Non-financial Firms In Pakistan Research Articles

Effects of corporate governance on management earnings: Study based on non-financial firms in Pakistan

Corporate governance is an important mechanism to control earnings management. The objective of our research is to investigate the impact of corporate governance on earnings management along with some control variables. We used secondary and panel data of 159 non-financial firms and the time period we covered was from 2010 to 2019. We applied different techniques like descriptive statistics, correlation matrix, multicollinearity, and Generalized Method of Moments (GMM) for data analysis. This investigation found that there is a significant and negative impact of audit quality, audit committee size, audit committee activities on earnings management, while CEO duality has a positive and significant impact on earnings management. We also found a significant and negative impact of asset tangibility and profitability or earnings management; however, there is no effect of board size and sales growth on the earnings management.

Market uncertainty and distance to default of non-financial firms in Pakistan

The purpose of this study is to provide new facts about the interaction between distance to default (DtD) and the uncertainty for non-financial firms in Pakistan. For this purpose, the study chose the non-financial firms that issued TFCs over the period 2006 to 2018. The data was collected from the financial statements of firms and daily stock prices from the stock market. Three measures of uncertainty, like stock return volatility, stock market volatility, and systematic risk, are used for empirical testing of the hypothesis. A panel data technique is used, which indicates that stock return volatility, stock market volatility, and systematic risk positively affect the DtD of firms listed on the Pakistan Stock Exchange (PSE). The chances of default increase in case of uncertainty in the market. These findings are beneficial for regulators in formulating the measures to ensure the stability of non-financial firms that play a significant role in economic growth.

Predicting Risk through Artificial Intelligence Based on Machine Learning Algorithms: A Case of Pakistani Nonfinancial Firms

AI (artificial intelligence) is a significant technological advancement that has everyone buzzing about its incredible potential. The current research study evaluates the influence of supervised artificial intelligence techniques, i.e., machine learning techniques on the nonfinancial firms of Pakistan and focuses on the practical application of AI techniques for the accurate prediction of corporate risks which in turn will lead to the automation of corporate risk management. So, in this study, we used financial ratios for accurate risk assessment and for the automation of corporate risk management by developing machine learning algorithms using techniques, namely, random forest, decision tree, naïve Bayes, and KNN. A secondary data collection technique will be used. For this purpose, we collected annual data of nonfinancial companies in Pakistan for the period ranging from 2006 to 2020, and the data are analyzed and tested through Python software. Our results prove that AI techniques can accurately predict risk with minimum error values, and among all the techniques used, the random forest technique outperforms as compared to the rest of the techniques.

Board Gender Diversity, Firm Performance and Risk-Taking: The Case of Non-Financial Firms of Pakistan

This paper examines the influence of board gender diversity on firm performance and risk taking. We employed the panel data of seventy-five non-financial firms of KSE-100 index listed in the Pakistan Stock Exchange. The data consists of 2005-2018 period. Results of panel regression reveal that board gender diversity have adverse influence on the firm performance i-e Tobin’s Q and return on assets. Moreover, it further provides that board gender diversity has decrease the firm’s risk-taking i-e insolvency risk. Overall, the inclusion of females in the boardroom reduces the financial performance and decrease the risk-taking of non-financial firms in Pakistan. This study provides the managerial and practical implications in compliance with SECP Act of 2017, to include the females in boardroom to discourage the risk-taking behavior of firms.

Do the Investment Distortions Affect the Performance of Non-financial Firms of Pakistan?

The investment decisions are very important for investors as it directly affects the firm’s future profitability and shareholder’s wealth. Firm managers are involved in making inefficient investment decisions in imperfect capital markets. This study aims to examine how the inefficient investment decisions influence the firm performance after controlling for the financial factors. The two steps System Generalized method of moments is used to examine the impact of investment distortion on firm performance. The empirical analysis is based on unbalanced annual panel data set of a sample of 324 non-financial firms listed on the Pakistan Stock Exchange for the period 2015 to 2017. The results show that investment distortion is negatively affecting the performance of non-financial firms in Pakistan; irrespective of the proxy used to measure the firm performance. These results support the information asymmetry theory and agency theory, which explains why managers are involved in making sub-optimal investment decisions at the cost of shareholders' wealth and why their inefficient investment decisions can damage the value of the firm.

The impact of investor sentiment on returns, cash flows, discount rates, and performance

Investor sentiment is believed to play an increasingly significant role in business and economic activities. By analyzing data collected from a sample of listed nonfinancial firms in Pakistan for the period 2009–2018, we quantify investor behavior and how it affects market returns, cash flows, discount rates, and firm performance. We find that investor sentiment has a significant impact on market activities, and our findings are in line with existing behavioral finance theories. Not only does our study offer theoretical confirmation of the significance of investor sentiment in aggregate market- and firm-level indicators, but it also offers new insights concerning market-based, news-based, and social media–based sentiment in the context of the Pakistani market.

The Impact of Corporate Governance Practices on the Firm Financial Performance of the Non-Financial Firms

The study focuses on whether the Corporate Governance characteristics influence the firm performance of Non-Financial Firms in Pakistan. In this study, three types of industries like pharmaceutical, cement, and food were analyzed from the Pakistan Stock Exchange for the period of 2010 to 2019. The authors used the diagnostic test on data that argued that the model is better, like the fixed effect model or random-effect model for analysis. Multiple regression-based methodologies were developed to use a fixed-effect model for both dependent variables, Return on Assets and Tobin-Q variables, to discover the association between corporate governance and firm performance. It is concluded that board size, board education board experience, board nationality and board compensation have significant the ROA and board size, board experience, the board size, and board compensation shows significance with Tobin-Q.

Influence of shareholder equity on trade credit demand: The study of non-financial firms in Pakistan

Relevance. Most small-sized firms have little or no access to credit markets, which is why they prefer equity financing and usually pay higher dividends on this equity. When paying higher dividends, these small-sized debt-free firms continue to build a reputation in the markets. Research objective. The analysis focuses on the trade payables that impact shareholder equity. In Pakistan, most of the businesses are small and middle-sized. Most of the Pakistani SMEs have a low capital structure and these enterprises depend on their daily business needs, so equity financing is their primary source of funding. Data and Methods. The data source for our study is the financial statements of non-financial firms (in total, 156 firms) from the balance Sheet Analysis (BSA) and the Financial Statement Analysis (FSA) published by The State Bank of Pakistan (SBP). The financial statements also provide the data listed by the Pakistan Stock Exchange (PSX). The data cover the period from 2001 to 2017. This study primarily relies on the panel data model. The study applied the methods of descriptive analysis, correlation matrix, common regression model, fixed effect model, random effect model and then the Hausman test was performed to choose the best model. Results. The results of the study indicate a positive and significant relationship between shareholder equity and trade credit demand. Conclusion. Many investors require trade credit as a suitable tool for the growth of shareholders of the company. It is also used in many types of business schemes as the shareholder equity factor plays a role in profit generation through the use of trade credit transactions.

Determinants of Dividend Policy: Sectoral Analysis of Listed Non-Financial Firms in Pakistan

The study is conducted to analyze the effect of various factors (i.e. Leverage (Lvg), Profitability (Prof), Business Risk (B.R), Liquidity (Lqd), and Growth Opportunities (GO)) on dividend policy (D.P) in the sample two non-financial sectors that are, food and electrical machinery from Pakistan stock Exchange. Total 30 firms have been taken, of which 20 firms from food sector and 10 from electrical machinery sector for a period of 8 years (2009-2016) by analyzing sample firms panel data. The results for both of the sectors that is generated through E-views via estimation of fixed effect model (F.E.M), show that independent variables like Prof, Lqd and Lvg have a positive and significant association to the explained variable of the study i.e. D.P, while a contra relationship is witnessed for business risk and growth opportunity to the dependent variable. Therefore, in food sector the results are more significant than the electrical machinery sector and it can be concluded that increase in the given variables will ultimately boost the D.P to shareholders that is the most attractive factor in the eyes of the majority of the stockholders. The endeavor concludes considerable results which will help the key stakeholders particularly the Board of Directors in order to formulate and restructure their D.P backed by the considered variables of this study that will ultimately maximize the stockholders wealth as well as the organizational value of both the sample sectors of the study.

Sustainability Reporting and Firm Performance: The Demonstration of Pakistani Firms

The nexus between sustainability and firm performance is an area of debate among researchers and academicians. The objective of this study is to examine the level and extent of sustainable financial reporting for non-financial firms in Pakistan and to assess the level of the impact of sustainable financial reporting on firm performance in Pakistan. This study is a novel research work as the sustainability practices are not mandatory in many Pakistani firms. Rather kinds of mix sustainability reporting practices are being practiced. The dilemma still exists whether sustainability practices affect the performance of Pakistani firms positively or not. We collect data from the sustainability reports as well as annual reports of 50 non-financial public limited companies listed in Pakistan Stock Exchange for the period 2013 to 2017. We calculate sustainability reporting index using content analysis procedure based on 42 indicators. The index is based on three subindices, namely, environmental, health and safety, and social indicators. We apply two regression models with a view to ascertain the individual effect of each indicator of the sustainability as well as the composite effect of sustainability reporting index on firm performance. The results confirm positive effects of all three individual indicators as well as the composite form of sustainability reporting index on firm performance. The findings of the study clearly outline the economic relevance for introducing the corporate sustainability reporting practices in corporate strategy.

Market uncertainty and distance to default of non-financial firms in Pakistan

Market uncertainty and distance to default of non-financial firms in Pakistan

Does Islamic Label Indicate Higher use of Trade Credit? Evidence from Shar¯ı‘ah Compliant Non-financial Firms in Pakistan

This study attempts to investigate the behavior of non-financial ISL firms towards usage of TC. In line with the previous literature, it is hypothesized that ISL “Shar¯ı‘ah Compliant” indicates higher use of TC by such firms, both demand and supply of TC. It is also hypothesized that TC is substitute of bank loan. The results are based on 338 non-financial firms listed on Pakistan Stock Exchange for 2008 to 2016 observation period. These include non-financial firms from all sectors. The study used random Generalized Method of Moment (GMM) estimation technique to explore the relationship of ISL and usage of TC as it is the most powerful method when sample size is large. The study found that ISL firms use more TC, as compared to conventional firms that have more access to bank loan. This study also found that firms with ISL prefer TC over the bank credit. The result of this study proves all stated hypotheses.

Aspect[s] of the Corporate Governance that Matter in a Firm’s Value: Evidence from Non-Financial Firms in Pakistan

Corporate governance (CG) is key to enhance firm’s value. The purpose of this research is to examine effects of various aspects of corporate governance on firm’s value. We used secondary penal data of 100 companies on Pakistan Stock Exchange for the period: 2010 – 2016. Findings revealed that among other aspects of CG, managerial ownership and board size have significant influence on the value of a firm. Among controlled variables, firm size and firm ages were also found significant in firm’s value. We are convinced that findings of this study would help addressing agency issues through effective corporate governance measures. This study has come up with some practical implications as well. It is suggested that for better firm performance and increasing efficiency the board size may be kept at minimum.

Aspect[s] of the Corporate Governance that Matter in a Firm's Value: Evidence from Non-Financial Firms in Pakistan

Aspect[s] of the Corporate Governance that Matter in a Firm's Value: Evidence from Non-Financial Firms in Pakistan

Working Capital Management and Firm Performance: Evidence from Non-Financial Firms in Pakistan

This study analyzes the effects of Working Capital management i.e. inventory management, receivable management and payable management, on the performance of the non-financial firms in Pakistan. Panel data of 280 nonfinancial firms enlisted in Pakistan Stock Exchange have been analyzed from 2000 to 2016. Firms’ profitability were proximate with return on assets and return on equity; whereas for growth i.e. sales growth and asset growth were used. The impact of Working Capital management is captured through its constituent policies such as Inventory management, Receivable Management and Payable management. Firm size, liquidity and leverage are used as control variables. Results suggest that Working Capital management has a significant impact on firms’ financial performance in terms of profitability, as well as growth. As far as component wise results are concerned, inventory management does influence the firms’ growth and Payable management significantly, hence affecting the firms’ profitability. However, only receivable management influences both profitability and growth.

The Corporate Governance and Interdependence of Investment and Financing Decisions of Non-Financial Firms in Pakistan

This study investigates the interdependence between financing and investment decisions in the presence of corporate governance factors of three hundred non-financial companies listed on the emerging market of Pakistani Stock Exchange (PSX). The sample is chosen randomly over a five-year period from 2012 to 2017. Using a panel data methodology, the regression models are derived based on the simultaneous equation modeling. Four factors of corporate governance mechanisms are identified: family ownership, managerial ownership, board size and board composition. This is among the earliest studies in Pakistan to consider simultaneity of financing and investment decisions by adopting Panel Data estimation technique. The major contributions of this study are: first, financing and investment decisions must be determined simultaneously. The results show that both investment and financing have positive impacts on each other and there exists a simultaneity among them.

Impact of Risk on Use of Trade Credit: Empirical Evidence from Non-financial Firms in Pakistan


 The study investigates the behavior of non-financial firms towards the use of trade credit where they have borrowing constraints in a developing economy. In spite of tremendous change in how businesses raise financing, many businesses still use trade credit as an alternative source of financing. The study is helpful in decision making for business schemes to occupy the risk factor in profit generation through the use of trade credit. Due to lack of funding’s for the businesses there is increase in risk the borrower become unable to run the business and therefore want to get finance or goods from any external source that fulfills the objective of the business as the suppliers. Banks require the collateral against the loan offered, as the risky customer has unable to provide any security to be pledged, trade credit serves the best means of short term loan for the customer. The buyer already in risky position tries to find out the short term means that are convenient and less time consuming for the businesses. Panel data has been used for working. The data on which the working is applied consisted of fifteen years i.e: from 2001-2015. The methodology used in the working is the Generalized Method of Moments (GMM). GMM is helpful for the problem raised because of the correlation amount the independent variables and the error term known as endogeneity problem as well as the heterogeneity of firms. J-statistics indicates that the instruments applied in the model are significant.

Financial Risk Management Practices in Financial and Non-Financial Firms; Survey of Pakistani Firms

The study aims to explore risk management practices used by financial and non-financial firms of Pakistan. Self-reported questionnaires were distributed using convenience sampling method among financial and non-financial firms. The results indicate that non-financial firms used risk management practices but the percentage is low as compared to financial firms. Firms engaged in international trade used risk management practices and followed the procedure needed for evaluating and managing risk. Although these firms have a small portion of operating revenue and operating cost in foreign currencies. The financial managers of these firms make risk reports to their top managers as per their policies and requirement. New FASB rules also affect their derivatives usage.

How do they adjust their capital structure along their life cycle? An empirical study about capital structure over life cycle of Pakistani firms

PurposeThe purpose of this study is to explain the adjustment rate made to target capital structures by listed non-financial firms in Pakistan during the courses of their life cycles and to determine what factors influence their adjustment rates.Design/methodology/approachThe study used multivariate analysis to classify 39 years (1972-2010) of unbalanced panel data from listed non-financial Pakistani firms in terms of their growth, maturity and decline stages. Further, it used a fixed-effects panel data model to determine the factors that influence capital structure and adjustment rates during the life-cycle stages of firms.FindingsThe study observed a low–high–low leverage pattern during the growth, maturity and decline stages of businesses in line with tradeoff theory. Furthermore, the study observed an adjustment rate for growing firms of between 49.3-37.9 per cent, for mature firms of between 35.5-17.5 per cent and for declining firms of between 22.2-15.1 per cent toward their respective leverage targets. Furthermore, it was found that growing firms have higher leverage adjustment rates because, by having more investment opportunities, these firms can alter their capital structures easily by changing the composition of their new issues.Practical implicationsErratic economic conditions in Pakistan have created an uncertain business environment. Therefore, even mature Pakistani firms remain skeptical about the sustainability of positive trends among current economic indicators. Furthermore, to avoid uncertainty, Pakistani firms grab short-term opportunities by using quickly available short-term debt as a main financing source. Government should introduce long-term policies that will stabilize the business environment and strengthen the financial, as well as the judicial, institutions of the country so that these firms may benefit from long-term investment opportunities and access more options for raising external financing. The results of this study will also help policymakers for other Asian economies where the capital markets are underdeveloped and where firms have higher leverage ratios, such as Thailand, Indonesia and Malaysia.Originality/valueThis is the first study in Pakistan that has used a multivariate approach to classify firms into their different life-cycle stages and to discover the leverage adjustment rates of firms during those life-cycle stages.

Capital Structure Theories and Leverage Behaviour of Pakistani Firms

This study examines the applicability of two capital structure theories; i.e., Pecking Order Theory (POT) and Trade-Off Theory (TOT). An extensive panel dataset of 293 non-financial firms listed on the Karachi Stock Exchange (KSE) for the period 2001 to 2013 is used to test those hypotheses. The data is analyzed in three phases. First, we check the leverage behavior of all listed non-financial firms of Pakistan. Second, we test the applicability of capital structure theories for manufacturing and non-manufacturing firms separately, and third, the data is segregated into large and small firms based on asset size to test the relevance of theories. Besides, firm-specific variables, three macroeconomic variables are also included, such as lending rate, inflation, and market capitalization to GDP to observe how such factors influence the leverage behavior of Pakistani firms. Two regression techniques are applied to investigate the relationship: 1) Panel regression with industry fixed effects and 2) Heteroskedasticity & Autocorrelation (HAC) consistent standard errors regression. Moreover, the validity of two hypotheses are tested based on two equations/models. Evidence of first model suggests negative relationship of profitability, size, and growth with the firm’s leverage, which confirms that, on average, Pakistani firms follow pecking order theory. In the second model leverage has positive and significant relationship with last year dividend, which shows firms with higher dividend payout ratios borrow more in subsequent year/(s). Lending rate has a positive impact on leverage, whereas, inflation, and market capitalization to GDP have insignificant impact on firms’ leverage. Overall, the financing behavior is in favor of POT for the non-financial firms listed at KSE.