The effect of firm size and internal funds on investments in industrial and services firms listed in the Philippine Stock Exchange from 2001-2009

This research paper uses both industrial industry panel and services industry panel data to examine the relationship of investments and internal funds in the presence of capital market imperfections. We also analyzed how the sensitivity investments to the availability of internal funds differs across firm size groups in both industries. The results reveal strong correlation between internal funds and investments for both industrial and service industries. We investigate this further by analyzing the impact of firm size. Our results show that small firms\u27 investments in the industrial industry show the highest sensitivity to internal funds while insignificant relationship was observed in the medium and large-sized groups. More interestingly, we observed that investments of medium firms in the services industry are most sensitive to internal funds while insignificant relationship exists in the small and large-sized groups. All of our findings are robust to alternative measures of firm size