Chapter 1

Introduction

By government borrowing we mean the liability of government or how much it owes to its

creditors. Other words used for government borrowing are public debt, sovereign debt, national

debt, public interest etc. Some countries do include the debts of provinces and cities in

government debt. Government debt is beneficial for the countries in short run. In short run they

get funds to invest in order to have economic stability (Amadeo, 2018). The reason of

government borrowing is to differentiate between its income and spending. When the tax

revenues of government are not enough to pay for the spending then it borrows money from

creditors to finance their outflows (Riley, 2015). Government faces a shortage when the money

taken by its citizen is less than their expenses. In such cases the government increases the taxes,

minimizes its expenses or borrows money from creditors. Government expenses comes from the

money that it spends on the welfare of society, wages of public sector and capital expenditure

which includes the expenses on buildings, roads, infrastructure, public services etc. So,

borrowing money is the best option for government to fulfill the deficit (Susan, 2014).

Government debt comes from issuing bonds to finance their current expenses or either

investments. Countries that do not have any need for borrowing money are very rare. Very few

excellent economies possess more assets than their liabilities. It is important to differentiate

between gross debt that are the outstanding bonds and net debt that comes from subtracting the

government investments, its assets and resources (Phillips, 2015). Government borrowing can be

categorized into external and internal borrowings based on their sources. External borrowing

comes from the credit from foreign countries (World Bank,) and internal borrowing comes from

1
the money taken within the country (Citizens, development banks, mortgage banks etc.)

(Maduawuchi, 2017). Corporate finance contains funding and investment activities. It is

concerned with growing the wealth of a shareholder. Corporate finance also includes capital

structure decision that is how the companies allocate funding to its operations. Companies fund

their operations with mixture of debt and equity activities. Such decisions are crucial because

they can influence the financial performance of a company (Tauseef, Lohano and Khan, 2015).

Corporate financing also involves investment activities by the corporations which is so much

significant because it supports the economic development of a country and it also promotes

technological processes. Government and Corporate investment are quite significant in both

developed and developing nations (Ahmad, Qayyum 2008). The profitability of a company does

not support the relationship between government and private investment (Monadjemi, 1993). So

many studies emphasize on the estimation that government borrowing is inversely proportional

to corporate investment because of increasing interest rates (Graham, T. Leary and R. Roberts,

2014). If the shareholder wealth is decreased because of the factors like bankruptcy, then the

corporations would avoid debt activities. Many theories estimate that when there is conflict of

interest between management and creditors then the firm would be inefficient in investment

activities which will ultimately decrease the firm’s value (MAcKIE-Mason, 1990).

Research objective

This study has an objective that comprises the numerical analysis of the impact of federal

borrowing on corporate financing. The objective also includes the impact of inflation, taxes, and

savings on corporate financing.

The specific objective of the study is:

2
To study the impact of government borrowing on corporate financing.

To study the impact of public domestic debt, inflation, taxes and savings on corporate financing.

Statement of problem

To achieve the objective the study reports the following questions:

Is there any co-integration among the variables?

How inflation, saving, taxes and pubic.

Chapter 2

Literature review

Ayturk (2016) studied the association between public borrowing and the corporate financing

decisions in 15 European nations throughout the period of 1989-2014 in which he found out a

3
negative relationship between public borrowing and corporate financing decisions of the

European nations while no important connection between equity and public borrowing. He also

found that public debt is a vital feature to control corporate financing decisions. He also found

that long-term liability of a credit worthy firm is more sensitive to public borrowings. This also

means that long-term liability of a company can be a substitute to government bonds. He took

data from European countries such as Austria, Belgium, Denmark, Finland, France, Germany,

Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and United

Kingdom. He selected non-financial firms those were listed in the national stock exchange

throughout the period of 1989-2014. Ali, Ahmed and Rahman (2016) determined the impact of

government debt on economic growth in which they stated that private segment is significant for

the financial growth of a country in which it delivers work along with goods and facilities to its

people. In this case the investment is reliant on the private debt which is usually known as the

hemoglobin of private segment. They found out that the entire variables have co-integration.

Public liability, Savings and price increase has a negative impact on the economic growth of a

state whereas the duties possess an optimistic impact. So, they suggested that the public liability

should be reduced in order to increase credit to the isolated segment of a country. Savings should

also be lessened because it increases the consumption and then the private segment would call

for more credit. There should be measures taken to stabilize the price increase in the economy as

it has a negative impact on the financial growth of a country. Tauseef, Lohano, and Khan (2015)

determined the outcome of debt funding on company’s performance in which they used data

from 95 textile companies of Pakistan. They found that there exists a nonlinear association

among ROE and Debt to asset ratio. The rise in debt to asset ratio rises the ROE to a certain debt

level then it starts decreasing. The ideal ratio of Pakistan textile companies is 56 percent as per

4
them. They also determined that the growth in sale of a business is positively associated to ROE

while the company size has no such effect on it. Graham, Leary, Roberts (2014) investigated that

how does public liability influences the financing and investment decisions of a company and

they concluded that the public debt is very important for influencing the corporate behavior.

When the supply of treasuries rises then the price of the good also changes and as a result the

companies decrease their liability issuance and their investment and buy more liquid assets. They

found that these types of associations are focused in economically fit companies who find their

liability a substitute for treasuries. They eventually concluded that the companies provide

liquidity that changes the structure of their debt and asset in balance sheets in reaction to the

supplies of liquidity by the central government. Sapienzaa (2002) studied the influence

government ownership on the bank lending in which he stated that the interest rates of public

banks are lower than that of the private ones.

The public banks typically prefer big companies and those companies which are positioned in

miserable parts of the country. He found that the loaning conduct of public bank is influenced by

the democratic consequences of the party which is linked to the bank. He also concluded that the

more the party is strong the lesser the interest rates would be charged. Rehman, Khan and Khan

(2009) investigated that what regulates the private investment in our country from 1972-2005. In

this method they used the ARDL co-integration technique and they determined the being of long

run associations as well as short run dynamics of the savings. They examined that maximum

outdated factors do not influence the private investment and, in some cases, they have zero

influence. They also found that the private savings can flourish through the aspects such as

excellence of organizations, risk-taking skills etc. Lewis (2003) examined that does the financial

policy effects the local government borrowing and settlement in Indonesia. He observed that

5
federal loaning has been found promising to the local debtors and the settlement process has not

been up to the mark. The experimental proof proposes that the local administrations have been a

good debtor within their economic dimensions to settle the borrowings and the poor settlement is

because of the reluctance to recompense. To meet the infrastructure demands these debts are

supposed to be increased in the coming years and should have to be market oriented. In order to

improve the market-oriented loaning, the credit risk should be minimized, and it should be made

sure that the borrowers are trustworthy. Ahmad and Qayyum (2008) investigated that how the

private investment in services segment of Pakistan from 1972-2005 is influenced by government

borrowing and macro-economic uncertainty. Prior to studying their research model, they

examined the time series characteristics of their data and then used the cointegration method.

Their findings were that the personal investment in the services segment is influenced by federal

spending and interest rates. There is an inverse relation between federal spending and private or

personal investment which means if the interest rates and the spending by the government

upsurges so the private investment will be reduced. On the other hand, the macro-economic

uncertainty also decreases the private investment. Mackie-MASON (1990) investigated the

relationship between taxes and corporate financing. His study clearly proofs that the relationship

between taxes and corporate financing is substantial. Tax considerably influences the issuance of

debt and equity by the firms. He concluded that the companies with high tax protections are less

likely to finance debt. Monadjemi (1993) examined the financial policy and private investment

and their relationship. He studied that how the federal expenditure influences the private segment

speculation and success in Australia and United States. The research was carried out by the help

of quarterly data from Australia and United States. The results from the data of United States

showed that there is an inverse relationship between federal expenditure and firms’ profit.

6
Similarly, on the other hand the data from Australia indicated a negative relationship between

federal investment strategy and companies’ profit. These findings are in contradiction with the

theory of financial neutrality. MAYER (1988) examined issues in corporate finance in which he

compared approaches towards finance in 5 countries from the year 1970-1985. Merging of

monetary records, give-and-take arrangements between debtors and creditors and recompensing

credit requirements on debtors no extensively misrepresent debt and credit patterns of the firms.

The study also indicates that the association between debtors and creditors forms a commitment

that is good for providing extended term finance. He also found the investment and Debt and

credit finance weak in more than one period situation in which the financing terms explain the

upcoming provision of control.

MYERS and MAJLUF (1984) studied that what will be the financing and investment decisions

of the firm when they have the information which the investors do not have. They considered a

firm which can increase its money by delivering a common stock so that they can avail

investment opportunities. They concluded that the companies must upsurge their equity by

preservation. This means that equity financing is better than the debt financing. Companies can

make extra money by restricting dividends. The company should not sell securities to pay the

dividends. If the company bosses have more information the stock value will decrease. Graham

and Harvey (1999) studied the theories and practices of a company’s finance in which they

gaged 392 CFOs. They asked them about the capital budgeting and structure and cost of capital.

They found that big companies deeply depend on present value techniques and CAPM model

while small companies depend upon the payback principles. Many companies consider their own

risk rather than considering the risk of the project while assessing the investments. They

considered economic flexibility and credit ratings of a firm as significant debt strategy factors in

7
their examination of capital structure. The managers use all those mainstream methods that they

study during their university education like NPV and CAPM to assess the profitability of their

investment. NPV and CAPM are known for their brief speculations and are more easily

understandable by the executives. Rashid, Farooq, Nawaz studied the federal borrowing and

macro-economic dynamics of Pakistan. There findings were that to approach the development

and price increase problems the country does certain actions. The aim of continued development

and minimum inflation is achieved when the financial authorities coordinate with each other.

They used an improved Keynesian Model to investigate the influence of federal debt on financial

indicators like price increase and exchange rate etc. The task of state bank of Pakistan is to

stabilize the economy of the country by controlling the federal borrowing. They used a data set

from the years of 1975-2015. The model that they used to investigate the organizational changes

was structural vector autoregressive. To investigate the long run association among the variables

cointegration was used. They concluded that the federal borrowing is directly proportional to

macro financial sums in the long run. A perfect financial management effort is required to have

good economic conditions in the country. Caballero, Fernández, Park (2018) studied federal

borrowing and financial actions in emerging economies. They found that foreign financing by

the companies in good economies is significantly increasing in the form of bond issuance and it

has given a gate way by which foreign economic factors can drive financial actions in these

countries. They said that there is an inverse relationship between the financial actions and

foreign economic indicators. The reason for this inverse relationship is that the economic

indicator has significant speculative power on the upcoming financial actions.

BADOER and JAMES (2016) studied the causes of company debt issuance in long term. They

investigated that the investment-based companies have debt maturities more than 2 decades.

8
They further explained that gap-satisfying conduct is an important cause of these issues which

are basically long term in nature. They used company liabilities data from the year of 1987-2009

and then guessed out that gap satisfying conduct is more bulging in the long run of maturity

range, where the arbitrage is made inflated by the obligatory risk money. Moreover, they

explained that if the extended term federal bonds have variations in them so it will significantly

affect the total level of company’s borrowing. Niu and Zeng (2018) studied the financing of

corporations with loss aversions and differences in which they built a balanced model to study

the impact of differences and loss aversions on share price and capital structure. They concluded

that the loss aversion is inversely related with capital structure and share price with no

differences. In the situations where there lies a change in thoughts of bosses and exterior

investors, the wealth structure and the choice of issuing a security has changed relations with loss

aversions and differences level. On the other hand, the share price has inverse relation with the

aversion and direct relation with divergence level. Brounen, Jong, Koedijk (2005) studied the

capital structure strategies that exist in Europe in which they presented the conclusions of a

global survey between 313 CFOs on the choice of capital structure. They found that so many

theoretical studies are being applied by experts in UK. They also found that by comparing our

previous findings from US this time the results that we have produced have the presence of

pecking-order behavior. This sort of behavior is not triggered by unequal data. Overall, they

examined an extraordinarily low differences across the globe in the presence of important

institutional variances. Private firms are quite different from the public firms e.g. the listed

public firms make use of their share price at the time of issuing new securities. They also didn’t

find any indication that the agency problems are significant in the structure of wealth and its

choice. Chauhan (2017) examined the financing of a company and its deleveraging in India. He

9
found an orderly deleveraging of corporations and investigated the reasons that contributes to

such deleveraging. He also found that deleveraging is worldwide in the manufacturing and non-

manufacturing companies. The findings of this research show that constant imaginary factors of

the company leverage cannot explain the actual explanations for decline in liability ratios of the

company. This explanation can be given by institutional deficits in the form of immature bond

markets and reduction in the investments by the company. Silva (2018) studied collective

demand, company finance and the financial policy in which she investigated that how variety of

economic frictions and the dominant competition impact and help the pass on of the insignificant

interest charges to the real charges, its transference into assets and company’s money properties.

She further investigated that the structure of the market somehow generates collective demand

which makes the transference at the policy rate of 4.8% and enlarges the impact of economic

frictions on assets. The economical constraints increase the sensitivity of the company to

monetary policy.

Kumhof and Tanner (2005) found out that it’s not always the case where public borrowing will

deeply influence the private sector or its liabilities. They said that the banking segment owns the

danger related to the private credit more than the other segments of the economy. Narayan

(2004) examined the influence of public expenditures on the investment of private segment in the

economy in which he used data from the years of 1950-2001 and then he separated this time span

into two portions. The first portion is from 1950-1975 and the second portion is 1976-2001. He

found that the explanations of intense participation of government in private speculation is its

expenses whereas in the second portion public expanses has no such influence. Naqvi (2002)

found out that public investment greatly influences the corporate investment and these

speculations are very much important for the financial growth. Sakr (1993) studied that factors

10
that cause private speculation in Pakistan. He concluded that corporate financing greatly depends

on the credit that corporations get for their financing and, he found that the government

speculation is directly proportional to the corporate speculation. He also found that public

investments are meaningful when they are for infrastructure otherwise not. He used flexible

accelerator model for his findings.

Chapter 3

Methodology

Financial expansion of the nation is suggestively vital for its economic development. Credit to

the private sector also plays and important role in the country’s economic growth. Governments

take loans to finance their needs and this is quite important for the private investments. The

previous studies showed that the government borrowing is inversely related to the private

11
investment and financing in long run because of its increased involvement in the private sector.

(Hussain et al. 2009). The country’s on-going expenses and interest charges are the reasons why

there is little personal investment in Pakistan. (Ahmed and Qayyum 2008).

Data Source

This research is purely based on numerical study. Time series data of variables from the years of

1974-2017 is used for analysis. The data is taken from World Development Indicators (WDI)

data catalog of Pakistan. Some figures of 2018 are taken from Economic Survey of Pakistan

2017. The data is collected from the official websites of WDI and Pakistan Ministry of Finance.

Data Variables

Domestic credit to private sector

By domestic credit to private sector we mean those economic capitals that the financial

institutions offer to the private segment of the economy. This can be done by providing loans, by

purchasing of nonequity shares and other receivables that build a right for reimbursement.

Public domestic debt

Government loan drifted within the premises of the country is known as public domestic debt. It

can be mandatory or voluntary. It can also be manipulated and projected as well.

Net Taxes on Products

Net taxes on products are those duties which are owed per unit of some services or goods shaped

or transacted. These duties are exact quantity of cash per unit of some goods or conveniences.

12
Gross Domestic Savings

It is denoted as fraction of GDP and is calculated by subtracting final ingesting expenditure from

GDP. It comprises of the savings of business sector, government sector, private sector and

households.

Inflation, Consumer Price Index

Inflation is a gradual rise in the prices of facilities and goods in a country over a period. Here

CPI is used as a proxy for inflation. CPI calculates variations in the prices of facilities and goods

that are bought by the families.

Analysis technique

The time series data has a unit root issue which makes arranged designs in the data that are

random. It is also known as random walk in the data. To survive this issue, we have used

Augmented Dickey-Fuller test (ADF). ADF can succeed compound and huge data. ADF is used

to study whether a problem in the statistical inferences exists in the model or not also known as

unit root problem. This test was invented by Dickey and Fuller in 1981. Beside this we have also

used Autoregressive Distributed-Lagged Model (ARDL) for long run analysis of the data. This

model is also used for the time series data. It is used to find association between the financial

variables. For the short run analysis, the Error Correction Model (ECM) is used. It is used to

study both short run and long run impact of one variable on another. Moreover, this method is

appropriate for small sample size. Prior to applying ARDL we will check the long run

13
relationship by bound testing approach. This test is used to check the co-integration between the

variables who are stationary at levels I (0) and I (1).

Model Specification

Enormous studies show the effect of government borrowing on corporate financing. This study

investigates the long run as well as the short run effect of government borrowing on corporate

financing. The research developed the following model.

Y = α + β1X1 + β2X2 + β3X3 + β4X4 + ε

or

LogDCPS = α + β1logPDD1 + β2logNT2 + β3logGDS3 + β4logCPI4 + ε

Where,

LogDCPS = Log of Domestic credit to private sector (% of GDP).

logPDD1= Log of Public Domestic debt (Rs. Billion).

logNT2= Log of Net taxes on products (constant local currency unit).

logGDS3= Log of Gross domestic savings (% of GDP).

logCPI4= Log of Inflation, consumer price index (annual %).

ε = Error Term.

Here, the dependent variable is domestic credit to private sector and this variable designates the

corporate financing decisions. CPI, Net taxes on products, Gross domestic savings and public

domestic debt are independent variables. Here, proxy is only used for inflation that is CPI and

14
corporate financing that is Domestic credit to private sector. For the rest there is no proxy.

Underneath stated is the appearance for ARDL null and alternative hypothesis.

H0 = 1 =  =  = = 5 = 0

H0 = 1 ≠  ≠  ≠ ≠ 5 ≠ 0

Null hypothesis indicates that there is no co-integration and the alternative hypothesis indicates

that there exists co-integration between the variables. We use bound test to investigate the

mentioned hypothesis by calculating F-statistics. We also associate the values of F-statistics with

the table values. If we find that the F-statistics value is more than the upper bound, then we will

accept the alternate hypothesis which indicates co-integration. If the F-statistics value is less than

the upper bound, then we will accept the null hypothesis which says that there is no co-

integration between the variables. There might be the case when the F-statistics results lie

between the upper and lower bound. If this happens to be true, then the results are questionable.

Chapter 4

Findings and interpretations

Unit Root Test for Stationarity problem

ARDL bound testing model is used when the variables are stationary at levels I (0) and I (1).

This examination used the time series data from the period of 1974-2017. The time series data

faces the problem of stationarity in its data. First, the unit root problem was tested to investigate

15
the order of integration. This approach was developed by Dicky and Fuller to test the stationarity

of data variables. In the below mentioned table Domestic credit to private sector along with the

independent variables such as Public Domestic Debt, Net taxes and Gross Domestic Saving are

non-stationary at level and therefore I (0). Here only CPI is not facing the unit root problem and

is stationary at level I (0). So, we don’t need to make CPI stationary. All other variables are

made stationary at first difference or I (1) which proposes that these variables are integrated at

first difference and level. The test results are mentioned in the following two tables. The first

table includes unit root problem which is managed by taking first difference in the second table.

Table 1

ADF Test

Test levels of Unit Root.

Variable ADF Test 1% level 5% level 10% level Comments

LogDCPS -1.089 -3.628 -2.950 -2.608 Non-stationary

logPDD -1.997 -3.628 -2.950 -2.608 Non-stationary

logNT -1.192 -3.628 -2.950 -2.608 Non-stationary

logGDS -1.980 -3.628 -2.950 -2.608 Non-stationary

logCPI -3.230 -3.628 -2.950 -2.608 Stationary

Table 2

ADF Test-First Difference

Variable ADF Test 1% level 5% level 10% level Comments

16
 LogDCPS -5.641 -3.634 -2.952 -2.610 Stationary

logPDD -4.190 -3.634 -2.952 -2.610 Stationary

logNT -9.131 -3.634 -2.952 -2.610 Stationary

logGDS -7.575 -3.634 -2.952 -2.610 Stationary

logCPI -3.230 -3.634 -2.952 -2.610 Stationary

In the above tables,

logCPI is stationary at I (0).

logDCPS is stationary at I (1).

logPDD is stationary at I (1).

logNT is stationary at I (1).

logGDS is stationary at I (1).

LAG Selection Criteria

Optimal lags for the model are 4. The best lag distance is reliant on amount of observations. The

Final predictor error (FPE) and AIC are used when the observations are underneath 60 and

Hannan-Quin is used when the observations are more than 120. Here AIC is used to examine the

optimal lags. It is used to determine how many lagged values of each variable should occur on

the right-hand side. The reason why AIC is used is because the number of observations is less

than 60. Lag criteria selection is important before ARDL and ECM models.

17
 Table 3: Lag Order Selection Criteria

Lag LL LR FPE AIC SC HQ P

0 90.8573 - 9.4e-09 -4.29286 -4.08175 -4.21653 -

1 317.564 453.41 4.0e-13 -14.3782 -13.1115* -13.9202* 0.000

2 329.56 23.992 8.1e-13 -13.728 -11.4058 -12.8884 0.520

3 364.068 69.016 5.9e-13 -14.2034 -10.8256 -12.9821 0.000

4 408.143 88.15* 3.2e-13* -15.1571* -10.7238 -13.5542 0.000

* specifies lag order designated by the standard.

AIC: Akaike information criterion.

FPE: Last prediction error.

LR: consecutive modified LR test statistic.

HQ: Hannan-Quinn information criterion.

SC: Schwarz information criterion.

Bound Testing

Table 4: ARDL Bound Testing Method

F-Stats 10% significance 5% significance

18
 LB I(0) UB I(1) LB I(0) UB I(1)

6.338 2.45 3.52 2.86 4.01

Here we use bound test to calculate F-statistics in order to analyze our hypothesis. F-test is

essentially applied to examine the long run relationship presence among variables. As mentioned

before, the null hypothesis tells us that there will be no long-run relationship between variables

and the alternate hypothesis suggests that there is long-run relationship between the variables.

From Table 4 it is obvious that the F-statistics value of 6.338 is greater than the upper bound

value of 3.52 and 2.86 of 10% and 5% significance level respectively. Therefore, we accept the

alternate hypothesis which designates that there exists long-run relationship between the

variables. It also proves co-integration between the variables. The bound test gives the proof that

the dependent and independent variables possess statistical co-integration. The alternate

hypothesis provides us the foundation for employing the ARDL and ECM approaches. The

bound test is displayed in below mentioned table.

ARDL for Long-run analysis and ECM for Short-run analysis

Table 5: ARDL Regression (1,1,0,0,1)

Model: ECM

Sample Size: 1975-2017

No of observations: 43

D.logdcps Coef . STD. t P>|t| (95%

19
 ERR confidence

interval)

ADJ

logdcps

L1. -0.2308438 0.0694192 -3.33 0.002 .-3717722 .-0899154

Long

Run

logcpi -0.2050954 0.1170203 -1.75 0.088 -0.4426592 0.0324685

loggds -0.1591798 0.1219392 1.31 0.2 -0.08837 0.4067296

logpdd -0.5752104 0.2555442 -2.25 0.031 -1.093993 -0.0565281

lognt 0.605931 0.3187349 1.9 0.066 -0.0411352 1.252997

Short run

logcpi

D1. 0.0368599 0.0253937 1.45 0.156 0.0884119

lognt

D1. -0.2495986 0.0592905 -4.21 0 -0.3699648 -0.1292325

_Cons -0.8518844 0.5684703 -1.5 0.143 -2.005941 0.3021716

Now we know about the existence of long-run relationship between the variables so we will

analyze our data through ARDL and ECM approaches. Above mentioned table shows the results

of ARDL and ECM models. The table shows the long run and short run association between

dependent and independent variables. Public domestic debt is significant at 5% significance level

in long run. It has an inverse relationship with domestic credit to private sector which shows the

20
corporate financing. Public domestic debt is also known as government borrowing. The statistics

indicate that 1% rise is public domestic debt decreases corporate financing by 0.57%. CPI is

significant at 10% significance level which is decided based on t-value. It also inversely

influences the dependent variable by 0.2% when increased by 1%. The Net Taxes are proved to

be directly proportional with the positive impact on dependent variable. 1% rise in the taxes will

increase Domestic credit to private sector by 0.6%. ECM is used to study the variables in short

run. In short run only Taxes are significant at 5% significance level and shows a negative impact

on dependent variable.

Diagnostics

This study uses some diagnostic tests to check the efficiency of the model. Here two diagnostic

tests have been reported. The first one is Breusch-Godfrey LM test for autocorrelation and the

second one is Breusch-Pagan test/cook-Weisberg test for heteroscedasticity.

Table 6: Breusch-Godfrey LM test for autocorrelation

Lags p Chi 2 df Prob > chi2

1 0.020 1 0.8879

The results show that there does not exist auto correlation among variables as the P-value is

greater than the significance level of 5%.

Table 7: Breusch-Pagan test/cook-Weisberg test for heteroscedasticity

21
 Breusch-Pagan test/cook-Weisberg

test for heteroscedasticity Model

Variables: fitted values of

logdcps

(H0: constant variance) Prob > chi2 = 0.6753

The results are showing that the data equally varies across the values of the predictor variables.

The results are not significant, and heteroscedasticity is not the problem.

Chapter 5

Conclusion

The result show that there exists long run association between the variables. Co-integration is

also proved. The results of long run show that the public domestic debt has a significant inverse

relation with corporate financing. It is because when the government is underneath a lot of debt it

will not be able to provide credit to the private sector. The public domestic debt should be

decreased so that the private sector gets more credit. CPI is also inversely related with the

domestic credit to private sector. In the long run inflation has a negative impact so it needs to be

stable. This will bring progress in the financial sector of the economy. The net taxes have a

positive impact on the dependent variable. Taxes are very important for the financial stability of

the economy. When the tax revenue rises the government will not seek financial sectors for debt

which in response will increase the amount of credit provided to the private sector. In short run,

22
taxes negatively impact the corporate financings. Autocorrelation and heteroscedasticity were

not proved by the test results.

Chapter 6

References

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uncertainty on private investment in services sector: Evidence from Pakistan.

Ali, A., Ahmad, F., & Ur-Rahman, F. (2016). Impact of Government Borrowing on Financial

Development (A case study of Pakistan).

Ayturk, Y. J. F. r. l. (2017). The effects of government borrowing on corporate financing:

Evidence from Europe. 20, 96-103.

Badoer, D. C., & James, C. M. J. T. J. o. F. (2016). The determinants of long‐term corporate

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