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Cracking the Code: Hidden Choices and Visible Impacts Pattern Recognition in Corporate Finance

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Listed:
  • Amjad Ali

    (University of York)

  • Suresh Kumar Oad Rajput

    (Chain Sys Corporation)

Abstract

Research in corporate finance suffers from bounded rationality due to static modeling. Adopting factor analysis, an unsupervised machine learning approach, and balance sheet information (accounts) over time, we find underlying dynamic latent corporate finance decisions. Our study identifies three latent corporate finance decisions adopted by executives in Pakistan, (1) long-term capital investment, (2) short-term debt credit, and (3) financial flexibility. The order of the decisions and the empirical tests highlight agency problems rooted in familial ownership concentration. We find that long-term capital investment and short-term debt credit decisions significantly reduce the firms’ present and future performance. Conversely, managers do not embrace financial flexibility, despite its ability to improve performance. The study highlights a contradiction, firms bounded by ownership concentration prefer control over performance and do not make decisions to optimize and protect minority shareholders’ wealth, depicting a moral hazard problem.

Suggested Citation

  • Amjad Ali & Suresh Kumar Oad Rajput, 2025. "Cracking the Code: Hidden Choices and Visible Impacts Pattern Recognition in Corporate Finance," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 32(4), pages 1243-1282, December.
    • Handle: RePEc:kap:apfinm:v:32:y:2025:i:4:d:10.1007_s10690-024-09487-2
    DOI: 10.1007/s10690-024-09487-2
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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