Development Financing and Economic Governance: Analysis of the Liquidity Crisis and Circularity Debts in Pakistan

Purpose: This paper is based on the models derived by the researchers to explain the patterns of corporate governance, firms’ financial policies and liquidity position. Methodology: A deductive approach has been adopted to reconcile and examine the different models of corporate governance and firms’ financial policies. Findings: The study showed that corporate savings is a good predictor of the macro level investment in a country. The magnitude of national investment will increase by improvement in corporate savings. In fact the corporate savings indicate the expansion in business activities which may be an indicator of the trust and confidence of private sector. On the other hand it explains the financial health of corporate sector, which may provide the significant portion of tax revenue to the government for developing projects in public sector. The study has concluded that corporate governance is a significant variable in determining the liquidity and circularity debts. In this way corporate governance becomes a crucial determinant of the national investment. Implications:The bad corporate governance may deteriorate the investment activities at national level, which may damage the economy for a longer term. This study also indicates that capital structure and the patterns of ownership play important role in the determination of corporate governance of an institution