Finance

The basic purpose of the financial manager is to maximize the wealth of shareholder by minimizing the risk. This study examines the validity of systematic risk determinants in banking, insurance, and nonfinancial sectors of Pakistan. Panel data is used for the period of 2010 to 2014. Common Effect Model, Generalized Method of Moments and Two step regression model is used to identify the impact. Common effect results identify that leverage; operating efficiency, firm size, and market value of equity have significant impact on systematic risk in the banking sector. Firm size has significant impact on insurance sector, whereas liquidity, leverage, operating efficiency, firm size, market value of equity, profitability, and dividend pay-out are significant variables in the non-financial sector. In pooled data analysis leverage, firm size, market value of equity, and dividend pay-out are significant determinants in Common Effect Model and Two Step, However in GMM indicates that profitability has also positive impact on unsystematic risk in addition to Common effect and two step regression determinants. Policy implication indicates that shareholders and investors can maximize the return at low level of risk by investing in selected portfolios. It is finally concluded that variables significance changes from sector to sector in individual spectrum but in a pooled regression leverage and market value of equity has negative impact on systematic risk, whereas firm size, profitability and dividend pay-out has positive impact on systematic risk.

The purpose of this study is to analyze the Technical Efficiency (TE) of Islamic banks and conventional banks in Pakistan by using Data Envelopment Test (DEA). We also used TOBIT analysis to identify the determinants of efficiency in the banking industry. Twenty banks have been selected from the banking industry, from which ten banks are Islamic banks or banks which have Islamic branches, and ten banks are conventional banks. Panel data are used for the period 2007-2015. Overall, it is concluded that conventional banks are technically more efficient than Islamic banks. Accordingly, the censored TOBIT regression indicates that the ownership, liquidity, bank size, and capital adequacy ratios are the main determinants of overall TE for the banks.

This research is performed for dealing with some of the important working capital management policies and efficiency regarding to manufacturing sector of Pakistan. For this purpose data from 37 firms have been taken for the period 2009-2014. Data envelopment analysis (DEA) and Tobit regression analysis has been performed to achieve the objective of this study. DEA results indicate that only fifteen companies require increase in inputs to attain better output whereas six companies require decrease in the input. However sixteen companies have to consistent with their existing proportionate of inputs to sustain the output maximization. Tobit regression analysis concludes that average collection period has significant negative impact on efficiency and current ratio, gross working capital turnover ratio and financial leverage ratio have positive significant impact on efficiency.

The existing literature on developed and advanced emerging markets documents that the expected stock returns exhibit a positive-, negative-, and no-relationship with both idiosyncratic volatility (IVOL) and extreme daily returns (MAX or MIN). Different from developed and advanced emerging markets, the Pakistani market (PSX) is at its initial development stage with a comparatively little investment knowledge and scarcity of funds that may hinder to achieve a well-diversified portfolio. Such investment conditions may lead investors to suffer from under-diversification and behavioral biases, and therefore, provide an ideal situation to examine the IVOL, MAX and MIN effects and the relationship among these variables in the Pakistani stock market. We find a robust negative MAX effect, which is not subsumed by IVOL, MIN, and other control variables. Whereas, IVOL and MIN effects are weak and unreliable. The negative MAX-return relationship and positive MIN-return relationship indicate both preference for stocks with lottery-type features and risk-seeking behavior among the Pakistani investors. The results are robust to controls for various firm specific characteristics.

The specific purpose of the Developing-8 economies is to integrate the endeavours of each member countries to excel economic cooperation and facilitation among the Islamic countries to enhance the investment opportunities and not to put pressure on the geopolitical environment of the world. The purpose of this study is to visualize the market efficiency, financial integration, and shock transmission process in the D-8 Economies for the period from Jan 2011 to Dec 2016. Daily market data is taken for KSE, DSE, TSE, JCI, KLCI, ISE, EGX, and NSE equity markets. Unit Root Test, Serial Correlation Test, Runs Test, and Variance Ratio Test are used to test the market efficiency whereas Johansen Cointegration Test, Granger Causality Test, Vector Error Correction Model, and Impulse Response Test are used to test the financial integration and shock transmission. The performance of the Tehran stock market remained excellent during this study period. Mixed evidence is concluded regarding the market efficiency of D-8 equity markets. It is concluded that there exists a long-run relationship between KSE and DSE. Short-run relationship indicates that KSE has a significant positive short-run relationship with JCI and have a negative relationship with KLCI. Negative asymmetric behaviour is more influential in the negatively skewed markets and negative shocks have a greater effect than the positive shocks. Hence it is concluded that investors can get benefit from the arbitrage process due to market inefficiencies and through the short selling process. There is a need to establish economic equilibrium through the arbitrage process where investors may enjoy the opportunities to excel more economic stream of benefits by noise and market reverting behaviour. The economic integration will increase the cooperation among these economies to establish more growth opportunities in the trade and corporate investments. The implication of the studies suggests and directs to enhance mutual interface and co-operation including Banking and Finance, Human and Social Development, Energy Sector, Development of Rural Population, Science and Technology, Health and Environment, and Agriculture Sector. Moreover, there is a dire need for restructuring the economic and financial bylaws that may ease the financial liberalization and to enhance the dynamics of trading actives among the D-8 economies.

This study empirically evaluates the impact of inventory performance on firm performance in Pakistan for non-financial firms listed on KSE-100 index for the period 2010-2014. Correlation, OLS, GLM and Hausman Test is used evaluate the panel data. Correlation indicates that ROA has weak positive relationship with Inventory turnover ratio. ROE has a positive weak relationship with Inventory turnover, total assets and Leverage ratio. Total Asset has positive impact and Financial Leverage has significant negative impact on ROA. Inventory performance has positive impact on ROE significantly and Total Asset has positive impact and FLR has significant negative impact on ROE. GLM test is replicating the same results as by indicated by the OLS in the above results. Huasman test is significant which reports that we could make use of either the fixed effects or random effects. This study provide basis for future investigation of the phenomena in emerging economies like Pakistan, where very little attention to the underlying topic is given in academic research on operations management in Pakistan.

Using an extensive sample of the Pakistani stock market over the 2003–2016 period, this paper is the first to evaluate and compare the performance of four most popular factor pricing models: the Fama and French three-factor model, Carhart’s four-factor model, the five-factor model proposed by Fama and French, and the six-factor model that adds momentum to the five-factor model. We also test different nested models and find that the five-factor model best explains the returns of anomaly portfolios and outperforms the other models. We note that the profitability factor significantly improves the description of average returns, whereas factor spanning tests show that the value and momentum factors are redundant for the Pakistani stock market. Our results are robust to alternative factor definitions, formation of test assets, and across sub-periods.

The purpose of this study is to analyze the dividend policy dynamics in context to firm specific and macroeconomic variables with stock price volatility in the financial sector of Pakistan. Panel data is used for the period 2006-2014 to identify the common, fixed, random and GMM effect. It is concluded that dividend payout ratio, market value, interest volatility and inflation volatility have positive significant correlation with price volatility. Common effect model shows that dividend payout and interest volatility has a significant positive impact on the share prices. Whereas fixed effect model is more appropriate and good fit than random effect model and model indicate that dividend payout ratio has significant positive impact and market volatility has significant negative impact on stock prices. GMM results also support the fixed and random effect outcomes with more robustness. This study significantly contributes in dividend policy decisions and elaborates the dynamic roll of micro and macro variables on stock price volatility in financial sector of Pakistan.

The purpose of this study is to investigate the association among mutual funds (MFs) risk measures and return parameters, evaluate mutual fund performance and also explore the best appropriate mutual fund performance measure for investment in Pakistan. Therefore, thirty-five mutual funds have been selected for the period 2007-2015. The Sharpe, Treynor, Jensen Alpha, Information ratio and Fama's Net Selectivity measures has been used to analyze MF performance. Our study findings show significant positive relation exist between Sharpe and Jenson alpha & information ratio (IR); Treynor ratio is negatively correlated to Jenson alpha and Jenson alpha is positively allied with IR. Moreover, association among performance measures, Fama's net selectivity is a major driver in leading to other measures but Sharpe and IR lead to Treynor ratio as well. Furthermore, performance measures are ranked in accordance standard deviation with the arrangement of Fama's net selectivity at top, Jenson Alpha at second, Sharpe ratio at third, IR at fourth and Treynor ratio at fifth position according to risk parameters in Pakistan. Overall, Jensen Alpha measure appears to be the best suitable mutual fund performance measure in Pakistan due to its practical nature. Finally, the Pakistani stock market index KSE100 (as benchmark) performs better than MF industry of Pakistan.

This study investigates the presence of the MAX effect stocks with extreme daily (positive) return in the current month perform poorly in the following month in the Pakistani stock market (PSX). Similar to the US, Europe, and Chinese stock markets, we find a negative effect of MAX on risk-adjusted returns. Furthermore, we find that the MAX effect persists even if we extend the holding period to three-and six-month. Our results are robust for both portfolio-level and firm-level cross-sectional analyses and across subperiods, size groups, and alternative factor definitions and models. Interestingly, contrary to findings reported elsewhere, we find that the MAX effect in Pakistan exists only when the overall economy is in an expansion state. A battery of tests suggests that triviality in MAX effect during economic contraction in Pakistan is driven by the more negative subsequent performance of low-MAX stocks (short-leg), whereas, in other markets, more negative subsequent performance of high-MAX stocks (long-leg) is evident during economic downturns. Our potential explanation is partially supported by the theoretical model of Palfrey & Wang, who find that demand for speculative stocks (i.e. lottery-like stocks) is higher during 'good' economic news (expansion) than 'bad' economic news (contraction).

This study  investigates the  impact of green  bond  issuance on corporate performance and  further checks  the  intermediate effect  of corporate innovation performance on the  primary relationship. This  study  uses  the  quarterly panel data  of Chinese  non-financial listed  companies in  11  sub- divided industry categories from January 1, 2016, to September 30, 2020. Using the difference-in- difference (DID) model  and  the  parallel trend test,  it is found  that  companies’ issuance of green bonds  has  a  significant positive  effect  on  improving corporate innovation performance and corporate value. Furthermore, the  improvement of innovation performance assists  in enhancing the  promotion effect  of green  bond  issuance on  corporate value. Despite data  limitations, this study’s findings can  be very  helpful for all relevant stakeholders, especially regulators, to intro- duce  conducive policies to support the  issuance of green  bonds  in Chinese. Our  findings can  be useful  for  other emerging markets that  are  dealing with  the  same  green  bond-based growth- sustainability conundrum.

The existing literature on developed and advanced emerging markets documents that the expected stock returns exhibit a positive-, negative-, and no-relationship with both idiosyncratic volatility (IVOL) and extreme daily returns (MAX or MIN). Different from developed and advanced emerging markets, the Pakistani market (PSX) is at its initial development stage with a comparatively little investment knowledge and scarcity of funds that may hinder to achieve a well-diversified portfolio. Such investment conditions may lead investors to suffer from under-diversification and behavioral biases, and therefore, provide an ideal situation to examine the IVOL, MAX and MIN effects and the relationship among these variables in the Pakistani stock market. We find a robust negative MAX effect, which is not subsumed by IVOL, MIN, and other control variables. Whereas, IVOL and MIN effects are weak and unreliable. The negative MAX-return relationship and positive MIN-return relationship indicate bot...

The specific purpose of the Developing-8 economies is to integrate the endeavours of each member countries to excel economic cooperation and facilitation among the Islamic countries to enhance the investment opportunities and not to put pressure on the geopolitical environment of the world. The purpose of this study is to visualize the market efficiency, financial integration, and shock transmission process in the D-8 Economies for the period from Jan 2011 to Dec 2016. Daily market data is taken for KSE, DSE, TSE, JCI, KLCI, ISE, EGX, and NSE equity markets. Unit Root Test, Serial Correlation Test, Runs Test, and Variance Ratio Test are used to test the market efficiency whereas Johansen Cointegration Test, Granger Causality Test, Vector Error Correction Model, and Impulse Response Test are used to test the financial integration and shock transmission. The performance of the Tehran stock market remained excellent during this study period. Mixed evidence is concluded regarding the ma...

Socially and environmentally responsible investing is becoming the benchmark in financial markets. Promoting emerging industries’ environmental performance, social responsibility, and corporate governance (ESG) ratings are increasingly becoming the consensus of multinational green financial institutions, investors, and governments. This study employs 3100 panel data from 2014 to 2019 to conduct empirical research on green innovation, ESG indicators, and the financial performance of China’s Growth Enterprise Market (GEM) listed companies. Based on the “causal steps approach”, we adopt the Sobel–goodman and Bootstrap test to explore the partial mediation effect of ESG indicators. Moreover, when testing the interactive effect of endogeneity, instrumental variables combined with two-stage least squares (2SLS) and a general method of moments (GMM) system are applied in the dynamic panel for robustness. Combing with the approach of ESG factors-integrated and ESG factors-embedded regressio...

Introduction: Under the modern enterprise system, the principal-agent relationship can cause a conflict of interest between the two power counterparts, thus affecting the degree of corporate tax avoidance. As a tool to align the interests of management and owners, management equity incentives can alleviate the conflict of interests brought about by the separation of powers and, therefore, may influence corporate tax avoidance.
Objectives and methods: We examine the relationship between management equity incentives and corporate tax avoidance from both theoretical and empirical perspectives by using data from Chinese A-share listed companies from 2016 to 2020. Firstly, the effect of management equity incentives on tax avoidance is theoretically and normatively analyzed. Secondly, examine the effectiveness of moderating the effect of internal control and distinguishing the ownership of enterprises’ nature through regression analysis.
Results: (1) There is a positive relationship between management equity incentives and corporate tax avoidance which means, more the stock incentive offered to executives, the more likely corporations are to pursue tax avoidance strategies aggressively. (2) Internal control deficiencies enhance the positive relationship between equity incentives and enterprise tax avoidance behavior. Therefore, in Chinese enterprises, the lack of an internal control system and the failure of internal control measures are prevalent, and such loopholes can intensify the tax avoidance behavior that arises when executives are subject to equity incentives. (3) The influence of management equity incentives on enterprise tax avoidance behavior is greater in state-owned (SOE) than private enterprises. State-owned enterprises are more likely to increase enterprise tax avoidance behavior when management is subject to equity incentives for reasons such as strict performance requirements, lower regulatory oversight, and less interference from negative information. Finally, our findings have significant implications for policymakers/regulators, public companies, investors, standard setters, managerial labor markets, and the welfare of the overall economy.

The purpose of this study is to analyze the dividend policy dynamics in context to firm specific and macroeconomic variables with stock price volatility in the financial sector of Pakistan. Panel data is used for the period 2006-2014 to identify the common, fixed, random and GMM effect. It is concluded that dividend payout ratio, market value, interest volatility and inflation volatility have positive significant correlation with price volatility. Common effect model shows that dividend payout and interest volatility has a significant positive impact on the share prices. Whereas fixed effect model is more appropriate and good fit than random effect model and model indicate that dividend payout ratio has significant positive impact and market volatility has significant negative impact on stock prices. GMM results also support the fixed and random effect outcomes with more robustness. This study significantly contributes in dividend policy decisions and elaborates the dynamic roll of ...

This study examines the impact of corporate business strategy on sustainable growth of Chinese listed non-financial firms from 2010 to 2017. Supplier concentration is used as a moderator to examine how company strategy responses affect sustainable growth. This study measures sustainable growth using a comprehensive index based on nine financial indicators. Using fixed effect model, findings reveal that firms choose a conservative corporate strategy in the presence of higher supplier-concentration, whereas aggressive strategy significantly improves sustainable growth. The findings also indicate that higher supplier-concentration has a drag effect on a firm’s growth sustainability as it weakens the positive relationship between corporates’ business strategy and sustainable growth. Our results are robust to time and industry fixed effects as well as alternate proxies of sustainable growth. This research contributes to the literature on firm strategic strategies in the presence of supplier concentration to achieve sustainable growth, which may assist managers to keenly observe their relationships with their suppliers to maintain a healthy business environment.

The  main  objective of this  study  is to explore how ESG disclosure effectively promotes techno- logical  innovation capabilities (TIC) and also in different industries (green vs. high-tech). Further, examine the  role  of financing constraint (FC) in the  relationship between the  ESG disclosure and TIC. We employed the  panel regression model, Causal  step  approach, Bootstrap mediation effect test,  2SLS, and  GMM model. We used  Bloomberg’s ESG disclosure score  of China’s  A-share  listed companies from 2011  to 2019  (1); we found  that  the ESG disclosure has a significant relationship with  corporate innovation indicators (OTI, STI, NSTI) and play a significant role in promoting TIC at different levels  of corporate innovation (2) ESG disclosure of non-green (high-tech) industry is more  effectively promote TIC than green  (non-high tech)  industry (3) ESG disclosure can promote corporate innovation by reducing the level of corporate financing constraints, and FC has a partial intermediary role  between ESG and  TIC.