Non-financial Sector Of Pakistan Research Articles

Examining Free Cash Flow Theories in the Non-Financial Sector of Pakistan: A Comprehensive Analysis of PSX-Listed Non-Financial Firms

The aims of this research were to analyze free cash flow related theories in the non-financial sector of Pakistan namely agency theory, Pecking order theory, and static trade-off theory. Free cash flow was taken as dependent variable along with three independent variables (Tax rate, leverage, and retention). Moreover, firm’s size, growth, dividend, tangibility, profitability, and cash flow volatility were taken as controlling variables. The data were extracted from four hundred eighty-eight non-financial firms listed on PSX for the period of 20 years, i.e., 2001-2020. We used weighted least square model for analysis due to heteroscedasticity diagnosed in data set. The study found that free cash flow is negatively related to leverage and tax, while the relationship with retention is positive. The results of this study are consistent with the hypothesis of agency theory, trade-off theory, and pecking order theory. This study is of paramount significance in comprehending the intricacies of free cash flow theories within the non-financial sector of Pakistan. The findings derived from this analysis have the potential to make substantial contributions to the enhancement of strategic financial management practices.

COMPARING VALUE - BASED AND TRADITIONAL MEASURING TOOLS. EVIDENCE FROM PAKISTAN

This paper's primary goal is to evaluate the assertion that value-based measures are preferable to traditional accounting based financial-performance measures, such as profit after tax (PAT), earnings per share (EPS), return on assets (ROA), return on equity (ROE), and return on investment (ROI), in the non-financial sector of Pakistan, while also providing empirical evidence to support the claim. Additionally, it evaluates and tests the informational value of different performance measures and how they relate to stock return. The sample of 97 non-financial Pakistani companies included in this study was obtained from the Pakistan Stock Exchange (PSX) between 2016 and 2021. The information richness of value-based measurements and conventional performance measures in explaining shareholders' returns is investigated using a variety of regression models. Relative information content tests shows that traditional accounting-based measures such as EPS, ROE and ROA performed better than value based measures in explaining the returns of Pakistan non-financial companies. Incremental information content of value based measures doesn’t have any contribution to information content above traditional performance measures. The claim of superiority of value based measures over accounting-based measures in association with shareholder returns is proved invalid in Pakistan non-financial companies. According to the study's findings, value-based financial performance indicators are not any better at explaining stock returns of Pakistani non-financial enterprises than traditional accounting-based financial performance measures. Panel data are tested using the Hausman's test for fixed and random effects, the variance inflation factor (VIF) test for multicollinearity, and the Durbin-Watson test for autocorrelation in order to ensure substantial results.

Herding Trend in Working Capital Management Practices: Evidence from the Non-Financial Sector of Pakistan

Working capital management requires careful attention from corporate managers because it plays an important role in corporate stability. The social belongingness of managers induced them to learn from their society, colleagues, and overall industrial movement. They also learn from their peers that have more strategic efficiency. In line with these arguments, the objective of the current study is to explore the peer influence on corporate working capital management practices. For regression analysis, we utilized ten years of data (2009–2018) of non-financial publicly listed firms at PSX (Pakistan Stock Exchange). We used the cash conversion cycle (CCC) as a proxy variable to measure working capital management (WCM). We employed panel fixed effect and system GMM (generalized method of moments) models to estimate regression between the variables of the study. The empirical findings suggest the significant impact of peer WCM on corporate WCM. They also suggest the significant impact of other variables that determine the WCM. This study recommends social learning policy for corporate managers. They can learn from their peers to manage the working capital. Most previous studies discuss peer influence on investment decisions, corporate cash holding, financing policy, etc., but no study explores such a relationship specifically in the case of Pakistan.

Does Financial Leverage Mediates Corporate Governance and Firm Performance?

This research aims to explore the impact of corporate governance on firm performance while considering financial leverage as a mediating variable. This study was conducted in the non-financial sector of Pakistan, and data was collected from financial statements. A sample of 150 firms was selected from those registered on the Pakistan Stock Exchange during the period of 2011–2021. Results show that corporate governance is associated with firm performance. Board size has a positive relationship with firm performance; as board size increases, the performance of the firm also increases. Board independence is positively and significantly associated with firm performance. Audit committee size is also positively associated with firm performance. Female directors on the board are also associated with positive firm performance. Board independence, board size, audit committee, and female directorship were positively associated with financial leverage. Corporate governance protects the interest of shareholders and transfers risk from shareholders to debt holders. Results show that corporate governance enhances the financial distress cost by enhancing the debt ratio in the financial leverage. Financial leverage partially mediates the board size and board independence with firm performance, while audit committee size and female directorship relationship with firm performance are fully mediated.

Impact of Corporate Governance on the Cost of Capital: Empirical Evidence from the Non-Financial Sector of Pakistan

Purpose: The study looked at the effect of corporate governance on the cost of capital of firms in Pakistan's non-financial sector. Design/Methodology/Approach: The study sample is comprised of balanced data set of 175 non-financial companies listed on the Pakistan Stock Exchange between 2008 and 2018. The study used the dynamic panel GMM estimator technique. Findings: The findings revealed that an increase in the number of directors, board independence, CEO duality, and inflation negatively influence the cost of capital. On the other hand, the increase in institutional holdings increased the cost of capital. In addition, it is discovered that board committees, political connections, and economic growth do not affect the cost of capital Implications/Originality/Value: When board size, CEO duality, board independence, and inflation increased, the cost of capital decreased in Pakistan's non-financial sector. Furthermore, board committees, political connections, company leverage, and economic growth do not affect the cost of capital in Pakistan's non-financial sector. In comparison, an increase in institutional shareholding increased the cost of capital in Pakistan's non-financial sector.

Corporate Policy and Capital Structure Decisions: Empirical Evidence from Non- Financial Sectors of Pakistan

Capital structure is expressed as the mixture of long-term debt and equity that a company uses in its financing composition. The importance of long-term financing in any business cannot be misjudged because it identifies the choice of optimal financing mix for the long-run survival of the business. The basic purpose of this study is to identify the behavior of financing composition through main corporate financial decisions in the non-financial sector of Pakistan. Data has been taken for 52 non-financial companies for 2015-2020. Outcomes of the study have been retrieved through OLS, Fixed Effect, Random Effect Model and Housman Test by using Views software. The main corporate financial policies regarding leverage decisions include a firm’s profitability, earning volatility, firm size, non-debt tax shield, and liquidity. Results identified that earning volatility, liquidity and profitability of the firm have a negative but significantly related to leverage; on the other hand,the study denotes that assets tangibility, not debt tax shield, firm size positively related to leverage. However as per fixed effect model earning volatility, liquidity and profitability has negative significant impact on leverage whereas, assets tangibility and firm size has positive significant impact on leverage. It is concluded that earning validity,liquidity and profitability are negative determinants of the firm’s leverage. Whereas, assets tangibility and firm size are the positive determinants of the leverage. The corporate policy regarding these determinants should be well recognized while designing the capital structure of the organization.

Analyzing the impact of board vigilance on financial distress through the intervention of leverage structure and interaction of asset tangibility in the non-financial sector of Pakistan

This study focuses on the relationship between board vigilance and financial distress in non-financial firms listed on the Pakistan Stock Exchange (PSX). The mediating role of leverage structure and moderating role of asset tangibility is also studied following Baron and Kenney’s approach. The study analyzed the data of 284 firms ranging from 2013 to 2017 by using ordinary least squares (OLS) and panel corrected standard errors (PCSE) regressions. The study revealed that the debt maturity structure mediates the relationship between board independence and financial distress and between CEO non-duality and financial distress but the capital structure did not mediate any of the stated relationships. Similarly, asset tangibility negatively moderated the relationship between debt maturity and financial distress. However, there was no such moderation detected between the relationship of capital structure and financial distress. The results remained consistent throughout the analysis with both regression techniques. These results suggest using more long-term debt in debt maturity structure to have control over financial distress and also to reduce the reliance on non-productive tangible assets in the asset structure of non-financial firms of Pakistan.

The Impact of Corporate Governance on Dividend Decisions: Evidence from Non-Financial Sector of Pakistan

This study sought to ascertain the impact of corporate governance on dividend decisions of non-financial firms listed on Pakistan stock exchange (PSX). Panel data was collected from 2011to 2016. Data was collected from Non financial firms annual reports and State Bank of Pakistan (SBP) data base. The STATA software was used to analyze the data. The study investigates the association of firm’s performance and corporate governance. Specifically, this study investigate dividend decision (dividend per share(DPS)), corporate governance (board independence ,board size, size of firm, leverage, profitability, Insider ownership, individual ownership, and institutional ownership). A total of 42 non-financial firms are used to determine this relationship. The results show a positive significant relation between the Profitability, individual ownership with DPS. This study also found a negative and significant relationship between insiders ownership, financial institution ownership with DPS. It has also been found that Board independence, board size, firm size and leverage have negative and insignificant relationship with dividend per share (DPS). Keywords: Corporate Governance, Dividend Decisions, Dividend Policy.

Role of Credit Rating in determining Capital structure: Evidence from Non-Financial sector of Pakistan

This paper aims to examine the impact of external credit ratings on the financial decisions of the firms in Pakistan. This study uses the annual data of 70 non-financial firms for the period 2012-2018. It uses ordinary least square (OLS) to estimate the impact of credit rating on capital structure. The results show that rated firm has a high level of leverage. Moreover, Profitability and tanagability are also found to be a significantly negative determinant of the capital structure, whereas, size of the firm has a significant positive relationship with the capital structure of the firm. Besides, there exists a non-linear relationship between the credit rating and the capital structure. The rated firms have higher leverage as compared to the non-rated firms. The high and low rated firms have a low level of leverage, while mid rated firms have a higher leverage ratio. The finding of the study have practical implications for the manager; they can have easier access to the financial market by just having a credit rating no matter high or low. Policymakers must stress upon the rating agencies to keep improving themselves as their rating severs as the measure to judge the creditworthiness of the firm by both the investors and management as well.

Impact of Corporate Governance on Financial Performance of Organization: Study of Manufacturing Firms in Pakistan

This study aimed to discover the impact of the corporate governance mechanism on firm financial performance and better understand the relationship among different corporate governance mechanisms such as board size, board composition, and firm performance in the Karachi Stock Exchange. All listed manufacturing firms at PSE are the population of this study. The data has been collected through simple random sampling of different manufacturing firms. The panel regression method technique is used in the present study to identify corporate governances effect on a firms financial performance. The findings of this study highlight that the Board of directors characters do matter a lot in the non-financial sector of Pakistan. So the policymakers and rest of the stakeholders must consider the finding of this study while formulating different policies regarding the above discussed dimension of Board of directors to magnify their respective firms’ financial performance.

Impact of Financial Signaling and Information Asymmetries of Macroeconomic Covariates on Capital Structure

Present study investigates the existence of macroeconomic variables effect on capital structure and to evaluate the behavioral aspects of financial signaling and asymmetry of information on the non-financial sector of Pakistan. Extreme bounds analysis an econometric technique is used to analyze the robustness of financial signaling and information asymmetry covariates of macroeconomic factorson capital structure policies and to compute the empirical findings.The resultsconclude that interest rate is significantly influencing the decisions of the managers regarding to the composition of long run financing decisions. Hence it is identified that corporate non-financial sector has lesser signaling effect generated by the macroeconomic forces in financial decisions. However the null hypnosis cannot be rejected as this study identified. This study is meaning full and leads toward the practical version of financing decisions by the corporate sectors with the changing policies of the macroeconomic forces in Pakistan. There must be coherence between the macroeconomic policies and corporate sector policies, therefore information asymmetries may overcome.

Effect of Credit Rating on Trade Credit: Empirical Evidences from Pakistani Non-financial sector

The study investigated how non-financial businesses use trade credit in the context of borrowing restrictions in developing economies. Despite the tremendous changes in the trend, trade credits still have huge usage. Buyers and suppliers have moved from traditional trading systems to advancing automated and sophisticated business methods. Multi-dimensional aspects of business strategy also include trade credits. Trade credit has a huge change in supply and demand. Trade credit is used as the main source of financing in almost all regions of the world. World-renowned companies have access to financial lending, but they prefer trade credit because it provides them an edge against collateral held at financial institutions. This research includes some factors like trade credit and credit rating. In this study has unbalanced panel data from non-financial sector of Pakistan. The data range consists of 2008 to 2016 for 38 non-financial firms. Here, by using the fixed effect model examined how credit rating affects the trade credit supply and demand in case of large and small firms. The results show that account receivables and payables both increase in the case of large firm credit rating. They can easily use the trade credit process. In case of small firms, they also join this process or trade credit agreement for smoothing their business function, but they feel some difficulties from both sides.

Conditional Accounting Conservatism Lessens the Cost of Capital: Evidence from Non-Financial Sector of Pakistan

Conditional Accounting Conservatism Lessens the Cost of Capital: Evidence from Non-Financial Sector of Pakistan

Effect of Debt Financing on Firm Performance: A Study on Non-Financial Sector of Pakistan

Effect of Debt Financing on Firm Performance: A Study on Non-Financial Sector of Pakistan

Impact of corporate social responsibility on firm's performance: evidence from non-financial sector of Pakistan

The objective of this study is to examine the impact of corporate social responsibility (CSR) on firm's performance (FP). It is based on conceptual aspects of CSR and considers how CSR can be measured in order to investigate the firm's performance. The paper is exploratory in nature because CSR is measured as an investment and disclosure in the Pakistani non-financial sector. The empirical results of this study provide evidence of the positive impact of CSR on FP. It is further concluded that firms investing in CSR have better financial performance. This study is a pioneer in Pakistan regarding CSR as investment and disclosure simultaneously and therefore an addition to existing literature on CSR. This paper provides different new ways to investigate CSR, by encouraging a discussion about the importance of corporate social responsibility.

Impact of corporate social responsibility on firm's performance: evidence from non-financial sector of Pakistan

The objective of this study is to examine the impact of corporate social responsibility (CSR) on firm's performance (FP). It is based on conceptual aspects of CSR and considers how CSR can be measured in order to investigate the firm's performance. The paper is exploratory in nature because CSR is measured as an investment and disclosure in the Pakistani non-financial sector. The empirical results of this study provide evidence of the positive impact of CSR on FP. It is further concluded that firms investing in CSR have better financial performance. This study is a pioneer in Pakistan regarding CSR as investment and disclosure simultaneously and therefore an addition to existing literature on CSR. This paper provides different new ways to investigate CSR, by encouraging a discussion about the importance of corporate social responsibility.

Impact of Behavioral Biases on Long Term Financial Decisions and Corporate Performance: An Evidence from Non-Financial Sector of Pakistan

Purpose: In this study, the relationship of managerial biases i.e. mental accounting, optimism and loss aversion with corporate performance is investigated. For path analysis, we explored this relationship through two subdomains of long term financial decisions (capital structure and dividend policy). Moreover, in this study, the mediating role of capital structure and dividend policy was also theorized and tested on the above-stated relationship. Sample/ Methodology/Approach: The sample of the study consisted of eighty-five (n=85) CEOs, CFOs, General Managers and Financial Treasurers of the nonfinancial sector (listed in Pakistan Stock Exchange). Primary data was collected through closed ended questionnaire by using convenience sampling technique. Statistical technique PLS-SEM was applied for data analysis by using SMART PLS 3.2 statistical package. Findings: The findings of the study depicted that behavioral biases influence corporate performance as managers take a decision under the influence of personal feelings, perceptions, and intuitions. We also inferred from the results that the effect of biases (mental accounting, optimism, and loss aversion) is significant on long term financial decisions. We also found that dividend policy and capital structure mediates the relationship between optimism and mental accounting with corporate performance. Originality/Value: This research study fills the gap in existing literature by investigating the relationship of managerial biases with corporate performance through the path of long term financial decisions of corporate financial managers. Previously, extensive research work is available on basic topic that how dividend policy and capital structure affect corporate performance, however, we found comparatively quite less discussion on stimulating forces (behavioral biases) for financial decision making and this gap is covered by this study through explaining the impact of behavioral biases on long term financial decisions which further devastate corporate performance. This study as an empirical evidence is helpful for researchers, academicians, and practitioners to understand and implement the notions coined by behavioral finance, regarding the effects of behavioral biases on long term financial decisions. Keywords: Optimism, Loss Aversion, and Mental Accounting, Long term financial decision, Corporate Performance, Pakistan.

Impact of corporate diversification on earnings management

PurposeThe purpose of this research is to examine the effects of corporate diversification on earnings management.Design/methodology/approachBased on listed firms regarding non-financial sector of Pakistan, the study runs mean comparison test along with panel least squares regression analysis.FindingsThe results of the study suggested that locally diversified firms and combination of industrial and geographical diversified firms mitigate earnings management. In support of the earnings equalizing hypothesis, managers of diversified firms have less need for accruals management because diversified firms had more free cash flows which naturally reduces earnings variability. This study also found that diversified firms had no informational asymmetry problems which reject the asymmetric information hypothesis. In addition, debt ratios are also associated with large organizations, but it shows that the more debt ratios are negatively associated with earnings management. Mean comparison test is also conducted, but the results are same as the regression results which does not confirm asymmetric information hypothesis.Research limitations/implicationsDifferent business segments are affected by the world financial crisis in 2008. Because of those financial shocks, the diversified firms are affected more. In future studies, results will become more favorable in context of diversified firms.Practical/implicationsThe main function of earnings management is to make up the company for investors point of view to look healthier than it really is. But it may cause to disappointment for investors regarding loss of investment. It shows future projections of the company and has vital importance for investor’s perspective.Social/implicationsThe misallocation of resources caused by earnings management refers to the value loss for society. Because the misallocation of funds will make that particular segment or division more vulnerable which ultimately make shareholders to go for entrenchment or liquidation. At the end, un-employment rises after entrenchment or liquidation and the society suffers.Originality/valueThis research makes an important contribution to the accounting and management literature by providing new and significantly different evidences on the relative roles of corporate diversification and earnings management.

Impact of Ownership Structure on Dividend Policy and Capital Structure: Evidence from Non-Financial Sector of Pakistan.

This study primarily investigates the impact of ownership structure on capital structure and dividend policy in Pakistan. Data is drawn from 50 non-financial companies included in KSE 100 Index for the period 2006 to 2014. In this study leverage and dividend payout are used as dependent variables, while managerial ownership and institutional ownership are explanatory variables. Profitability, sales growth and size of firm are used as control variables. Results of this study reveal that institutional ownership has significant and negative impact on capital structure but significant and positive impact on dividend payout ratio. On the other hand results suggest that managerial ownership negatively affects dividend payout ratio. Moreover results reveal that both of these strategic decisions affect each other negatively.Most of the researchers in Pakistan analyzed the impact of ownership structure on these two strategic decisions separately. But in this study, an advanced empirical technique – two stage least square (2SLS) – is used to find out the impact of ownership structure on both of these strategic decisions (Capital structure and Dividend policy). This technique also helps to determine the two-way relationship between these two strategic decisions.

The Effect of Family Ownership on Cash Holdings of the Firm (Karachi Stock Exchange)

The study was conducted to find out the family control on firm cash holding. The study was conducted in the non financial sector of Pakistan. 100 non financial firms were selected for the data collection. The data was collected from the annual reports of the list firms from 2008 to 2013. Family ownership, board size, net working capital and firm size are the independent and cash holding as dependent variable of the study. Panel data regression was used in the current study for the data analysis. As per the results of fixed effect model as recommended by the hausman test; 1) Family ownership has positive and significant effects on firm cash holdings; 2) Board size has positive and insignificant effects on firm cash holdings; 3) Net working capital has negative and insignificant effects on firm cash holdings and 4) Firm size has negative and significant effects on firm cash holdings.