal to 0.000.

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Table 3. Robust Standard Error

SIZE DIVIDEND AGE
Variables Fin. Constraints Fin. Constraints Fin. Constraints Fin. Constraints
Investment Return on equity Return on Assets Leverage
Coeft-valuep-value Coeft-valuep-value Coeft-valuep-value Coeft-valuep-value
Excess 0.410 3.60 0.001 0.25 3.30 0.004 0.370 3.41 0.003 0.207 1.05 0.132
cash
Cash 0.39 3.70 0.003 0.30 4.85 0.001 0.410 3.80 0.001 0.003 0.70 0.523
Flows

MTB 6E-04 1.02 0.402 3E-05 1.76 0.077 8E-04 1.01 0.132 -0.10 -3.17 0.06
R² 0.199 0.1117 0.0894 0.190
F 3.99 1.90 2.49 2.49
P 0.000 0.046 0.007 0.007

Above tab. 3 shows the linear regression model which explains that excess of cash lead to high return on equity,
return on assets and also return on leverage. It reveals that there is significant and positive association among
independent and dependent variables. When firms have extra cash, its investment, return on equity as well as return
on assets will increase. The revealed outcomes elaborate that intended variables have adverse guild for leverage. So,
leverage will be low if firm has high cash flow. This shows an adverse or negative relationship. While, the remaining
all variables such as excess of cash, cash flow and market-to-book have substantial association with return on equity,
return on assets and investment.
Table 4. Fixed Effect Model
Size Dividend Age
Variables Fin. Constraints Fin. Constraints Fin. Constraints Fin. Constraints
Investment Return on Equity Return on Assets Leverage
Coeft p Coeft p Coeft p Coeft p
Excess
0.401 4.70 0.000 0.25 3.30 0.004 0.370 3.41 0.003 0.207 1.05 0.132
cash
Cash
0.35 3.70 0.003 0.30 4.85 0.001 0.410 3.80 0.001 0.003 0.70 0.523
Flows
MTB 6E-04 1.02 0.402 3E-05 1.76 0.077 8E-04 1.01 0.132 -0.10 -3.17 0.06
R² 0.253 0.081 0.0376 0.120
F 9.33 3.04 2.98 5.46
p 0.001 0.023 0.003 0.04

Above table 4 shows that holding of excess of cash have significant and positive association with investment of
total assets, have significant association with return on equity, and also significant and positive association with return
on assets while one the other hand there is no significant association between leverage and excess cash. The results
also show that cash flow have significant and positive association with investment of ROE, total assets and return on
assets, while there is no significant association of cash flow with leverage. R2 results revealed that when one percent
change in excess of cash holding it bring 25% change in investment of total assets, 8% change in ROA, 3% in ROE
and 12% in leverage. F value reveals that overall significance of the model and p value also indicates significant effect
for all independent variables and dependent variables.

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Table 5. Random Effect Model

SIZE DIVIDEND AGE
Variables Financial Constraints Financial Constraints Financial Constraints Financial Constraints
Investment Return on Equity Return on Assets Leverage
Coeft-value p-value Coeft-value p-value Coeft-value p-value Coeft-value p-value
Excess 0.327 3.36 0.002 0.217 3.56 0.004 0.436 4.83 0.002 0.325 3.71 0.007
cash
Cash 0.201 2.95 0.001 5E-04 0.17 0.78 0.37 2.37 0.004 0.019 0.68 0.299
Flows
MTB 4E-04 0.40 0.716 5E-04 0.85 0.65 6E-06 1.50 0.492 -0 -3.21 0.043
R² 0.190 0.0581 0.0870 0.201
Wald chi2 78.03 25.12 39.39 69.96
P 0.001 0.003 0.00 0.00
Above table 5 shows that excess cash have significant and positive association with investment of total assets.
Excess cash have significant and positive association with ROE and positive link with ROA and it also positive and
significant association with leverage. Moreover, cash flow has significant and positive relation with investment and
ROA, while it has no significant association with ROE and leverage because p values greater than 0.05. The random
effect model also shows that market to book ration have no significant relationship with investment, ROE, ROA and
leverage. R2 for financial constraints firm results shows that for size of the firm the R 2 value is 19 % change is
dependent variables, for dividend the R2 is 5% which shows that it brings 5% change in dependent variables, and for
age of the firm it brings 39% change in dependent variables value.
Table 6. Hausman Result
Variables SIZE DIVIDEND AGE
Fin. Constraints Fin. Constraints Fin. Constraints
Chi² 39.96 18.61 5.95
Prob >Chi² 0.000 0.031 0.897
Above tab. 6 reveals the outcomes of Hausman results. Depending on this test, we can decide that weather we
can use fixed effect model or random effect model. Based on the all the results revealed above, we concluded that
random effect model is better or even the best choice to be used.
Table 7. Regression for Financial Constraints (Excess Cash)
SIZE DIVIDEND AGE
Variables Fin. Constraints Fin. Constraints Fin. Constraints Fin. Constraints
Investment Return on Equity Return on Assets Leverage
Coeft p Coeft p Coeft p Coeft p
Financial
Constraints
0.401 4.70 0.000 0.25 3.30 0.004 0.370 3.41 0.003 0.207 1.05 0.132
(Excess
cash)
Financial
Constraints
0.35 3.70 0.003 0.30 4.85 0.001 0.410 3.80 0.001 0.003 0.70 0.523
(Cash
Flows)
Financial
Constraints 6E-04 1.02 0.402 3E-05 1.76 0.077 8E-04 1.01 0.132 -0.10 -3.17 0.06
(MTB)
R² 0.159 0.130 0.10 0.120
F 1.74 1.01 1.10 1.01
p- value 0.120 0.231 0.201 0.230

Table7 reveal the common effect model. This table shows the moderating impact of financial constraints on the
association between independent variables and dependent variables. The results show that those businesses whose
have facing financial constraints such as financial constraints (excess cash) with investment have significant
association with return on asset as well as with return on equity also has significant and positive association. Financial
constraints (cash flow) have positive and remarkable association with Investment, positive and remarkable relationship

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with return on equity, positive and remarkable relationship with return on assets and there is no remarkable association
with leverage. Financial constraints and market-to-book proportion have no significant relationship investment, have
no significant remarkable with return on equity, have no significant relationship with return on assets and there is
insignificant and negative association as per leverage is concerned.
Table 8. Breusch-Pagan /Hat Test
Variables Liquidity
Chi² 310.10
Prob > Chi² 0.000
Table 8 indicates that hat test of moderating constraint variable of the firms. The results show that chi²<0.05
which indicate that there is no existence of heteroscedasticity. The value of p is less than 0.05.
Table 9. Robust Standard Error Financial Constraints * Excess Cash
SIZE DIVIDEND AGE
Variables Fin. Constraints Fin. Constraints Fin. Constraints Fin. Constraints
Investment Return on Equity Return on Assets Leverage
Coeft p Coeft p Coeft p Coeft p
Financial
Constraints 0.501 5.01 0.001 0.290 4.20 0.002 0.390 7.32 0.002 0.215 .03 0.301
*EC
Financial
Constraints
0.45 4.20 0.001 0.401 5.58 0.000 0.319 4.70 0.001 0.003 0.60 0.432
*Cash
Flows
Financial
Constraints 7E-04 1.01 0.202 4E-03 1.76 0.007 7E-03 1.10 0.202 -0.11 -2.17 0.07
*MTB
R² 0.2701 0.101 0.0376 0.130
F 10.22 5.13 2.98 4.10
P 0.001 0.003 0.003 0.05

Table 9 shows regression of linear model. The results indicate that overall model if significant. Excess of cash
with moderating variables liquidity financial constraints* Excess cash have positive and significant association with
Investment, positive and remarkable association with return on equity, remarkable and positive relationship with return
on assets and there is no association with leverage. Financial constraints* cash flow have remarkable and positive
association with return on equity, return on assets and investment and there is negative and remarkable association as
per leverage is concerned. Financial constraints* MTB have no remarkable association investment, ROE, ROA and
leverage.
Table 10. Fixed Effect Model Financial Constraints*Excess Cash
SIZE DIVIDEND AGE
Variables Fin. Constraints Fin. Constraints Fin. Constraints Fin. Constraints
Investment Return on Equity Return on Assets Leverage
Coeft p Coeft p Coeft p Coeft p
Financial
Constraints
0.301 6.70 0.000 0.36 4.01 0.003 0.275 5.02 0.001 0.308 2.07 0.201
*Excess
cash
Financial
Constraints
0.53 4.50 0.002 0.40 3.64 0.001 0.301 4.70 0.001 0.001 0.50 0.470
*Cash
Flows
Financial
Constraints 5E-03 1.01 0.303 4E-04 1.56 0.066 8E-04 1.01 0.201 -0.10 -4.17 0.05
*MTB
R² 0.260 0.061 0.0250 0.220
F 8.22 4.05 5.99 4.58
p- value 0.000 0.021 0.003 0.04

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Table10 indicates fixed effect model. The results of fixed effect model revealed that outcomes of this fixed effect
model are changed from previous linear regression. It is clear from the fixed effect model excess of cash has significant
role i.e. the range is from 1% to 10% level of significant level. R2 shows that when one percent changes in excess cash
flow*FC it will bring 26% change in INV, 6% change in ROE, 3% change in ROA and 22% change in leverage.
Table 11. Random Effect Model Financial Constraints*Excess cash
SIZE DIVIDEND AGE
Variables Fin. Constraints Fin. Constraints Fin. Constraints Fin. Constraints
Investment Return on Equity Return on Assets Leverage
Coeft p Coeft p Coeft p Coeft p
Financial
Constraint
0.501 6.01 0.000 0.301 7.20 0.003 0.450 5.05 0.001 0.108 1.01 0.101
s *Excess
cash
Financial
Constraint
0.431 4.60 0.001 0.301 5.53 0.000 0.330 5.30 0.000 0.003 0.601 0.343
s *Cash
Flows
Financial
Constraint 5E-02 1.02 0.301 4E-04 1.54 0.045 7E-03 1.02 0.101 -0.10 -3.17 0.04
s *MTB
R² 0.331 0.208 0.3176 0.130
F 10.13 7.010 2.79 4.64
p- value 0.001 0.001 0.003 0.05

Table 11 shows the random effect model of excess of cash holding with moderating role liquidity. Regression of
Panel data used to evaluate the impact of independent variables on dependent variables. The results of random effect
model show that it has positive and remarkable impact on firm’s performance. Positive and significant sign indicates
that financial constraints have significant moderating effect on dependent variables. R2 results shows that moderating
variable has 33% change in INV, 21% change in ROE, 32% change in ROA, and 13% change in leverage.
5. DISCUSSIONS
This examination discovered that how overabundance money influences firm interest within the sight of directing
job of budgetary requirement. Board information of 56 Pakistani firms gathered for the time of 10 years 2009-2018.
Two speculations are created to look at how holding of excess cash impact venture and furthermore to inspect this
association under the directing variable budgetary limitation. Utilizing three money related imperatives approaches, it
is discovered that overabundance money and speculation are unequivocally reliant in both obliged and unconstrained
firms. Directing job of money related requirement additionally used to discover the relationship of speculation and
abundance money holding. Results show huge impact of abundance money holding and interest within the sight of
budgetary imperative. While Financial Constraints i.e. excess cash likewise show critical impact with interest within
the sight of money related imperatives. Overabundance money firms have their specific techniques related to the
leading group of cash livelihoods. These cash methodologies depend on the possibilities in capital market. The
evaluation of this research is directed to reveal the relationship and effect of excess cash holding for proximity of cash
related necessity in Pakistan. Thus, excess cash holding, income, market to book proportion are taken as autonomous
factors while venture of complete resources, ROE, ROA and Leverage are taken as reliant factors and monetary
requirements, for example, liquidity is taken as directing variable while firm age, firm size and profit are taken as
control factors.
Research Implications
For objective one, we acknowledge our other theory that there is huge effect of abundance money hanging on
interest in budgetary limitation firms. While for second goal, Hausman test is considered reliable as likewise
acknowledge the irregular impact model. Furthermore, acknowledge our substitute speculation for objective two, there
was a balanced financial impact requirement in the association between excess cash holding and venture.Moreover, it
is also suggested that firms should diminish leverage to profit venture.
This research paper makes the following contributions:

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Khan et al. Exploring Financial Constraints as Moderator . . .

• We present theoretical framework to examine that evaluate corporate excess cash holdings in emerging
economy of Pakistan.
• We implement the fixed effect and random effect model by using SPSS to ascertain the association between
holding of excess cash and firm’s performance.
• We also identify financial constraints having moderating effect on the association between holding of
excess cash and firm’s performance.
Limitations
Some of those which we faced are; not all non-financial organizations’ information was accessible, Financial
firms were not included in this study and also data collected only of the firms operating in Pakistan Stock Exchange
(PSX). In this way, these outcomes might be constrained to Pakistani non-financial organizations recorded in PSX.
Future Research
There is always room for improvement and new ideas which are ought to change time by time as per requirement.
So, for the future prospect, more non-financial organizations’ information can be included, financial firms can also be
included in future studies, the information can be gathered from non-financial and financial related firms operating
outside Pakistan.
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