Pakistan Stock Exchange Research Articles

Examining the impact of intellectual capital on underwriting risk of insurance companies in Pakistan: static and dynamic panel regression

Purpose This study aims to examine the impact of intellectual capital on the underwriting risk of insurance companies in Pakistan. Design/methodology/approach The study used a quantitative research approach and a longitudinal research design, gathering data from 23 insurance companies listed on the Pakistan stock exchange from 2010 to 2022. The value-added intellectual coefficient (VAIC) was used to measure intellectual capital (IC), and unbalanced panel data were analyzed using static and dynamic regression analyses. Findings The findings demonstrate a significant association between intellectual capital and underwriting risk in insurance companies in Pakistan. Specific components of intellectual capital, such as human capital efficiency (HCE), structural capital efficiency (SCE) and capital employed efficiency (CEE), have a strong negative impact on underwriting risk. Control variables like return on assets, insurer size and leverage also showed significant relationships with underwriting risk. Originality/value This research provides new insights into the theoretical understanding of the insurance industry by establishing a direct link between intellectual capital and underwriting risk in the context of Pakistan. It suggests that by improving aspects of intellectual capital, specifically HCE, SCE and CEE, policymakers and managers can reduce underwriting risk.

Impact Of Direct And Indirect Taxes On Sustainability Of Pakistan Stock Exchange Listed Firms.

Impact Of Direct And Indirect Taxes On Sustainability Of Pakistan Stock Exchange Listed Firms.

Corporate tax avoidance and narrative disclosure tone: a developing country perspective

Purpose This study aims to examine the link between tax avoidance, corporate governance and narrative disclosure tone using a sample of public companies in Pakistan. Design/methodology/approach Data for 125 companies listed on the Pakistan Stock Exchange (PSX) are collected over 10 years from 2011 to 2020. Sentiment analysis is conducted to determine the disclosure tone, and regression analysis is used to test the association between the variables. Findings This paper finds that firms that engage in tax avoidance tend to use a more positive disclosure tone and are more likely to engage in impression management. Moreover, promoting sound governance through board independence and gender diversity is associated with a less positive disclosure tone. However, firms with more family board members and higher foreign ownership are more likely to use a more positive disclosure tone. Practical implications Regulators can use this information to develop better guidelines to protect investors and ensure faithful disclosures to address both positive and negative news. Originality/value The study contributes to the literature by examining corporate tax avoidance as a determinant of narrative disclosure tone, a relationship that has not been widely explored. Moreover, as most disclosure tone research has been conducted in developed countries, this paper provides valuable evidence from a developing country.

Stock Returns and Volatility: Comparative Investigation from SAARC Countries

This research article analyses the stock return and volatility of three selected SAARC countries (Pakistan, India, and Bangladesh), focusing on the role of natural resources in influencing market performance. This study aims to determine the robustness of the performance, considering the economic significance of these countries' natural resources. The daily data from the PSX 100 index (Pakistan Stock Exchange), BSE index (Bombay Stock Exchange), and DSE index (Dhaka Stock Exchange) for the years 2019 to 2021 has been obtained from their websites. The data is treated in MS Excel to compute the daily Geometric Returns for BSE, PSX, and DSE indices. Furthermore, the data were analyzed using the specialized package EViews for Time Series Graph, Descriptive Statistics, Unit Root Test, and GARCH Model. The findings of this research show that the BSE index has the highest return value of 6.78 percent compared with 4.56 percent and 3.75 percent for DSE and PSX, respectively. The Half-life model has been applied to calculate the volatility observed by the indices. The result shows that BSE is the most volatile and takes the highest time of 45 days to revert to its mean position, followed by PSX and DSE, which take 19 and 10 days, respectively. Therefore, investing in the BSE index is better for risk-lover investors. At the same time, DSE has the fastest mean reversion compared to the other two indices. Therefore, it is feasible for risk-averse investors.

Corporate Social Responsibility, Earnings Management, and Cash Holding: A Study of Non-Financial Firms in Pakistan

This study investigates the interplay between CSR practices, earning management, and cash holdings in Pakistani publicly listed companies (PLCs). Spanning the period from 2013 to 2022, the research aims to provide empirical insights into how CSR initiatives influence financial practices within the Pakistani context. Methodologically, the study employs panel unit root tests and compares Ordinary Least Squares (OLS), fixed effects, and random effects models to analyze a sample of 202 non-financial firms listed on the Pakistan Stock Exchange. The implications of these findings underscore the importance of strategic CSR integration to enhance financial transparency, mitigate agency conflicts, and foster sustainable corporate growth. Managerial implications suggest that executives should focus on enhancing board effectiveness, strengthening audit oversight, aligning managerial incentives with long-term shareholder interests, and integrating CSR initiatives into core business strategies. However, the study acknowledges several limitations. These include the sector-specific focus on non-financial firms, which may limit generalizability to other sectors within the Pakistani economy. The study's reliance on panel unit root tests and econometric models, while robust, may benefit from alternative methodological approaches and sensitivity analyses. In conclusion, while this study contributes valuable insights into the CSR practices and financial management of Pakistani PLCs, future research should explore longitudinal trends, sector-specific variations, the role of emerging technologies in integration of CSR into corporate strategies. Addressing these areas would further enhance our understanding and inform policy interventions aimed at promoting transparency, accountability, and sustainable in emerging market economies like Pakistan.

Breathless Returns: Assessing Air Pollution's Influence on Dividend Yields in Pakistan and the USA

Enterprises and companies are also impacted by air pollution in addition to people and the environment. Air pollution can result in decreased output and sharp rises in healthcare costs. Publicly traded firms' profitability and stock prices are significantly impacted by air pollution. Dividend yield, which has significant importance to investors, is a critical component of stock market growth. The relationship between air pollution and dividend yield can give investors relevant information on the financial success of businesses. Pakistan has been chosen as a case study for research on how air pollution affects dividend yield. In order to better understand the possible effects of air pollution on financial performance in emerging nations, it is fascinating to look at Pakistan, which has a booming economy and a rising stock market. Pakistan stock exchange (PSX) and S&P 500 stock exchanges' dividend yields are compared to see how air pollution affects them. In their respective regions, they are two of the most well-known and recognized stock market indices. This study employed regression analysis to look at the relationship between dividend yield and air pollution. Finding relationships between the variables and examining how air pollution impacts dividend yield were the two goals of the investigation. The results of the investigation depict that dividend yield is significantly impacted by air pollution.

Government Ownership, Political Regime, and Flipping of IPOs in Pakistan: Evidence from Emerging Market

This study investigates how government ownership (state-owned IPOs) and the political regime affect the flipping of IPO shares, as well as the moderating impact of investor demand on the association between the political regime and flipping activity. Ordinary least square was employed to investigate the impact of government ownership and political regime on the flipping of IPO shares. The data set consists of 95 IPO firms listed on the Pakistan Stock Exchange (PSX) during the period of January 2000 to December 2019. The findings of this study reveal that government ownership and a political regime have a positive influence on the flipping of IPO shares, demonstrating the quality that creates liquidity in Pakistan’s IPO market. Furthermore, in Pakistan, investor demand has been reported to moderate the association between the political regime and IPO flipping activity. This research offers valuable insights that may result in abnormal trading behavior or flipping immediately after listing. Likewise, state-owned IPOs and the political regime appear to be more appealing to investors, signaling the firms’ high quality, causing in increased demand and higher levels of flipping. As a result, the government and regulators may devise policies to control unusual trading, ensuring that government investments in the capital market are successful and also that the government’s economic and political objectives are met. Moreover, this research is critical for investors and issuers making investment decisions. JEL Classification: G12, G18, G32.

Implications of Policies and Governance on Financial Sustainability in the Light of Earning Management: An Evidence from an Emerging Economy

The purpose of this study is to analyze the impact of corporate governance and policies on financial sustainability in the presence of earnings management as the moderator in an emerging economy-Pakistan. The study’s population is the manufacturing industry of Pakistan that has 25 sectors and 295 firms listed with the Pakistan stock exchange PSX. Data was collected from Thomson Reuters Datastream for all the 295 firms. Panel data analysis was carried out to examine the impact of the variables of interest. Analysis reveals that out of the two independent variables; that is, corporate governance and policies, the former has a significant impact on financial sustainability. Furthermore, in direct relation earnings management is negatively affecting the financial sustainability of the corporates and the impact is significant with the p-value of .044. Earnings management as a moderator also has a negatively significant impact on the relationship between corporate governance, policies, and financial sustainability with a p-value of .042. This study would help the government and policymakers in making sustainable policies and frameworks.

Effect of Corporate Social Performance and Dividend Payout on Value of Firms An Evidence of Non-Financial Firms Listed on Pakistan Stock Exchange

The relationship between corporate social performance, Dividend Payout and Value of Firm has been an important topic of literature and the subject of comprehensive empirical literature. However, the current literature is characterized by a lack of consistent and general research studies about the nature and direction of this unique nexus. This research study aims to contribute to the literature by reviewing the comprehensive literature on this subject related to the Pakistani corporate market. The research study used a sample size of 50 non-financial firms in Pakistan for the period of ten years from 2013-2022. The data was collected from the annual reports of non-financial firms. Regression, descriptive statistics and Correlation matrix were used to establish the relationship between corporate social performance, Dividend Payout and Value of Firm. Results were computed by using “E-views” software for the data analysis. The results of the research study revealed that there is a highly significant and positive relationship between Dividend Payout and the Value of Firm while also a significant and positive relationship between Corporate Social Performance and Value of Firm.

How Corporate Governance Practices Influence the CSR in the Non-financial Sector of Pakistan An Empirical Study of Pakistan Stock Exchange

In the course of this research the variables such as Women Directors, Board Size, Board Independences, Ownership structure and Audit committee are taken into consideration and how these factors influence Corporate Social Responsibility (CSR) disclosures. The analysis is based on data taken from the Pakistan Stock Exchange (PSX) for the period 2010-17. The analysis technique such as Fixed Effect Regression model is used which is based on Hausman diagnostic test results. Where the result reflects a positive significant effect of AUDIT, BIND and WDIR on CSR disclosure, however the relationship between BS and OWN on CSR disclosure has not been established. Control Variables such as Profitability (PRFT), Firm Size (FS) and Leverage (LEV) are investigated in this study. Using fixed effect model correlation matrix, regression analysis and descriptive statistics are examined. Considering the non-financial sectors of Pakistan, the study determines that AUDIT, BIND and WDIR plays pivotal role while promoting CSR related activities. Furthermore, the insights gained from the present study explored the importance of Corporate Governance (CG) strategies to promote CSR, the outcome of the study can be a helping hand for the policy makers and corporate decision makers while devising effective governance strategies. The control variables such as FS, PRFT and LEV provide depth of understanding regarding the factors influencing CSR disclosure. In a broad sense, the current research enhances the scholarly discourse on CSR disclosure. The findings of the study give a roadmap for future research studies to fill the identified gaps and further improve CSR disclosure practices in non-financial sector of Pakistan.

Volatility spillover effect between cryptocurrency and stock market using MGARCH Bekk model

This paper explores the volatility spillover effects between the cryptocurrency market and the Pakistan Stock Exchange (PSX). Utilising data from January 1, 2019, to April 5, 2024, sourced from Investing and Yahoo Finance, the study employs the Multivariate Generalized Autoregressive Conditional Heteroskedasticity (MGARCH) BEKK model to assess the dynamic interactions between these markets. Stationarity tests confirmed the non-stationarity of time series data at their levels, which became stationary after first differencing, ensuring robust econometric analysis. The results indicate significant volatility spillovers from major cryptocurrencies, such as Bitcoin and Ethereum, to the PSX, highlighting a solid interconnectedness between these markets. This suggests that digital asset volatility significantly influences traditional financial systems. The study concludes that integrating cryptocurrencies into global financial markets introduces risks and opportunities for investors and policymakers. The findings underscore the need for market participants to account for these volatility interactions in their risk management strategies. Additionally, policymakers must consider these interlinkages to maintain financial stability. This research contributes to the literature on financial market volatility by emphasising the importance of understanding the impact of emerging digital currencies on traditional stock markets.

Free Float and Stock Liquidity: Evidence from Pakistan Stock Exchange

Liquidity has become increasingly important in the stock market, highlighting its vital role in enabling high-volume trading with minimal price distortion, speed, and convenience. This study is carried out to examine the relationship between free float and stock market liquidity using different ratios and models namely, Amihud, Amivest and turnover. For this purpose, a sample of top 100 listed companies are selected from Pakistan Stock exchange (PSX) from 2013 to 2022. An inverse relationship between free float and liquidity was found using Amihud ratio whereas turnover ratio supports the notion of improved liquidity with increased free float. This study highlights the importance of free float in capital markets and offers practical advice for businesses and individuals navigating the complexities of stock liquidity. While our paper contributes to the current body of literature, it also invites additional investigation by bringing in a variety of variables and broadening the focus outside of Pakistan's KSE 100 index companies.

Assessing Financial Stability through ESG: The Impact of Sustainable Finance on Commercial Banks listed in Pakistan Stock Exchange (PSX)

The notion of sustainable finance, which encompasses environmental, social, and governance (ESG) considerations, has become increasingly prominent in assessing the financial resilience of companies, particularly within the banking industry, in recent times. The primary objective of this research is to examine the influence of ESG practices on the financial stability of commercial banks that are publicly traded on the Pakistan Stock Exchange (PSX). The study utilizes an extensive dataset of 10 years from 2014 to 2023 that includes significant ESG indicators as well as financial performance metrics, spanning multiple years. The study seeks to analyze the impact of sustainable finance practices on the overall financial stability of the chosen banks using advanced statistical techniques and regression analysis. The results of this study are anticipated to provide insight into the possible advantages and drawbacks of incorporating ESG factors into the operational plans of commercial banks. Moreover, this study will make a valuable contribution to the current body of knowledge on sustainable finance, particularly in the context of emerging economies like Pakistan. In such markets, the importance of ESG factors in shaping financial decision-making is undergoing rapid transformation.

Environmental Social and Governance Impetus and Firm Performance: Assessing the Role of Sustainability on Corporate Success

This study investigates the level and impact of Environmental, Social, and Governance (ESG) reporting among non-financial firms listed on the Pakistan Stock Exchange (PSX), aiming to draw conclusions on ESG reporting levels, its impact on financial performance, and the mediating role of investment rating. The findings indicate that while ESG reporting in Pakistan is increasing, compliance is below 50% for most indicators, with social sustainability averaging 53.36%. Environmental sustainability reporting is associated with improved Return on Assets (ROA) and Tobin's Q, highlighting better asset utilization and market valuation for firms that prioritize environmental disclosures. Similarly, social and governance sustainability reporting positively influence financial performance by enhancing employee productivity, customer loyalty, decision-making, and risk management. A composite ESG index demonstrates a holistic approach to sustainability, benefiting financial performance by improving stakeholder relations and capitalizing on sustainable opportunities. Investment rating mediates the relationship between ESG reporting and financial performance, suggesting that higher ESG disclosures lead to better investment ratings and, consequently, improved financial outcomes. This study aligns with existing literature from developed countries and extends the understanding of ESG reporting's benefits to a developing country context, specifically Pakistan. While ESG reporting is a well-explored area in developed countries, this study adds unique value by concentrating on non-financial firms listed on the Pakistan Stock Exchange (PSX), contributing to a relatively under-researched context in a developing country. Exploration of the mediating role of investment rating is a notable original contribution, revealing how higher ESG disclosures not only directly impact financial outcomes but also lead to improved investment ratings, which in turn enhance financial performance.

Competition for ‘Top 25 Companies’ Award’s Criterion of PSX: An Evaluation of the Financial Aspects

A company's performance is a complex phenomenon because of a variety of aspects to quantify it, however, a competitive criterion has been established by Pakistan Stock Exchange (PSX) in terms of "Top 25 Companies". Those firms qualifying this criterion over the last two decades need to be compared with those who have yet to achieve it. The main objective of the study is to evaluate the financial stability and extra-ordinary performance based on PSX quantitative criteria of those firms maintaining top 25 position over last 24 years. The financial aspects of 18 firms out of more than40 has been selected by taking last 24 years' data. These firms are classified into two different samples, the sample from companies successfully qualify the criterion for "Top 25 Companies" award, while the second sample consist of other renowned ones that yet to qualify for this criterion. The performance evaluation of both types of firms has been done through financial statements available on the website of PSX through their annual reports to calculate the ratios. In addition to these financial ratios other relevant indicators considered for evaluation purposes are, equity premium as a difference in returns between stocks and less risky instruments (bonds), firm size measured through sales, and market performance measured through total assets. The impact of these ratios on the stock returns has also been evaluated through regression analyses which allowed to identify those specific advantages the ‘top-25 qualifier’ firms may have over the ‘other non- qualifier’ firms. The findings suggest that ‘top 25 qualifier’ firms mainly beat the ‘others non- qualifier’ based on equity-related measures including dividend payout ratios, market premium and the equity premium. Therefore ‘other non-qualifier’ should improve equity-related context to successfully qualify for this criterion in future.

Economic Policy Uncertainty and Firm Performance in Pakistan

The aim of this study is to examine the impact of economic policy uncertainty (EPU) on firm performance in Pakistan. Net profit margin (NPM) and ROE are taken as proxies for firm performance. Purposive sampling is used to collect quarterly data of 236 non-financial firms listed on Pakistan Stock Exchange (PSX) from Thomson Reuters Eikon database, as well as quarterly data on EPU and other economic indicators from World Bank database, to test the effect of EPU on firm performance in Pakistan. Using the random effects regression, we observe that economic policy uncertainty has a significant negative impact on the performance of firms in Pakistan. The results are robust in both the models with NPM and ROE as the proxies for firm performance. The findings are crucial for the firms as they need to find ways to deal with high levels of economic policy uncertainty, as well as for the policy makers that they can try to reduce the uncertainty to give a more stable economic environment to the firms operating in Pakistan.

The aspects of behavioral finance with new insights: an analysis of individual investors at Pakistan Stock Exchange (PSX)

PurposeThe cognitive biases exhibited by investors could hinder their capacity for logical reasoning and impact their perception and reaction to information when making financial choices. So, this study was done to identify the behavioral biases that hinder investors' sound decision-making at the Pakistan Stock Exchange (PSX).Design/methodology/approachA cross-sectional study was undertaken employing a causal research design approach. Questionnaires were administered to individual investors of the PSX as the data collection methodology. The data were subsequently analyzed through the utilization of the Smart PLS Structural Equation Modeling (SEM) technique.FindingsThe results suggest that information factors and cognitive biases, namely home bias, geographical bias, investor sentiment, salience, and over/under reaction have a positive association with the investors' choices at PSX.Research limitations/implicationsThe study’s emphasis is on the impact of behavioral biases on individual investors only, even though such biases also influence the investment decisions of institutional investors.Practical implicationsThe study holds implications for scholars engaged in the field of behavioral finance as well as professionals involved in the stock market, particularly those interacting with individual investors and personal finance. Additionally, the current study will take into account investors, financial advisors, practitioners, policymakers, investment experts, stakeholders or target groups, etc. to support various groups in their professional activity and to help them overcome such biases that influence their sound decision-making power.Originality/valueThe innovative aspect of this research is its ability to advance the understanding of the conceptual underpinnings and social structure of behavioral biases by critically analyzing the body of prior research and adding value to the existing body of literature on behavioral finance in Pakistan by investigating the combined impact of never-studied variables, i.e. geographical bias and information variables, understudied behavioral variables, i.e. home bias and salience and studied variables, i.e. investor sentiment and over/under reaction on individual investor investment decisions at PSX.

The Impact of Cognitive and Emotional Biases on Individual Investor’s Investment Decision: Mediating Role of Risk Perception

This study aims to clarify the mechanisms by which cognitive and emotional biases influence the investment choices of retail investors who trade on the Pakistan Stock Exchange (PSX), in addition to mediation of risk perception. The behavior of retail investors in the least developing or emerging financial markets is not generally recognized, with most studies concentrating on well-developed financial markets. Utilizing a sample of 385 traders who are investors in the PSX, data was gathered through a purposive sampling technique. The descriptive analysis was conducted using IBM SPSS 27, while the measurement model and SEM assessments were conducted through SmartPLS 4.1.0.3. The findings reveal that biases, including representativeness bias (? = -0.185, p < .05), availability bias (? = -0.223, p < .000), and regret aversion bias (? = -0.494, p < .000), negatively affect investment choices made by retail investors on the PSX, with risk perception (? = 0.302, p < .000) mediating these relationships. This study, recommended for stock exchange investors and policymakers in collectivist cultures and least developed markets, provides original insights into the mediating role of risk perception, a context often overlooked in research focused on developed markets.

Corporate social responsibility and firm value: the role of enterprise risk management and corporate governance

Purpose Corporate social responsibility (CSR) has gained tremendous importance after several corporate scandals, financial crises and the rise of the hyper-competitive world. Firms must address multiple stakeholders’ interests to increase firm value. This study aims to investigate the effect of CSR on firm value. This study also examines the mediating role of enterprise risk management (ERM) and the moderating influence of corporate governance (CG) in this CSR-firm value relationship. Design/methodology/approach The sample of the study comprises 119 Pakistan Stock Exchange (PSX) listed firms and the study covers the period from 2010 to 2021. The corporate social responsibility performance has been quantified across five dimensions. These aspects are product, environment, employee relations, diversity and community. Four proxies i.e. strategy, operation, reporting and compliance, have been used to measure ERM. The governance quality of the sample companies was evaluated using the governance index, which included 29 governance provisions. The authors used the dynamic panel data technique (system-GMM) is used to achieve the objectives of the study. Furthermore, a firm’s engagement in CSR activities can also be measured through a multinational financial approach to check the robustness of the result. Findings Based on the regression analysis, the authors discovered that CSR was positively connected with firm value, validating the stakeholder view of CSR. Furthermore, following Baron and Kenny’s (1986) mediation technique, the findings confirm that ERM mediates this association. These results are robust by using the bootstrapping tests by Preacher and Hayes (2004). Furthermore, the result shows that corporate governance (CG) is positively connected with firm performance, and this relationship is strengthened in the presence of an effective governance system in the organization. Practical implications This study provides useful insights to regulators, investors and policymakers to consider CSR as a value-enhancing factor and encourage the development of enterprise risk management and compliance with CG mechanisms to improve firm value. Originality/value The presented analysis strengthens the existing CSR–firm value relationship by analyzing the mediating and moderating roles of ERM and CG, which have not yet been tested, particularly in the context of Pakistan.

Effect of stakeholder pressure on environmental performance: Do virtual CSR, green credit, environmental and social reputation matter?

In today's globalized and interconnected world, businesses operate within an interconnected network with various stakeholders. Among these stakeholders, the pressure from consumers, investors, regulators, and communities for corporations to adopt environmentally responsible practices has intensified significantly. Therefore, this study investigates the relationship between stakeholder pressure and environmental performance (EP) in Pakistan's manufacturing sector while examining the potential moderating roles of environmental reputation, social reputation, virtual CSR, and green credit. Data was gathered by convenience sampling and a cross-sectional research approach. A structural questionnaire was given to 376 employees of manufacturing firms that are listed on the Pakistan Stock Exchange (PSE). The research hypotheses were tested using PLS-SEM techniques, which examined the interactions between these variables. The results reveal that stakeholder pressure significantly influences the environmental performance of manufacturing firms. Environmental reputation and virtual CSR negatively moderate the relationship between stakeholder pressure and EP. Moreover, social reputation and green credit positively moderate the relationship between stakeholder pressure and EP. These results contribute to the existing literature by shedding light on how stakeholder pressure influences firms' environmental behavior. Practical implications include integrating virtual CSR strategies, securing green financing options, and building strong environmental and social reputations to effectively respond to stakeholder demands and improve environmental performance.