Impact of Stock Market and Bank Development on the Firm’s Growth: Evidence from Pakistan

Aim: Despite years of empirical research, the nexus between banks development and the stock market with economic growth is still controversial. This study examined the impact of the stock market and banks development on the firm's growth in Pakistan. The sector of non-financial firms chosen for analysis and financial firms ignored because of different structure. The sample of 45 firms listed on the Pakistan Stock Exchange (PSX) from the period of 2014-2019 used for the analysis. The sample has been selected based on the firm's market capitalisation and random effect model to estimate both institution development and firm growth. We controlled the firm's profitability, interest, and inflation. The results are robust to the Estimated Generalised Least Squares (EGLS) method. Results showed that significant positive relation exists between stock market development and firm growth, while a negative association exists between banks development and firm growth. Furthermore, control variables (profitability, interest, and inflation) have a significant negative impact on firm growth. The findings contribution in literature with perspective to Pakistan because prior studies done related to developed countries. Policymakers may use this study for making policy related to firms and economic growth.