Non-financial Firms In Pakistan Research Articles

Do the fraud triangle components fuel complex financial fraud? A study of nonfinancial firms in Pakistan

Purpose Financial fraud is a severe corporate fraud committed for achieving various objectives, like attaining financial targets, lowering debt and providing good signals to the market. Such financial fraud deceives stakeholders and results in substantial financial losses. This study aims to detect financial fraud using the modified Beneish M-Score, the most appropriate forensic tool for fraud detection. Furthermore, the current study also examines the influential role of the fraud triangle’s elements (pressure, opportunity and rationalization) on financial fraud in nonfinancial firms during 2018–2021, offering insight for understanding and mitigating fraudulent activities in the corporate world. Design/methodology/approach Financial fraud is treated as a dependent variable measured through a modified Beneish M-score, while the fraud triangle elements (pressure, opportunity and rationalization) are measured through six proxies, which are financial stability, leverage, financial target, nature of the industry, the effectiveness of supervision and auditor changes. Findings The study's finding proclaimed that fraud triangle elements result in financial fraud. Findings unveil that all elements (pressure, opportunity and rationalization) of the fraud triangle significantly influence financial fraud. The study confirms that these elements must be considered to protect investors and provide a safe environment for investment. Originality/value Rare literature found addressing the detection of financial fraud and its nexus with the fraud triangle specifically in Pakistan where deficient governance is notably prevalent. This study attempts to fill such a gap and contribute to knowledge.

Dividend policy and shareholders’ wealth. A comparative analysis of Shariah-compliant and noncompliant nonfinancial firms in Pakistan

Purpose The purpose of this study is to comparatively analyze the effect of dividend policy on shareholders’ wealth in Shariah-compliant (SC) and noncompliant (NC) nonfinancial firms in Pakistan. Design/methodology/approach All the nonfinancial firms listed on the Pakistan stock exchange have been taken as a sample for 2016–2021. The Karachi Meezan index screening criteria were applied to screen SC firms. Based on the BPLM and Hausman test results, the authors used the fixed-effect and pooled OLS model for SC and NC firms, respectively. The F-test was used to compare the effect of each dividend policy variable on shareholders’ wealth for both firm types. Findings The findings reveal that the dividend policy does affect the shareholders’ wealth in both firm types. Dividend per share (DPS), dividend yield (DY) and earnings per share significantly affect the shareholders’ wealth in SC firms. For NC firms, the dividend payout, DPS and DY are critical. Moreover, the F-test results show that the DPS, DY and leverage effect on the shareholders’ wealth significantly differ for both firm types. Research limitations/implications This study fills the research gap in the Pakistani context specifically as well as globally by providing important insights into the relationship between a firm’s dividend policy and shareholders’ wealth for SC and NC firms. In addition, this study comprehensively compares the results for both firm types, which is also lacking in the existing literature. Because this study is based in Pakistan, the generalizability of the results would be limited. Practical implications The findings of this study are helpful for the management of SC and NC firms in devising their dividend policies that can maximize their shareholders’ wealth. This study also provides guidance and knowledge to investors in choosing companies for their investments that can maximize their wealth. Originality/value To the best of the authors’ knowledge, this is the first study that analyzes the relationship between dividend policy and shareholders’ wealth for SC firms in Pakistan. It is also the first study that comprehensively compares the dividend policy relationship with shareholders’ wealth for SC and NC firms. In addition, using the F-test for joint hypotheses to compare the specific effect of each dividend policy variable is a methodological contribution of the study.

Managerial Discretion and Corporate Governance Mechanism: A Case Study of Public Limited Firms of Pakistan

The purpose of this study is to examine the impact of board independence, CEO duality (managerial discretion) and corporate governance mechanism on firm performance measured through accounting-base measures i.e. return on assets as well as market-based measure i.e. Tobin’s Q among Pakistan's KSE-listed non-financial firms from 2011 to 2021. The study used software (STATA 12) to analyze the data of 172 firms using the Generalized Method of Movements as well as Random Effect and Fixed Effect regression models to test how each corporate governance and managerial discretion variables contributes to the firm performance. Data was extracted from the annual reports, database, and websites of KSE-listed firms. The presence of board independence contributes positively to firm performance. The study highlights that although CEO duality has no impact on firm performance, but presence of board independence controls the managerial discretion provided by CEO duality and offer the necessary resources as well as monitoring the control the managerial discretion and improve firm performance. This article makes a significant theoretical contribution by synthesizing and extending key governance theories to offer a nuanced understanding of the intricate dynamics within corporate governance (CG), particularly in the specific context of KSE-registered non-financial firms in Pakistan. This research contributes actionable insights that span governance improvement, informed decision-making, regulatory considerations, and strategic performance enhancement, offering practical benefits for the diverse stakeholders in the corporate governance landscape.

Examining the intervening effect of earning management in governance mechanism and financial misstatement with lens of SDG and ESG: a study on non-financial firms of Pakistan.

In today's corporate world, a company's long-term viability and prosperity depend on its corporate governance practices. The present study investigates the interplay between financial misrepresentation, earnings management, and corporate governance within the context of Pakistan. To estimate the financial data of enterprises obtained from non-financial organizations listed on the Pakistan Stock Exchange a panel regression analysis was conducted. The analysis covered the time from 2009 to 2020 and employed quantitative data. The findings of the study show that the different aspects of corporate governance mechanisms have varying levels of influence. Specifically, remuneration paid to directors had a significant impact on financial misstatement, while the size of the board strongly impacts the earning management. The financial misstatement was also found affected by the earning management. The M score (statistical model used to predict the probability of financial misstatement) positively influenced when board diligence was incorporated in the mediation of earning management. It is important to note that this study only considers the internal governance mechanisms of firms, suggesting that future research could benefit from the inclusion of external governance mechanisms for a more holistic model. This study is aligned with the ESG's governance aspects and SDG-17, providing valuable insights for specialists, financial backers, policymakers, and experts. The results of this study catalyze further research in this area and can aid in achieving SDG 17 by raising awareness of the significance of good governance practices, ethical reporting that leads to sustainable firm performance, and ensuring long-term economic growth and development.

Increase in Money Supply Amplifies the Secondary Sources of Finance: Evidence from Pakistani Non-Financial Firms

An increase in money supply is a signal to expand the financing system in the economy; thus, non-financial firms with access to capital markets and financial institutions stand by side and play a significant role in this situation. This study aims to investigate the impact of money supply increases on the capacity of secondary sources of financing and to achieve the goals of expansionary monetary policy. In 2011, 399 non-financial firms were listed on the Pakistan Stock Exchange, after excluding those firms that did not provide complete information between our selected periods excluded from the sample. Data from 156 non-financial firms were finally used for analysis. Panel data have been collected from the non-financial firms of Pakistan. After applying the Fixed Effects Model, the results provide evidence that an increase in the money supply in the economy of Pakistan would lead to an enhancement in the financing channels, like trade credit. This study explores the relationship between monetary policy adopted by the central bank and the use of trade credit. Collectively, the results also favor positive relationships between access to the capital market and trade credit patterns. This study recommends that during the time of monetary expansion, firms with better access to financial institutions were more willing to enhance credit sales. For future research, it suggests comparing the use of trade credit during the tight and expansionary monetary policy.

Impact of Dividend Policy on Firm Performance: Evidence from Non-Financial Firms of Pakistan

This study has aim to evaluate whether the policies of divided affects the performance of non-financial firms that are publically traded in Pakistan. Data was collected between 2010 and 2021 from the State Bank of Pakistan's website and through financial statement analysis of non-financial businesses.Certainly! According to the SPSS results, there is a noteworthy positive correlation between Return on Equity (ROE) and Dividend Policy. This implies that as Financial Leverage (FL), Dividend per Share (DPS), Earning per Share (EPS), and Dividend Payout Ratio (DPOR) increase, and the ROE also rises for all of the non-financial firms included in the study. Additionally, a significant positive connection between Dividend Policy (which includes all of the variables FL, EPS, DPS, and DPOR) and Return on Assets (ROA) was found.I can rephrase that for you! Therefore, this research provides evidence that Dividend Policieshave significant influence on Firms/Companies Performance.

Corporate real estate investment and firm performance: empirical evidence from listed non financial firms of Pakistan

PurposeThis study aims at testing the relationship between corporate real estate (CRE) investment and firm performance of nonfinancial firms in the context of an underdeveloped market, Pakistan.Design/methodology/approachThis study uses a sample of 307 nonfinancial firms listed at the Pakistan Stock Exchange from 2010 to 2020. This study adopts a rigorous methodological approach and employs ordinary least square, fixed effect, generalized method of moments system regressions and the propensity score matching technique to account for potential heteroskedasticity, effects of unobserved variables and endogeneity.FindingsThis study finds that as the investment in CRE increases, the firm’s performance decreases. The findings are robust to alternative proxies of CRE investment and alternative methodologies. Furthermore, the findings hold for financially constrained and financially unconstrained firms, high- and low-growth firms and safe and financially distressed firms.Research limitations/implicationsThis study extends the evidence about CRE investment in an underdeveloped market and suggests potential avenues for future research.Practical implicationsThe findings of this study warrant investors, managers and directors be cautious about CRE investment in firms.Originality/valueThis study uses a new proxy of CRE investment, which is more inclined toward the asset management and financial perspective of CRE investment. Furthermore, to the best of the authors’ knowledge, this is the first attempt to investigate the role of CRE investment in an underdeveloped market.

Comparative Study of Pair Trading Techniques in Pakistan’s Financial and Non-Financial Sector

Purpose: This study attempts to empirically investigate the pair trading performance of financial and non-financial firms in Pakistan. Methodology: Daily data from 2008 to 2017 was collected for nine years. Cointegration and the distance approach were the two major analytical techniques used to evaluate the profitability of pair trading. The financial and non-financial sectors of the Pakistan Stock Exchange were used to build the pairs. Findings: Results showed that the top 5 pairs of portfolios exhibited the highest average excess returns of 0.0698, and Jensen's alpha is 0.0947 for the top 5 pairs. All pairs of firms showed significant and positive risk-adjusted performance. In the non-financial sector, the Top 10 pairs of portfolios had the highest average excess returns of 0.0789, and Jensen's alpha under the co-integration method for non-financial firms for all pairs 5, 10, 15, and 20 of the portfolios is also substantial and positive for risk-adjusted performance, with 0.0046, 0.0618, 0.0577, and 0.0493, respectively. Finally, pair trading under both techniques showed profitability. However, the co-integration technique exhibited better performance than the distance method. Conclusion: The study concluded that both pair trading techniques, particularly the co-integration technique, exhibited profitable pair trading performance that can assist investors and fund managers to earn positive returns on their investments regardless of market direction.

Moderating Role of COVID-19 Crisis on Firm Leverage Speed of Adjustments: Evidence from Pakistan

This study evaluates the impact of firm-specific, industry-specific, and macroeconomic determinants on the speed of capital structure adjustment and to see if COVID-19 impacted these relationships. Using quarterly data of all listed non-financial firms in Pakistan for the period 2016-2021, a dynamic panel data model using the generalized method of moment (GMM) was used for estimation. It was found that firm size, growth potential, non-debt tax shield, and GDP growth positively impact firm leverage, while profitability and tangibility negatively impact leverage. The study found evidence of convergence to target leverage by Pakistani firms. These firms' capital structure adjustment speed was estimated as 16.7% per quarter. Moreover, COVID-19 was not found to affect the adjustment speed of firms, directly. Furthermore, greater distance from target leverage, growth potential, and GDP growth rate resulted in a lower speed of adjustment, whereas higher profitability and liquidity were found to increase the speed of adjustment.

The Relationship of Corporate Governance and Profitability with Corporate Social Responsibility Disclosure in Pakistan

The objective of this research study is to investigate the impact of corporate governance attributes and profitability on corporate social responsibility disclosure (CSRD) among listed non-financial firms in Pakistan. The current study gathered data from the published annual reports of the 66 non-financial firms listed on the Pakistan Stock Exchange (PSX) from 2013 to 2016. The study employed a fixed effect model or a random effect model for data analysis, along with some pre-requisite diagnostic tests. The results of the study demonstrate the following outcomes: First, the board size, managerial ownership, and return on assets are positively linked with corporate social responsibility disclosure; second, return on equity shows a significant negative relationship with corporate social responsibility disclosure. Importantly, this study suggests that corporate governance attributes and firm profitability are the most significant components in improving corporate social responsibility disclosure. The research study has some important implications for academicians, auditors, and policymakers in improving corporate social responsibility reporting disclosure.

EXPLORING THE FIRM LEVEL TRANSPARENCY AND ITS IMPACT ON FIRM VALUE

Increased transparency encourages management to perform efficiently which leads to increase profitability of Firm. Firms in Pakistan are exposed to political risk but they are adopting strategies for the risk management and performing well. The objective of this study is to examine the relationship between firm level transparency and firm value of non-financial firms in Pakistan. Sixty registered firms in KSE 100 Index of Pakistan were considered for analysis for the period 2014-2018. The researchers had developed an index for measuring the firm’s transparency (disclosure). Regression analysis technique was used to find important relationships between the variables. The results showed higher firm level transparency leads to accelerate firm financial value. The results provide singifcnat information about the issues under study. On the other hand higher level of transparency on firm level decreases firm value in Pakistani market. While inverse relationship was thus found amid political risk, transparency and firm financial value. This study had unveiled fact that mostly Pakistani firms are undervalued, riskier and slow growing which disclose more to combat with negative assessments in market from participants.

The Determinants of Capital Structure of Stock Exchange-listed Non-financial Firms in Pakistan

Capital structure refers to the different options used by a firm in financing its assets. Generally, a firm can go for different levels/mixes of debts, equity, or other financial arrangements. It can combine bonds, TFCs, lease financing, bank loans or many other options with equity in an overall attempt to boost the market value of the firm. In their attempt to maximise the overall value, firms differ with respect to capital structures. This has given birth to different capital structure theories that attempt to explain the variation in capital structures of firms over time or across regions. On the other hand, empirical evidence is also not sometime consistent in substantiating a particular capital structure theory.

Proprietorship Structure and Firm Performance in the Context of Tunneling: An Empirical Analysis of Non-Financial Firms in Pakistan

Proprietorship Structure and Firm Performance in the Context of Tunneling: An Empirical Analysis of Non-Financial Firms in Pakistan

Does trade credit spur performance of the firm: a case study of non-financial firms in Pakistan

PurposeThe purpose of this study is to investigate empirically the trade credit financing as antecedents to firm performance in Pakistan, a transition economy having high level of openness in environment using sample data from firms following Sharia principles using Sharia compliance principles.Design/methodology/approachThis study investigated the significance of the trade credit behavior in influencing financial performance of nonfinancial firms which have adopted Sharia principles in their business activities by incorporating feasible generalized least square estimator technique on panel data model from 2010 to 2020. The variables data was extracted from the Pakistan Securities Exchange website for the period 2010–2020. Meanwhile, this study has also taken into consideration the role of bank size in shaping the relation under consideration.FindingsThe statistical outcomes from the used model support the strong impact of the existence of trade credit in determining a firm’s financial performance. Results also highlight that profitable firms with high involvement in trade credit can boost their performance by optimal utilization of trade credit sources. However, the acquisition of bank loans for firms having no operational needs can disturb their financial health and ultimately threaten performance. This relationship is more evident for large-size firms.Practical implicationsThe given analysis suggests the managers from the corporate sector that before making any arrangements for trade credit, they must have to compare the availability of the financing structure from bank as it offers a strong monetary back for any financial imbalance.Originality/valueBriefly, to the best of the authors’ knowledge, this study would be the first to address the trade credit behavior keeping in view the sample data from firms following Islamic Shariah principles using SAC quantitative approach. Further, the proven analysis demonstrates novel contribution that efficient use of trade credit (based on Islamic Shariah principles) into business activities might strengthen corporate firms’ financial efficiency.

Impact of firm characteristics and ownership structure on firm efficiency: evidence from non-financial firms of Pakistan

Impact of firm characteristics and ownership structure on firm efficiency: evidence from non-financial firms of Pakistan

Impact of Corporate Governance on Cost of Capital: Moderating Role of Foreign Ownership

Abstract. The purpose of this study is to examine the impact of corporate governance mechanism with moderating role of foreign ownership on the cost of capital. The 108 listed nonfinancial firm’s annual data, ranging from 2011 to 2017, is extracted from annual reports. The ordinary least square method has been used with different techniques such as common, fixed, and random effect models but most variables were significant in the common effect model. The statistical findings of the study indicate that there is a significant relationship between corporate governance mechanisms and the cost of capital in non-financial firms of Pakistan. To some extent foreign ownership moderates, the relationship between the audit committee, board of directors’ managerial ownership, and cost of capital and leverage (debt to asset ratio) plays a controlling role among these variables. All non-financial firms should increase the environment of foreign ownership in their firms for the profit maximization and development of the economy.

Does Firm Growth Impede or Expedite Insolvency Risk? A Mediated Moderation Model of Leverage Maturity and Potential Fixed Collaterals

Business sustainability is compromised with an increase in insolvency risk. Firm growth is desirable, but it brings an associated bundle of high risks. We decomposed firm growth into internal and external growth and studied its impact on insolvency risk using a panel data set of 284 listed non-financial firms in Pakistan from 2013 to 2017. This study used the hierarchical multiple regression approach through panel corrected standard error (PCSE) and feasible generalized least squares estimators to test the proposed relationships. The results reveal that the leverage maturity ratio mediated the relationship between firm growth and insolvency risk. Moreover, we also collected fresh evidence on the moderating role of potential fixed collaterals that negatively moderated the relationship between leverage maturity and insolvency risk. It points toward the accumulation of non-productive fixed assets that create a burden for firms instead of helping them avail of favorable loan opportunities. The findings of this research suggests that fund managers should use more long term debt to tackle insolvency risk in highly volatile markets. Inclusion of assets that serve as better collaterals should be made part of the asset structure.

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.