Impact of Weighted Average Cost of Capital and Value of Firm on Firm’s Investment Decision

Fizza Ijaz; Ali Mirza; Hamza Nisar; Nosheen Rasool

Authors

Fizza Ijaz The authors are graduate students at the Department of Economics, GCU Lahore. Author
Ali Mirza The authors are graduate students at the Department of Economics, GCU Lahore. Author
Hamza Nisar The authors are graduate students at the Department of Economics, GCU Lahore. Author
Nosheen Rasool The author is a lecturer at the Department of Economics, GCU Lahore. Author

Keywords:

Weighted Average cost of capital (WACC), Investment, Leverage, Cost of Debt and Equity

Abstract

The intention of this study was to examine the impact of Weighted Average Cost of Capital and value of firm on firm’s investment decision. The yearly data of all variables of Food sector was taken from PSE (Pakistan Stock Exchange) for the year 2008 to 2014. The set of variables used in this study as regressor are WACC and Value of firm whereas regressand is Investment. The techniques that used in this study includes Regression Analysis, Variance Inflating factor and Genralized Least Square Method. Data lie under micro pannel category due to its nature where (n > t). Empirically, we find that weighted average cost of capital plays an important role in investment decision. The results showed that there is negative relationship between Weighted Average Cost of Capital and Investment Decision (which means the high weighted average cost of capital leads to low investment and vice versa) whereas Value of firm has positive relationship with the firm’s Investment Decision.