Effects Of Noise In A Data Communication

Effects Of Noise In A Data Communication This report will look into different types of noise that are associated with Unshielded Twisted Pair and Radio Waves. The noise that affects these transmission mediums such as thermal noise, crosstalk, multipath interference, intermodulation noise and impulse noise will be explored and the damages that it can cause to data being transmitted will be explained. I will also discuss the different modulation techniques and technologies that can be used to try and reduce the effect of the noise and reduce the risk of data loss through transmission. Introduction In 1962 Computer Scientist Joseph Carl Robnett Licklider developed ARPANET, which connected 4 computers across America; these computers were located in University of California Los Angeles, Stanford Research Institute, University of California Santa Barbra and the University of Utah. This network was designed for the purpose of sharing sensitive military data between different locations securely. However the first attempt at sending data over the network was not successful, as the UCLA computer crashed as they attempted to log into the computer at Stanford [1]. The result of these connection problems was the creation of TCP/IP and since then networks have grown in size and data rates and transmission mediums have evolved and new technology has been introduced, Noise has also started to play a part in how networks are built, as specific techniques can be put in place to try and reduce noise. Guided Media In a communication system using guided media, the signal is sent in the form of electromagnetic waves along a physical path. This physical path is what guides the signal, and can come in the form of 4 main media types, Unshielded Twisted Pair; Shielded twisted Pair, Coaxial or Fibre-Optic cables. However each of these mediums has several different standards of cables associated with them. This report will cover Unshielded Twisted Pair and the noise that can affect it. UTP UTP first originated in the 1970s, it consists of 8 insulated copper wires, each of these copper wires has a diameter of 0.4mm to 0.8mm, and these copper wires are twisted together into pairs, so there ends up being 4 pairs of 2 wires, then all 4 pairs are wrapped in a protective plastic sheath. However UTP is susceptible to several different types of noise that can lead to signal impairment and even cause the loss of data. UTP uses Manchester Encoding UTP Noise When a data transmission is received, the received signal is often modified from the original signal that was transmitted; this modification is caused by noise. Noise is defined as additional unwanted signals that are inserted somewhere between transmission and reception [2]. There are 4 different types of noise that will be researched; these are Thermal Noise, Cross talk, and Intermodulation Noise. These sources of noise can be placed into one of two categories, internal noise or external noise. Internal Noise is caused by the used of electrical components found in all communication systems. This internal noise could be produced by changes in current or imperfections on conducting materials. External Noise can be caused by different factors, such as lighting storms, or the use of large electrical machinery. [3] Thermal Noise Thermal Noise also known as Johnston or white noise was first observed in 1926 by John B. Johnston in Bell Labs. Thermal Noise is caused by electrons that become agitated at any temperature above 0, at this stage they begin to move in random patterns and bounce off other electrons, however in theory it could be stopped completely if all the components were kept at a temperature of absolute zero which is 0 Kelvin or -273.15 °C as this would mean that all the electrons would move at their slowest meaning thermal noise would be as good as eliminated, however to try and achieve absolute zero and maintain it would be extremely difficult . [4] Thermal noise is found across all the bandwidths typically used in a communication system and currently there is no practical way to completely eliminate it, however you can use different types of modulation to lower the frequency of the signal which in turn will lower the thermal noise, so for example if you had an Ethernet system and used PAM-5 modulation which has a frequency of 125MHz and this would give you a thermal noise value of 4.801510-13 WHz-1 at room temperature, where as if MLT-3 was used, you would end up with a thermal value of 1.20037510-13WHz-1 under the same temperature conditions. [5] To work this out the equation Pn= k . T. Δ f was used, where k is Boltzmans constant, T is the temperature plus 273, in this case 18 degrees plus 273 which ends up as 291 for T, and Δ f is the frequency of 125106 Hz for PAM-5 and 31.25106 Hz for MLT-3. Cross Talk Cross talk is caused by the coupling of the copper cables magnetic and electric fields, which causes some of the signal to become lost or distorted. There are two main types of cross talk, NeXT (Near End Cross Talk) and FeXT (Far End Cross Talk), NeXT is when the coupling of magnetic and electric fields occurs near the source of the signal and FeXT is when it occurs near the receiver end. To try and prevent cross talk in UTP cables, the copper cables are twisted into pairs, the number of twists per foot/meter is defined as the twist ratio, so a cable with a higher twist ratio will be more efficient eliminating cross talk, as the twisting of the copper wires makes it harder for the coupling of cables as the loop area between the wires is reduced. However if you have a cable with a high twist ratio that means that you will be using more copper cable and the signal will have to travel a further distance to the receiver, meaning attenuation could become a factor. [6] Intermodulation Noise Intermodulation noise may be present in any communications system that sends signals at different frequencies across the same medium. Intermodulation noise produces signals that are the difference, sum or multiple of the two original frequencies. Intermodulation noise is caused by the transmission medium, transmitter and receiver not being linear systems, meaning that instead of the output matching the input, the output is different from the input. It can be caused by signal strength being too excessive for the device to handle or a problem with one of the components. An example of intermodulation Noise would be if there were two signals, 10Hz and 15Hz sharing the same transmission medium and there was intermodulation noise present, these two signals could become one signal at 35Hz. This would mean that not only have the two original signals been disrupted it could potentially disrupt a third signal if there was another 35Hz signal sent out on the medium. To overcome intermodulation noise, you can use Orthogonal Frequency-Division Multiplexing, which is explained more in the multipath interference section under unguided media. [2] Unguided Media When using Unguided Media in a communications system, the signal is sent through the air via an antenna in the form of electromagnetic waves, these waves have no specific path to follow. Unguided media used for several different communications systems like wireless, Bluetooth, infrared and satellite. Each of these systems use different types of unguided media for example satellite uses microwaves, but this report will focus on wireless and the noise that can affect the radio waves wireless uses. Wireless The first radio waves were sent by Guglielmo Marconi in Italy in 1895 and in 1899 he sent the first wireless radio signal across the English Channel [7]. Wireless works by an Omni directional antenna sending out a broadcast of radio waves, these radio waves are sent at a specific frequency depending on which standard they comply to, for example if the standard being used is 802.11n then they will be sent at 2.4GHz or 5GHz. Wireless Noise Wireless can be affected by many different things. This is because radio waves travel through air meaning it can be affected by different types of weather, like rain or snow causing scattering, or obstacles such as trees or buildings causing reflections. However it can also be affected by other devices transmitting at the same frequency causing signal loss. Multi Path Interference Multi Path interference is where a receiver receives multiple copies of the same signal, at delayed times, this mainly affects radio, as satellite or microwaves generally are line of sight so there would be no obstacles present for reflection to take place. However with radio waves it is caused by the antenna sending out broadcast signals, and these signals are then reflected between obstacles, and if these reflections arrive at the receiver it means that it will end up with several different copies of the same signal arriving at varying times, and depending on the different path lengths of the original direct signal and the reflected signals it could create a larger or smaller signal that is eventually received. Multipath Interference can cause a number of problems like data corruption, which occurs if there receiver picks up multiple different reflected signals and is unable to determine the transmission information, it can also cause signal nulling, where the reflected signals are received exactly out of phase with the original signal causing the original signal to be cancelled out. Not only can it cause data loss it can change the amplitude of the signal up or down, so if the reflected signals arrive out of phase with the original signal it will cause a drop in the signal amplitude but if they arrive in phase with the main signal the amplitude will increase. To try and reduce multipath interference a diversity solution can be used. This works by using two antennas with the same gain, that are separated from one another but within the range of the same transmitter, this means that one of the antenna receive most of the multipath interference allowing the other antenna to receive a normal signal. [8] Another way to reduce Multi Path Interference is to modulate the signal with Orthogonal Frequency-Division Multiplexing, OFDM works by splitting the signal up into 48 subcarrier signals. These 48 channels each carry a different portion of the data being sent and transmit them in parallel channels. [9] These subcarrier signals are modulated with BPSK, QPSK, 16-QAM or 64 QAM, and they have a convolution code rate of  ½, 2/3 or  ¾. The data rate of the signals is determined by the modulation used and the convolution code rate. Also there is 0.3125MHz frequency spacing between each of the subcarriers. [10] [11] OFDM also has a guard interval which means that any data arriving at the receiver will only be sampled once the signal has become stable and no more reflected signals are picked up that would cause changes to the phase or timing of the signal. Also because each subcarrier is on a different frequency any interference caused by reflected signals only affects a small percentage of the subcarriers meaning that the rest are received correctly. [9] Impulse Noise Impulse Noise is an unpredictable problem. It consists of short spikes of high amplitude or short irregular pulses, these spikes and pulses are generated from a variety of different unpredictable causes usually however they relate to some sort of electromagnetic instability for example a lighting storm or any faults present in the communications devices. Impulse noise generally affects digital signals worse than it does analogue signals, for example if voice data was sent as an analogue signal and there was occurrences of impulse noise, the voice data would still be understandable as the impulse noise would create short crackles in the data, however with a digital signal the result of impulse noise could mean that all the bits sent through the duration of the impulse noise could be lost, it can however be recovered by sampling the received digital waveform once per bit time, but it can still result in a few bits being in error. As impulse noise is unpredictable, there is no way to el iminate it, however to reduce the effects of it, Coded OFDM can be used, this is very similar to OFDM, in the way that it splits the signal into multiple subcarriers, however Coded OFDM also has forward error correction that is included with the data. Because this error correction is included with the data it means that any data lost by impulse noise can be corrected at the receiver. [12] Conclusion After researching different types of noise and how it effects data communications, it became clear that it is a factor present in all systems and cannot be completely eradicated, as it can be caused by several different external sources made my man and internal sources caused by the data communication equipment. However, different strategies, techniques and error correction systems have enabled us to limit the effect that noise can have on a system and this has enabled technology to advance, meaning the chance of losing any crucial data due to the effects of noise is sufficiently lower now that what it was years ago. Reflection Throughout this report I have gained a better grasp of different aspects of data communications, for example, noise is present in all systems as any electronic device creates noise through the movement of electrons, imperfections in conductive surfaces and fluctuations of current. I also increased my knowledge of different types of modulation, and how they work regarding changing the frequencies or sending additional data to help with error correction. I have also gained knowledge on how noise can be caused by different types of weather and how they can affect the electromagnetic field and cause detrimental effects on data communication systems. Not only did this report help me gain more knowledge on data communications, it also increased my knowledge on different aspects of physics, and how closely the two subjects are connected. I feel I completed this report to a reasonably high standard and found plenty of information available on the subject, however understanding this information was more difficult than expected as maths features highly in several of the sources I found, however this did not put me off, it simply lead me to try and comprehend the more complex maths side of the topic. Once I had completed the report I had to try and remove some parts as I had overshot the word count, this proved difficult as I felt I would be missing parts out if I removed some. Overall I would say I learned a great deal more about the complexity of noise and data communication systems.

How Globalization Effects Third World Countries Essay

Globalization refers to the ways in which capital; people, information and culture can now flow back and forth across national borders with a greater ease and greater rapidity than they had before this new phenomenon. Globalization, the growing integration of economies and societies around the world, was a word hardly used only a few years ago and now I doubt if there is a single country in the world where globalization isn’t being discussed. The global spread of the term is evidence that something very new is happening in the world but I’m not saying this new term is beneficial for all. This phenomenon has both positive and negative effects on third world countries but in the end it seems like only one party is benefiting, the rich. † The poor are thus being doubly denied their right to life first when the resources that sustain them are taken away from them in a free trade world, and then when the pollution and waste of the global economy are unequally and unjustly piled on them.† (Global Capitalism p.128)Though globalization has been one of the most hotly debated topics in international economics over the past few years there has been some bright sides. Rapid growth and poverty reduction in China, India, and other countries that were poor 20 years ago, has been a positive aspect of globalization. Another positive attribute according to Thomas l. Friedman, in his book, The Lexus and the Olive Tree, is globalization â€Å"increases the incentives for not making war in more ways than in any previous era in modern history.†Ã¢â‚¬  To begin, it is important to explain the meaning of The Lexus and the Olive Tree. The Lexus refers to technological advancement and growth, where the Olive Tree refers to traditional roots and stability. The basic premise of the book is the conflict between the two within cultures, economies, and individuals and how it if possible, at all, to bring the two camps together.† (Friedman p.31-34)But globalization has also generated significant international opposition over concerns that it has increased inequality and environmental degradation. The proponents of globalization cite numerous benefits to be gained by underdeveloped countries though greater access to the goods and services that transnational companies can provide. Anti-globalization activists, on the other hand, point to many examples in the developing world where globalization has robbed indigenous  populations of traditionally held land or water rights, disrupted cultural and social values, and disturbed lifestyles. Problem StatementWhat I intend to examine in this paper is the comparison trend of capitalism in the late 19th – early 20th century with the trend of globalization today. Explaining that globalization of the world economy has the potential to bring both great benefit and great hardship to third world populations, but like capitalism, globalization without proper checks and balances could become a runaway force, knowing no moral or ethical boundaries. Though globalization offers extensive opportunities for worldwide development, in my opinion this process is not progressing evenly. I intend to prove that the richest of 225 people in the world have a combined wealth equal to the annual income of the poorest 47% of the world’s individuals. (Joshua Karliner) Countries that have been able to integrate with other nations are seeing faster growth and reduced poverty. However, many nations have not been so fortunate, especially in developing areas. One in four individuals across the world lives in abject poverty, without access to adequate food, clean water, sanitation, essential healthcare or basic education services. This is both the principal moral issue facing the world as well as the utmost menace to the future security and stability of the planet. Many of today’s problems, such as war and conflict, mass migration, and environmental degradation are rooted in poverty and inequality. Yet if globalization resembles early capitalism, the rise of international anti-globalization organizations is beginning to resemble the early development of trade unions in the western world. While pro-globalization forces still consider these groups to be nothing more than a collection of cranks and misfits, incapable of understanding the global economy, there is growing evidence that these groups are becoming a force to be reckoned with:†Ã¢â‚¬ ¦ the process of globalization also has created alliances once thought impossible. At the Seattle protests against the World Trade Organization in 1999 — and later at â€Å"anti-globalization† protests in Washington, DC, Los  Angeles, Prague and Quebec City — debt relief activists, Green party members, health care advocates, labor leaders, development economists, religious groups and hundreds of thousands of young people marched together.† (AlterNet par. 2) Interestingly, the same forces that facilitate economic globalization also greatly enhance the abilities of the anti-globalization faction to mobilize against it. Greater communication, Internet use, travel, and news dissemination allow activists around the world greater access to each other and greater knowledge of difficulties being faced in developing countries. Of particular interest is the timeliness of the broadcast of information, this sometimes allowing activists to slow or stop projects, rather than just criticize them after the fact. Globalization can also put a spotlight on issues of international and local justice, giving people access to supporters that was never before available and helping to advertise problems that in earlier times would never have been picked up by the media. Thus it seems possible that while developing countries very often have governments that actively promote the most ugly aspects of globalization, or are at least powerless to prevent them, the rising tide of grass-roots activism shared by both the developed and developing worlds may, in fact, be the beginning of an organization with the ability to curb and regulate globalization. In order to have a clear understanding of globalization’s impact on third world and the developing world, it is important to understand exactly what globalization means. When discussing globalization many make the mistake of assuming that it is a merely or even primarily an economic process. However, globalization also has political and social implications. The International Monetary Fund (IMF) sees globalization as an economic, and as a purely natural stage in human cultural and technological evolution stating:†Economic globalization is a historical process and the result of human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through trade and financial flows. The term sometimes also refers to the movement of people  (labor) and knowledge (technology) across international borders.† (IMF par. 6)The IMF also assumes that globalization, because it is a natural occurrence, is a good thing. From this point of view, the inequalities of wealth and poverty are the result of unequal globalization, and once that full globalization is reached, poorer countries will automatically benefit. The income gap between high-income and low-income countries has grown in recent decades. But it is wrong to jump to the conclusion that globalization has caused the divergence, or that nothing can be done to improve the situation. To the contrary: low-income countries haven’t been able to integrate with the global economy as quickly as others, partly because of their chosen policies and because of factors outside their control. No country, least of all the poorest, can afford to remain isolated from the world economy. Every country should seek to reduce poverty. The international community should endeavor by strengthening the international financial system through trade and through aid in order to help the poorest countries integrate into the world economy, grow more rapidly, and reduce poverty. That is the way to ensure all people in all countries have access to the benefits of globalization. (IMF par. 48)Objective OverviewMy main reason for writing this paper on globalization effects on third world countries is because I’m from a developing country, Grenada. Though it’s been many years sine I last visited my country of birth I’m still very interested in seeing this beautiful island successfully build up its economy. Also I want to be very much a cause of that development but I first needed to find out the general meaning of globalization and it’s effects on poverty stricken countries. As well as if globalization is helping or hindering my country as well as other developing nations. During my research I’ve gained a better understanding of globalizations cause and effects. The trends of globalization, rapid technological advancements, free trade and emergence of trading communities present challenges to Grenada’s developing economy. The Caribbean region as a whole is struggling with the reduction of international aid funds, due to relatively strong performance on the UN Human Development Index, at the same time that the region’s traditionally agricultural based economies are turning to tourism  for economic growth. In my opinion this hasn’t been enough for my country’s developing process. Agricultural production, primarily of bananas, cocoa, mace, and nutmeg, has historically been the largest sector of Grenada’s economy, providing the majority of employment and foreign exchange earnings. However, between 1987 and 2000 agriculture declined from 18.7% of GDP to 9.7%. The sector was plagued by problems throughout this period, including the loss of preferential trade agreements with the EC, a mealy bug infestation that devastated crops, the collapse of a nutmeg price agreement with Indonesia, and quality control problems that halted all banana exports. For example, â€Å"Critics point out that not only does the U.N. report depart from standard economic procedures like not correcting for price levels from country to country it hides numbers. Perhaps most egregiously, it compares gaps in income between the poorest and richest countries not individuals. Thus the economic circumstances of the citizens of tiny Grenada are put on a par with those of China, which has a population 12,000 times greater. Mistakes like these completely distort the record of globalization.† (The Rich Get Rich and Poor Get Poorer. Right? Let’s Take Another Look.) During the months after American invasion, which was beneficial, the mass organizations were dismantled, the labor unions were reorganized, over half of all medical personnel were expelled, investment and tax codes were revised to favor foreign investment, and cooperatives and states enterprises were sold to private interests. Billboards that had inspired the population to work for justice, equality, development and national sovereignty were quickly replaced by those designed to inspire them to buy American consumer products. The quality of life for most islanders deteriorated in the period following the invasion despite infusions of American aid. This is why I’m very interested in what globalization is doing for developing nations though I’m living a better life here; I’m still concerned in the countries progress. Although Grenada’s economy has been expanding, poverty is widespread. Though there is political freedom, the government is conservative and corrupt. And, in this era of neo-liberal globalization, the  island’s brief socialist experiment is but a fading memory. Lecture Review†The Era of Globalization† or is fast becoming the preferred term for describing the current times. Just as the Depression, the Cold War Era, the Space Age, and the Roaring 20’s are used to describe particular periods of history; globalization describes the political, economic, and cultural atmosphere of today. (Porter par. 3)Economic â€Å"globalization† is a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through trade and financial flows. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. (Globalization: Threat or Opportunity? IMF par. 6) I didn’t particularly agree with the IMF’s take on Globalization but as I further researched the IMF’s views I began to understand them. Global free trade has caused worldwide environmental destruction in asymmetric pattern. The international economy is controlled by the corporations of the North who are increasingly exploiting Third World resources for their global activities. (Global Capitalism p.113) This is exactly how I feel about Grenada. Resources are being drained but nothing is going back into the country. The Vandana Shiva, author of this particular chapter in the book, really explains how I feel about globalization in Third World countries she further discuss,† It is the South that is disproportionately bearing the environmental burden of the globalised economy.†Joseph E. Stiglitz states,† IMF programs are typically dictated from Washington, and shaped by the short missions during which its staff members pore over numbers in the finance ministries and central banks and make themselves comfortable in five-star hotels in the capitals. There is more than symbolism in this difference: one cann ot come to learn about, and love, a nation unless one gets out to the countryside.†(Globalization and Its Discontents, p.24) He basically is saying the economist sent from the IMF should spend time in the country’s poorest areas not in the developed cities. I agree. He further says,† Statistic bear out what those who travel outside the capital see in the villages of Africa, Nepal, Mindanao, or Ethiopia; the gap between the poor and the rich has been growing, and even  the number in absolutely poverty-living on less than a dollar a day-has increased.†A question was asked of author Thomas L. Friedman in his book The Lexus and the Olive Tree by an Egyptian woman, â€Å"Does globalization mean we just leave the poor to fend for themselves?† he stated, â€Å"After enough such conversations I realized that most Egyptians-understandably-were approaching globalization out of a combination of despair and necessity, not out of any sense of opportunity. Globalization meant adapting to a threat coming from the outside, not increasing their freedoms. I also realized that their previous ideo logies-Arab nationalism, socialism, fascism or communism-while they may have made no economic sense, had a certain inspirational power. But globalism totally lacks this. When you tell a traditional society it has to streamline, downsize and get with the Internet, it is a challenge that is devoid of any redemptive or inspirational force. And that is why, for all of globalization’s obvious power to elevate living standards, it is going to be a tough, tough sell to all those millions who still say a prayer before they ride the elevator.†Concluding StatementsGlobalization has the potential to bring both great benefit and great hardship to developing nations and third world populations. Like capitalism in the late 19th and early 20th centuries, globalization without proper checks and balances could become a runaway force, knowing no moral or ethical boundaries. But capitalism has been somewhat tamed by a system of checks and balances that have grown from a variety of sources, including labor unions, activists, legal restrictions such as anti-trust laws, and such organizations as the FDA and SEC. While many people currently find globalization quite alarming due to its unregulated environment and the lack of restrictions on multi-national corporations, globalization carries within itself the very vehicle for its own regulation. Although formal international legal entities are still too weak to create lasting and enforceable legislation, the groundswell of public opinion is making itself felt. Internet use is putting activists in the developed world in direct contact with the developing world populations being most affected by globalization. Greater access to international travel allows protesters to be on hand and heard during meetings such as those of the WTO taking place in Seattle. The explosion of cable and online news services has made access to wide varieties of information easily available. Activists and protesters are able to reach investors, and investors are making their views heard through the buying and selling of stock. Just as runaway capitalism seemed untamable in the infancy of the labor movement, globalization now seems too monolithic an entity to ever be harnessed. It is possible, however, that the social, political, and legal results of today’s anti-globalization activism may provide enough safety measures that globalization can become primarily an agent of progress for all people. Whether this will happen in time to save developing countries from being socially and culturally overwhelmed, it is too early to say. BIBLOGRAPHY Porter, Keith. â€Å"What is Globalization?† Globalization Issues. About.com. Nov. 2002 http://globalization.about.com/library/weekly/aa080601a.htm. World Bank. Poverty in an Age of Globalization. Oct. 2000 http://www1.worldbank.org/economicpolicy/globalization/documents /povertyglobalization.pdf. Alternet.com. Globalization Overview. Nov. 2002 http://www.alternet.org/issues/globalization.html. Countries from A to Z. Grenada. The US Invasion of Grenada (2003). http://www.atlapedia.com/online/countries/grenada.htmhttp://www.globalpolicy.org/empire/history/2003/10grenada.htmKarliner, Joshua. The Corporate Planet: Ecology and Politics in the Age of Globalization. 1997. Sierra Club Books. Longworth, R.C. â€Å"Globalization Survey Reveals U.S. Corporations Prefer Dictatorships.† GlobalExchange.org. Nov 19, 1999. http://www.globalexchange.org/economy/econ101/survey.htmlInternational Monetary Fund. â€Å"Globalization: Threat or Opportunity?† Apr. 12, 2000. http://www.imf.org/external/np/exr/ib/2000/041200.htm. Hutton, Will and Giddens, Anthony. (2000). Global Capitalism. The New York Press, New York2000. Stiglitz, Joseph E. (2003). Globalization and Its Discontents. W.W, Norton & Company, Inc.,500 Fifth Avenue, New York, N.Y. ISBN 0-393-05124-2Friedman, Thomas L. (1999,2000). The Lexus and the Olive Tree. New York: Farrar, StrausGiroux ISBN 0-385-49934-5Postrel, Virginia. (August 15, 2002).†The Rich Get Rich and Poor Get Poorer. Right? Let’s TakeAnother Look.† New York Times

The Start of the Contamination in Man’s Environment

In the late 1960s to 1970s, Americans realized that industry was doing serious damage to air, water, and the earth itself, the most essential natural resources. The whole awareness of the damage being done to the environment stemmed out from the energy crisis of the 1970s. The energy crisis was a ‘slap-in-the-face' for America. They needed to realize the harm that was being done to the natural resources and their decreasing availability as a result. With the decreasing availability and increasing prices of oil, new energy sources had to be discovered. Although scientists found nuclear power to be a clean, cheap, and unlimited source of power at first, the environmentalists fought to minimize its usage for fear of nuclear meltdowns, which could spread nuclear waste. Alternative energy sources were possible, and what appeared to be the most effective were tidal energy and solar energy. These environmentally safe methods of harnessing energy were just what the environmentalists had aimed for, and a new movement had been started – environmentalism. If you read this circle it. The environmentalists also tried to advocate the conservation of energy, so that the cleaner but less effective ways could be manipulated to produce more energy. Despite many efforts to keep the environment clean, some 200 million tons of pollutants were filling the air each year, and clean air in many cities had been replaced by smog. The earth, air, and water were deteriorating as construction of highways, malls, and housing developments caused the destruction of fertile, irreplaceable farmland. Disposal of wastes was another dilemma to be dealt with. Burning could release poisonous gases into the air, and burial could cause harmful decay. By the mid-1960s, people began to really realize the need to conserve the nation's resources. Much credit for arousing public concern belonged to Rachel Carson for her book Silent Spring. This book warned of the central problem of our age being the contamination of man's environment. During the next few years, growing numbers of ecologists, biologists, and other scientists showed their concern about the reckless abuse of the environment. In 1970, Congress created the Environmental Protection Agency (EPA), which helped set laws regulating use of pesticides, insecticides, and other potentially dangerous sprays. They protected endangered wildlife, and ordered that car manufacturers had to provide pollution control devices on exhausts of their vehicles. New waste disposal and sewage treatment plants were being built to prevent further pollution of the land and water and to clean up the rivers and lakes. Government also regulated unsightly junkyards and dumps to restore the natural beauty of the countryside. Federal government set aside more areas as national parks, not to be tampered with, and considerable progress had been made in the management and conservation of America's forests, soil, and water. However, many people felt that it was not necessary for the government to take all this action. President Reagan gave in and allowed the search for minerals on federal lands and oil exploration off the coast of California, which some felt was very risky, because of the chance of an oil spill, which would devastate all ocean life in the area. Environmental decisions were important in the sixties era, as many other nations followed them with concern. With the world's population increasing so rapidly, the earth's natural resources will be heavily taxed, and many people, the environmentalists, believed that resource conservation was extremely important in maintaining the living conditions of the world population.

The Impact Of Leverage On Investment Finance Essay - Free Essay Example

Sample details Pages: 18 Words: 5380 Downloads: 7 Date added: 2017/06/26 Category Finance Essay Type Research paper Did you like this example? Abstract: This research study aims to scrutinize the impact of leverage on investment of 120 financial firms that are listed on Karachi Stock Exchange, over the time period of 2008. In this study we have provided a literature review, placing emphasis on quantifying the relationship between leverage and investment of financial firms. Prior research studies in this regard have shown that investment of the firm decreases with increase in leverage. Don’t waste time! Our writers will create an original "The Impact Of Leverage On Investment Finance Essay" essay for you Create order Prior results also indicated that investments of financial firms are positively related to equity and cash flow ratio i.e. any increase or decrease in investment of the firms is directly proportional to the changes in these variables. Moreover, prior research studies have also demonstrated that leverage plays an important role in restraining and controlling the overinvestment made by the financial firms. Our review constructs an integrated theoretical framework from distinct streams of existing literature. This study is guided by distinct disciplines including debt financing, investment management and firm performance. Although literature supplements the negative impact of debt financing on investment, we also opt to measure the same relationship in the context of financial sector of Pakistan. We have identified areas that need significant research work for greater understanding of leverage and investment relationship, and provided recommendations for future research work. Keyw ords: leverage; Assets; Karachi Stock Exchange; investment; Equity; Cash flow Introduction: The importance of debt financing and investment in the development of financial and non-financial sector has been recognized by the financialists and economists for many years now. The knowledge of such key variables is very crucial for the economic development of a country. Firms that rely more on the use of leverage in their capital structure should be aware of debts impact on their investment portfolio. As a result of such significant importance of debt and investment management, they have become an important part of companies economical development efforts, and due to which there has been a constant increase in the ratio of such research studies universally. The proportion of firms debts and investments are the key performance indicators of the companies for the shareholders and potential investors. These balance sheet items are considered by the investors before developing their investment portfolio. According to the research work of (AL-Shubiri, 2012; Main and Ismail, 2008 ), debt ratio negatively affect firms investment; fixed investments decline or deteriorate in response to growth in leverage ratio. Therefore, it is necessary for all the financial participants whether individuals or firms to assume the relative importance of such economic variables before making investment decisions. Financial sector is the one of the highly regulated sector of the economy. Companies belonging to this sector are heavily loans dependent. Most of their daily transactions are comprised of borrowing and advancing loans and making investments decisions. To optimize their performance and mitigate the associated risk of default, research studies are the tools to offset such risks. This research study aims towards the minimization of financial firms risk exposure by studying and measuring the relationship between leverage and investment. This study will certainly develop and add value to the existing knowledge of debt financing in relation to investment decisions that a re made by the financial listed firms. Research Questions: A quantitative research study is always guided by the research questions of the study. It is therefore important to design research questions in such manner as to address the basic purpose of the study (Saunders et al, 2009). Research questions stated below are set to answer the knowledge gaps identified in literature review: Does the leverage affect investment negatively that is made by the financial listed firms? Does the impact of leverage on investment vary in firms with low equity and high equity? Does the impact of leverage on investment vary in firms with low cash flow ratio and high cash flow ratio? Research Hypotheses: Keeping in view the identified research gaps in literature, theoretical frame work and most important the research questions of the study, the following set of hypotheses are constructed where only null hypotheses are stated. The alternative hypotheses could be derived in such a way where the relationship between leverage and investment is expected. The following hypotheses are set in order to accomplish the objectives of this study: H1: There is no significant relationship between investment and leverage of the financial listed firms. H2: There is a significant negative relationship between investment and leverage in firms with low Equity. H4: There is a significant negative relationship between investment and leverage in firms with low cash flow ratio. Objectives of the Study: The general objective of this research study is to investigate the relationship between leverage and investment in the non-financial sector of Pakistan in the light of empirical evidence while considering the significance of different important variables. Given below are some of the specific objectives of the study: To measure the effect of leverage on investments decisions of non-financial listed companies in Karachi stock exchange. To measure the effect of debt in the firms with different level of shareholders equity and cash flows. To understand the importance of leverage and investment decisions in the financial sector of Pakistan. Contribution of the study: Keeping in view the above discussion, this study is intended to contribute to the existing knowledge of financial literacy. This piece of research work minimizes the outsized gap of research studies conducted on the topic of leverage and investment especially in Pakistan. Research studies undertaken worldwide, have suggested inverse relationship between leverage and investment. As there is a significant lack of studies on the relationship of leverage and investment in Pakistan, therefore this study is an attempt to overcome the identified research gaps. This research study also serve as a future reference for researchers and academicians on the subject of debt financing management in relation to investment in every business sector Significance of the study: As this study is an endeavor to facilitate financial firms, therefore its outcomes will be beneficial to utilize by banks, insurance, leasing and all other financial companies in order to betterly evaluate and analyze the available leverage and investment opportunity while minimizing the associated risk of default arising from these decisions. The findings of this study may also be of much value to the students, teachers and instructors belonging to corporate tax management and financial management, and other corporate strategies when they employ valuable effective learning in their classroom setting particularly in varied concepts related to the use of debt financing in relationship to the firms investments. As this is a literature based study with preliminary research findings, they may also be helpful to all the academicians working in the area of debt financing and investment management. Purpose of the study: The purpose of this study is attached to those research gaps that are left unfilled by other researchers. The available literature on leverage and investment relationship supports the negative relationship between leverage and investment of the firms. Researches in different sectors of the economy support this inverse relationship between leverage and investment. Therefore, there is a need of a research study especially in financial sector that could also take the relationship between leverage and investment under consideration in Pakistan as well. And as the purpose of this study is to fill the existing knowledge gaps in literature on leverage and investment relationship and to confirm whether the same inverse relationship exists in financial sector of Pakistan or not, therefore, the workout of this study will bring awareness among all the people working in financial companies of the world. SCOPE OF THE STUDY: The overarching aim of the proposed study is to quantify and measure the relationship between leverage and investment in the financial sector of Pakistan. As this study will incorporate cross sectional datasets of 2008 related to leverage, cash flow, assets and investment from financial listed companies in KSE, therefore, the findings will be only applicable to non-financial sector of Pakistan that is mainly comprised of Textile, Sugar and Cement companies. LIMITATIONS OF THE STUDY: This study may suffer from the follow limitations: As this study includes a sample of 120 different non-financial companies, therefore, there are chances that data for some variables of the companies may not be available and as a result sample size will shrink and analysis based on that may not give appropriate results. As the economical conditions of the Pakistan are very volatile, therefore, cross-sectional dataset of 2008 may not record the accurate intended results. LITERATURE REVIEW: This research study links distinct dimensions of literature that study the relationships between firms financial leverage and investment, debt ratio and investment, capital structure and firm performance in different non-financial sectors. In this part, we check the preceding literature and facts in all of these streams of research study. Our research study contributes directly to each of the streams of research discussed below. We establish prior research at a basic level on the relationship between leverage and firms investment. We then expand past research by delving into the role of Pakistani listed companies in Karachi stock exchange. Our research study devote directly to each of the streams of research argued as under Research studies conducted in the past have shown that leverage has a significantly negative impact on firms investment. Due to that reason, this research study aims to examine the impact of leverage on firms investment. The recent research study that h as been conducted by AL-Shubiri (2012), determines the impact of the bank and total debt ratio on Jordon listed companies fixed investment over the period of 2004 to 2009, and suggests a strong negative impact of total debt ratio on fixed investment for Jordon listed companies. Moreover, the bank loan ratio is also found to have a negative impact on firms fixed investment in Jordon but the impact of bank loan ratio is found to be greater than total debt ratio. He also states that companies having a higher Tobins Q and a cash flow ratio make a greater amount of investment. The author argued that the restraining effect of the bank loan ratio on overinvestment is greater than that of the impact of total debt ratio on overinvestment. The author doesnt show much clarity while stating the findings and conclusions of study to support his argument. As this study is focused on banking industry that relies more on financial data, therefore it would be of much relevance if the author has used other financial models. The author could have increased the generalisability of the research findings if the sample frame of study would contain non-financial firms. In this regard, Main and Ismail (2008) also examine the impact of debt ratio on investment in Malaysian listed firms during 2000 to 2007 by applying unbalance panel data .Their findings also support the negative effect of the total debt ratio on the firms investment but observe positive impact of bank loan ratio on the investment made by the Malaysian listed firms. The author shows similarity in research findings with AL-Shubiri (2012) that the firms with higher Tobins Q and cash flow ratio make huge amount of investment. The author added that the bank loan ratio has a high negative effect on investment of the firms having low-growth opportunities but suggest a very low impact of bank ratio on investment of high-growth companies. Their concluding remarks suggest that firms having higher tobins q and cash flow ratio, can make good profit out of their loan capital by investment investing it. The study incorporates the use of fixed asset as investment proxy but ignore the importance of other investment proxies such as market to book asset ratio and price-earnings ratio, thereby limiting the generalisability and validity of the study findings. To proceed for more in-depth inspection of the debt financing and firms investment decisions, a research study that is undertaken by incorporating the data of 60 Chinese real estate listed companies over the period of 2006-2008. The findings of the study has also confirmed the negative impact of the leverage on investment, which is reported significantly stronger for the firms with low-growth opportunities than those with high-growth opportunities but concluded a positive relationship between debt financing and investment in firms with mid growth opportunities. Moreover, the relationship between scale of investment and debt financing was found to be positive for state-owned holding companies while negative for non-state-owned holding companies (Jiming, Chengqin, ZhaoHua, 2010). The authors ignore the importance of other estimation techniques otherwise they could propose different results if different estimation techniques were put in use like GMM and MLE to confirm the significance of their results. In the Meanwhile, Yuan and Motohashi (2011) analyze the impact of total debt ratios and bank loan ratio on fixed investment of Chinese listed companies in the year 2001-2006 under the influence of general investment theory. They derive similar results by confirming a negative relationship between total debt ratio (bank loan ratio) and fixed investment by the companies listed on Chinese stock market. Furthermore, firms with a higher Tobins Q and large cash flow ratio make a large amount of investment. Their results support the findings of research studies conducted by Main and Ismail (2008) and Jiming et al. (2010) that the total debt rat io (bank loan ratio) has a strong negative impact on investment of firms having low cash flow and tobins q ratio. They argue that the total debt ratio works as a factor that controls excessive fixed investment of the firms listed on Chinese stock exchange. They also conclude that the restraining impact of the bank loan ratio on overinvestment is greater than the effect of total debt ratio on overinvestment in Chinese listed firms showing consistency with the research findings of AL-Shubiri (2012). The authors pay no attention towards the use of other debt and investment proxies in order to assure and optimize the validity and generalisability of the research findings while designing theoretical framework of the study. Most of the research studies conducted in different part of the world has provided similar evidence on leverage and investment relationship. In this regard Aivazian, Ge, Qui (2005) also scrutinize the influence of debt financing on companies investment decisions by incorporating data of 863 companies from Canadian publicly traded firms between 1982-1999, and derives same result by stating a negative relationship between leverage and investment and that negative impact is found to be weaker for the companies with high-growth opportunities but stronger for the companies with low-growth opportunities. The same and results are also recently provided and supported by (AL-Shubiri, 2012; Jiming et al., 2010). The author could optimize the robustness of the research findings if other important explanatory variables are added to the investment function. While dropping out important variables, the author has left an open door for criticism. Following Main and ismail (2008) research work, Frank Huyghebaert (2008) conducts a research work in the same year by focusing on the underlying effect of financial leverage on investment while putting an emphasis on the utilization of some of the particular features of private companies to study the negative re lationship between debt financing and investment and to know why companies with more debt makes lesser investments. For this purpose data from Belfirst database is incorporated containing a sample of 12,289 private firms from 1996-2005 that are located in Flanders and the most developed region of the Belgium. By using two-stage least square data analysis technique, they conclude slight different result by stating that the companies with higher tobins q and debt ratio are more likely to underinvest. They derive that the negative relation between leverage and investment at a high debt ratio is significantly lower for the companies that are old. The sample size of the study is big enough to be divided into public firms as well but the authors show negligence towards the generalisability of their research findings. This would have certainly increased the confident of other researchers in their research findings. During the same year, Odit and Chittoo (2008) publish a research paper t hat primarily focuses on the leverage and investment relationship. They attempt to study the impact of leverage financing on investment levels by employing firm level panel data of 27 companies from the year 1990-2004 listed on Mauritius stock market under the same influence of underinvestment and overinvestment theory which is used by prior research studies. Their results come in line with the conclusions derived by Aivazain et al. (2005) that leverage has a significant negative impact on investment. They added that capital structure plays a vital role in the companies investment policies. They experience a negative relationship between leverage and investment for low-growth companies and not for high-growth companies i.e. the results of the negative relationship between leverage and investment are not statistically significant for the companies with high-growth opportunities while remain insignificant for the companies with low-growth opportunities. The sample size selected by aut hors is small enough to claim the robustness of their findings. The authors are not clear enough as to what data analysis technique is used for the analysis of the panel data. The authors could use pooled regression for the analysis of panel data in order to maximize accuracy of the research findings. In the beginning of the year, Ahn, Denis, Denis (2006) conduct a research study on the same topic who use US Compustat data base containing a sample of 8,674 diversified firms and 24,400 segments from 1982-1997. They conclude that the negative relationship between leverage and investment is significantly greater for segments with high-growth opportunities than that of segments with low-growth opportunities within diversified companies. Moreover, their findings suggest that higher debts put a strong constraint on investment in the segments with high-growth opportunities than in the segments with low-growth opportunities. The authors suggest that the negative relationship between lev erage and investment exists only for the firms with high growth opportunities while contradicting the work of (Aivazain et al., 2005; Yuan Motohashi, 2011). They also explain that debt ratio has a great impact on management decisions regarding investment and argue that diversified firms can prevail over the limitations of debt ratio with the help of distribution of liabilities by corporate managers. The authors could triangulate in terms of applying multiple regression techniques such as a pooled regression could be another robust alternative to cross-sectional regression that would provide distinct results on the leverage and investment relationship in diversified firms. The thirst and curiosity for research on the relationship between leverage and investment continues in Asia as well. In this regard Firth, Lin, Wong (2008), also examine the relationship between leverage and investment made by the firms listed on Chinese stock market, where corporate debts are mainly supplied by state-owned banks. They employ data from china stock market and Accounting Research Database (CSMAR) which consist of 1200 listed firms from 1991-2004, thereby applying fixed effect models and the investment equation, following Aivazian et al. (2005) to inspect the impact of bank loans on companys investment. Their findings suggest an inverse (negative) relationship between leverage and firms investment. That negative impact of leverage on investment is found to be weaker for the firms with low-growth opportunities than that of the firms with high-growth opportunities. They also derive a slightly negative relationship between leverage and investment for the firms with higher level of state share holding but conclude a strong relationship between leverage and investment for the firms having low amount of state share holding. The authors provide a very weak explanation of their research findings. They fail to relate their results to the proposed theoretical frame work while showing lack of appropriateness of their research methodology. The increasing demand and dependency on loan capital in the modern economies has created serious economical threats for most of the countries especially under developing countries like Pakistan. In this regard Qureshi and Ali (2010) recently publish a research paper who analyzes the effect of high public debt load on the economy of Pakistan. They collected data from the World Development Indicators 2010 and Pakistan economic survey from 1981-2008, applied the method of ordinary least square (OLS). Their findings suggest that there is a strong negative impact of public debt on the economy of Pakistan and that negative effect of debts on Pakistans economic development is relatively significant because of the continuous borrowings of the government. They added that this rapid increase in public debts has adversely affected most of the economical sectors of Pakistan. The authors could have betterly explained the growing effect o f leverage on economy if other economic exogenous variables are used along Gross domestic product (GDP). The authors could have done a better job if the robustness of findings is tested by other methods like MLE and GMM. The awareness of debt financing is really essential in modern time for every sector of the economy whether financial or non-financial due to the requirement and immense use of leverage in the capital structure .To overcome such challenges; recently Bao (2010) examines the impact of financial leverage on firms investment listed on Chinese stock market. The data from 1992 to 2009 used in this research study is collected from the financial statements of 1686 companies listed on Chinese stock exchanges i.e. Shenzhen and Shanghai stock exchange. He provides that there is a significant confidence that the relationship between debt financing (leverage) and companies investment is negative, suggesting similar results like that of (Ahn et al., 2006; Lang et al., 1996) res earch work. The findings provided by the author might be misleading because financial data is not abnormality free and the use of ordinary least square method may not provide the accurate results. Therefore, it would be of much importance if other methods like GMM and MLE are used to certainly to assure the robustness of their research findings. The need to study leverage and investment relationship is also showed up in India. Due to that reason John and Muthusamy (2011) analyze the impact of financial leverage on investment by Indian pharmaceutical firms listed on Bombay stock market during the year 1998-2009 but conclude slightly different results from prior research studies, stating that there is a positive relationship between leverage and the level of investment and add that this positive effect is found to be stronger for firms which are smaller in size but it has negative impact on medium sized firms and positive effect on large sized companies which is not statistically s ignificant. The sample size used in this study by the authors is small enough to claim generalisability. The authors could have increased their study sample size representing all pharmaceutical companies. Furthermore, Norvaisiene, Stankeviciene, Krusinskas (2008) examine the impact of loan capital (debt) on investment and growth of Baltic firms using the data of 76 non-financial listed Baltic companies over the period of 2000 to 2006. Their results provide evidence on the effect of overinvestment problem in Latvian companies but states underinvestment problem in Lithuanian and Estonian firms. He added that Baltic companies with high growth opportunities have a significant effect of debt constraints on their investment decisions, whereas there is no effect of debt constraints on investment policy of Baltic companies with low growth opportunities. The authors dont provide sufficient evidence on debt and investment relationship and showed less clarity among their research findings. The authors could have derived more accurate results if other investment variables were used in the model to enhance the generalisability of their research findings. The authors could also triangulate by using multivariant regression model, thereby comparing the results of both method then choosing the one showing more robustness. During the same year Carrascal and Ferrando (2008) also study the effect of financial position on firms investment decision using a sample of 120000 non-financial companies listed in Belgium, Germany, France, Italy, Netherlands and Spain which is collected from the AMADEUS database. Their findings indicate variability in the investment among European firms and illustrate that companies in Germany have lower effect of debts on investment decisions than that of those Italian and Dutch companies. Moreover, their results have shown that there is a negative relationship between debt and investment but there is a positive impact of cash flow on investment. S ince the financial position is proxied by the authors using some ratios, the results might be misleading to claim their generalisability. The author could have emphasized on the inclusion of different other proxy variables such as liquidity, profitability, operating and investment ratios to improve the accuracy of their research findings. RESEARCH METHODOLOGY Literature review on leverage and investment relationship has provided me a solid base and given me a clear understanding of leverage and investment management. It has provided us the results and conclusions of all those research studies that are previously conducted on same topic of interest in different countries having distinct financial aspects. On the basis of those prior research studies, I have designed and developed research methodology for this study accordingly. In prior research studies, the debt ratio was found to have a significant effect on fixed investment made by the firms. The impact of debt ratio on fixed investment was checked under different investment proxy variables such as market-to-book ratios of assets, market-to-book ratio of equity and earnings-price ratio in previous studies. Our study focuses on the use of fixed asset as a proxy for fixed investment and to study its relationship with debt ratio. For this purpose we have adopted Ordinary Least Square Estimation method to study the empirical relationship between debt ratio and investment. Model specification: Investment i = ÃÆ'Ã… ½Ãƒâ€šÃ‚ ± + ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²1 (Debt i) +ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²2 (Equity i) +ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²2 (Cash flow i) + ÃÆ'Ã… ½Ãƒâ€šÃ‚ µi Where Investment i = Fixed investment (fixed assets) of Company i at time t Debt i = Total debt ratio (total liabilities/total assets of Company i at time t Cash flow i: Cash flow of Company i at time t Equity i: Share holders equity of company i at time t ÃÆ'Ã… ½Ãƒâ€šÃ‚ ± = Intercept of regression line which is the value of Investment when all explanatory variables = 0 ÃÆ'Ã… ½Ãƒâ€šÃ‚ ² = Slope of regression line which shows change in Investment for a unit change in explanatory variables ÃÆ'Ã… ½Ãƒâ€šÃ‚ µi = Regression residual The total debt ratio has also been used as a proxy variable for the measurement of financial leverage in preceding studies of AL-Shubiri (2012) and Main and Ismail (2008). Aivazian et al. (2005) and John and Muthusamy (2011) have used total fixed assets as proxy variable for firms fixed investment. Whereas, the firm growth and profitability is measured by two other proxy variables such as cash flow ratio and Equity as in accord with th e research work of Firth et al. (2012) and Firth et al. (2008). The stated model expresses the impact of three independent variables (Leverage, Equity, Cash flow) on one dependent variable (Investment), referring towards the relevance of the study. This study aims to quantify the leverage and investment relationship. For this purpose Independent variable Leverage is proxied by Total debt ratio (Total liabilities/total assets). Equity is also added to investment equation as an independent variable which shows the investment capital of the share holders in the company that is used as a controlling variable to check the varied effect of leverage on investment made by the firms having different amount of invested capital. Cash flow is proxied by cash flow ratio (operating cash flow capital expenditure/operating cash flow) and added as an independent control variable to investment equation. According to AL-Shubiri (2012) increase in debt ratio has negative impact on investment, and this negative impact exists for the firms having low amount of share holders equity, whereas firms with higher Cash flow and equity have sufficient internal funds and show more tendency towards large investments. As we can see that firms relying more on leverage, will certainly increase the amount of total liabilities in debt ratio (total liabilities/total assets), thereby increasing the risk exposure of the firm. Such conditions become more severe when the firms have low cash flow and equity, and show more dependency on loan capital. DATA ANALYSES In this study, I use data of 2008 of non-financial companies of textile sectors firms listed on Karachi stock exchange. Correlation between Variables Year Index Fixed_Invest Debt_ratio Cashflow_ratio Equity 2008 Fixed_invest 1 -.201 .511 .401 Debt_ratio -.201 1 -.256 -.221 Cashflow_ratio .511 -.256 1 .315 Equity .401 -.221 .315 1 Table 1 The correlation table given above shows the correlations between all the variables used in this study. We can see clearly that the debt ratio (independent variable) is negatively correlated with the fixed investment (dependent variable) of the firms. The same correlation between fixed investment and debt ratio was also documented by AL-Shubiri (2012) and Main Ismail (2008) in their research studies. The above results also confirm minimal/low correlation among explanatory variables, indicating absence of multicollinearity problem, assuring the validity of estimation results. Regression Analysis of Investment equation Year Variable Coefficient(ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²) Standard Error t-ratio p-value Adj R2 2008 Constant (ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±) 10.217 .037 27.51 0.00001 0.041 Debt_ratio -1.172 .548 -2.136 0.0120 Investment = 10.217-1.172 (Debt_ratio) Constant (ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±) 8.901 0.468 18.98 0.00001 0.174 Debt_ratio -0.690 0.525 -1.317 0.031 Equity 0.402 0.097 4.13 0.00006 Investment = 8.90 0.690(Debt_ratio) + 0.402 (Equity) Constant (ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±) 8.364 0.439 19.03 0.00001 0.326 Debt_ratio -0.211 0.486 -0.433 0.048 Equity 0.280 0.091 3.071 0.003 Cashflow_ratio 0.441 0.090 4.889 0.00001 Investment = 8.364 0.211(Debt_ratio) + 0.280(Equity) + 0.441(Cashflow_ratio) Table 2 Table 2 shows the results of regression analysis of endogenous and exogenous variables. It summarizes the estimation results of the relationship between leverage and investment with the help of basic model of investment equation. The above results of table 2 show that the effect of leverage on fixed investment is a significantly negative at 5% significance level. The leverage ratio continues to show its inverse relationship with fixed investment even with the addition of new variable that is Equity. But one thing is certain that the impact of leverage on investment started to decrease with inclusion of shareholders equity, indicating that firms with higher equity are affected less than those with low equity, and the same decrease in leverage was also advocated by Main Ismail (2008). The impact of leverage on investment is also found when another explanatory variable cash flow is added to investment equation but again leverage declines to 0.211 from 0.690 when cash flow variable is added to the model. This shows that those companies who have higher cash flow turnover ratio are less likely to be affected by debts. Since the impact of debt ratio remains on investment even with the inclusion of cash flow ratio therefore, we can conclude that t he impact of leverage on investment exists in textile sector of Pakistan. CONCLUSIONS: In this study we examine whether the effect of debt on fixed investment exists in textile sector of Pakistan. Then focus our attention on whether the relationship between debt ratio and investment exists when it is proxied by fixed assets of the firm. The key regression estimation results are summarized above. Firstly we find that there is a relationship between debt ratio and investment when it proxied by the fixed assets of the firms in textile sector of Pakistan. We find that the debt ratio does have a negative impact on the investment when it is proxied by the fixed assets of the firms. Secondly, we find that the negative impact of leverage on investment continues even with the inclusion of equity variable, but the adverse effect of leverage decline when equity is added to the investment equation. Thirdly and lastly, when we add cash flow ratio as another control variable to the model, the negative impact of leverage on investment is observed but that negative effect of leve rage is declined significantly to a great extent. This decline in the adverse impact of leverage shows that companies with large equity and cash flows are less likely to be affected by the adverse effect of debts. These results are consistent with the recent research work of AL-Shubiri (2012) as well as Yuan and Motohashi (2011). The results of our analysis suggest that in textile sector of Pakistan, the debt ratio works as a factor that restrains excessive fixed investment by the companies. The most important finding in our analysis, we found that impact of debt ratio on fixed investment when it is proxied by Fixed assets of firms is not as strong as indicated in prior research studies. Therefore, it is necessary as an important recommendation for future researches to use other relevant proxies for fixed investment and use of other explanatory variables such as Tobins q and price-earnings ratio etc as proxies for companies performance in order to maximize the validity and genera lisability of present research findings. Based upon the above mentioned findings, we suggest that the investors and all business policy makers should consider debt ratios and financial leverages while assessing the usefulness of investment decisions. Therefore, we suggest that the relationship between debt ratio and fixed investment should be analyzed in different sectors of Pakistan with the use of different other relevant investment proxies.