Pakistan Stock Exchange Research Articles

Role of Small and Medium Enterprises in Managing Financial Liquidity in Corporate Sector: A Case Study of Pakistan

This study recognizes the importance of small and medium enterprises in improving the financial liquidity in the corporate sector. These enterprises play an important role in the sale of finished products on credit and managing the inventories of merchandizing goods. Consequently, the burden of inventory holding and receivables from consumers is transferred from large-scale industries to small and medium enterprises (SMEs). In such ways, they facilitate the large-scale manufacturers. Large-scale firms can focus on investment in fixed assets. This mechanism promotes the expansion of business activities in the economy. The small and medium enterprises in Pakistan play also an important role in earnings from exports. To identify these linkages is the main concern of the study. The study identifies the determinants of inventories, receivables, exports, and spending on employment. The study is based on 6 years’ data from 398 companies listed on the Pakistan Stock Exchange, while panel least square techniques have been applied to estimate the parameters.

Gender diversity, intellectual capital, and family ownership: An empirical test of Kanter's hypothesis

AbstractThis study examines the relationship between gender diversity and intellectual capital performance, and moderating role of family ownership on this relationship. The study used 3730 firm‐year observations of 307 nonfinancial firms listed on Pakistan Stock Exchange over the period 2008–2020 and employed ordinary least squares regression analysis to test the hypotheses. More specifically, the study used group composition (skewed board, tilted board, and balanced board) to examine multiple significance levels of gender diversity on boards, and used five measures (modified value‐added intellectual coefficient, human capital efficiency, structural capital efficiency, relational capital efficiency, and capital employed efficiency) of intellectual capital performance. Using lens of agency theory and resource dependence theory, we found that gender diversity positively influences intellectual capital performance, however, the strongest impact is apparent in case of balanced board. Moreover, family ownership positively influences this relationship. Our study complements the efforts of policy makers by providing empirical support for the mandatory placement of females on boards and urge them to increase number of females on corporate boards to derive maximum benefits of female directors. In addition, our results recommend the enhancement of the professional skills of women work force to ensure their maximum participation in the corporate sector.

Forecasting Modeling of Day of the Week Calendar Anomalies in Pakistan Stock Exchange: An Artificial Intelligence Perspective

Forecasting Modeling of Day of the Week Calendar Anomalies in Pakistan Stock Exchange: An Artificial Intelligence Perspective

The Pure and Hybrid Corporate Strategies Performance during the Crisis Periods for Sustainable Performance

This research investigates pure and hybrid corporate strategic responses to crises for sustainable corporate financial performance (CFP). The study used a panel data technique for 374 non-financial firms on the Pakistan Stock Exchange from 2006-2021. The generalised least squares regression was used to control heteroscedasticity and autocorrelation. The results proved that corporate business strategy (CBS): prospector, analyser, and defender strategies positively affect CFP, and reactor strategy reported a negative association with CFP during the crisis period. The study results reveal that the pure strategies, defender and prospector, outperformed the hybrid strategy during the crisis. The reactor strategy somewhere shows positive performance in the crisis period for a few industries. The study's findings support contingency theory and offer theoretical contributions and policy implications for executives and practitioners seeking sustainable performance during crises. It guides practitioners to concentrate on CBS typology and internal and external environments to achieve higher competitive performance.

Nexus of Corporate Governance, Financial Reporting Quality and Investment Efficiency

This paper examines the relationship between corporate governance, financial reporting quality, and investment efficiency using data from 207 non-financial firms listed on the Pakistan Stock Exchange (PSX) for a period of 9 years from 2008 to 2016. Since the Pakistan Corporate Governance Code was revised in 2012, therefore consistent with previous studies, the effect of the promulgation of the new corporate governance code on financial reporting quality is also analyzed. Thus, using the GMM model, the results of the study show that the Corporate Governance Code 2012 improves the quality of financial reporting. Owners of family firms confiscate the wealth of minority shareholders by deteriorating the quality of financial reports. Independent directors of the board and independent directors of the audit committee effectively monitor the financial reporting process. Family ownership, board independence and audit committee independence interact with the code in affecting financial reporting quality and substitute or complement each other. Inefficient investments decrease financial reporting quality. Furthermore, the new governance code has an incremental effect on the relationship between investment inefficiency and financial reporting quality.

Value Relevance of Accounting Information of Stock Returns with the Moderating Role of Firm’s Ownership Structure: A Case Study of Initial Public Offerings in Pakistan

This study investigates the effect of VRAI on stock returns moderating the role of ownership structure between accounting information variables and stock returns. The study used the data of 92 firms conducting initial public offerings (IPOs) registered on the Pakistan Stock Exchange from 2000 to 2022. The study found that EPS, CEPS and book value are positive and significant factors in the stock returns of firms during IPOs. However, the study found that the influence of variables NI, CNI and DPS on SR is positive but statistically insignificant. Similarly, the study also found that ownership structure is positively and significantly related to stock returns during IPOs. The moderation analysis shows that the ownership structure significantly moderates the relationship between EPS and stock returns, CEPS and stock returns and BV and stock returns. Keeping in view the study outcomes, it is concluded that accounting information variables are key to influencing the stock returns of firms during IPOs. Similarly, ownership structure plays an imperative role in moderating the relationship between accounting information variables and stock returns during firms conducting initial public offerings.

Impact of Corporate Capital Structure on Corporate Performance: An Empirical Study of Emerging Market Using GMM Estimation Technique

This study aims to check the impact of capital structure on nonfinancial firm's performance, which are listed on the Pakistan Stock Exchange. This study used panel data from 06 years of 289 nonfinancial firms from 2017 to 2022 to achieve the goal. This study used two-step Generalized Methods of Moments (GMM), a dynamic analysis model. Five measures are used for firm performance, while two are used for capital structure. This study proved that a mixed result, such as TDR, has a significant and inverse relation with four measures of firm performance, such as ROA, GPM, NPM, and SP, while statistically, there is no relation with ROE. LTDR is only significant with NPM at a 5% level and has an inverse impact on NPM. This study is significant because it examines, in a single investigation, the effects of leverage on various performance metrics. This study is particularly well-weighed because it has many ramifications for potential stakeholders. The study's practical implications will benefit top-level management in strategic management, the government in enacting laws and other regulations, and investors in making investment decisions based on various environmental and factor considerations. A lower leverage ratio, for instance, is a sign of improved performance because managers will strategically plan to keep it low. On the other hand, lower leverage ratios are also advantageous to stockholders because they allow them to invest in companies with lower debt-to-equity ratios and increase their wealth.

Examining the Impact of Capital Structure and Board Diversity on Firm Performance: Evidence from Pakistan Stock Exchange

This study aims to investigate the relationship between capital structure, board diversity, and firm performance among KSE-100 index firms listed on the Pakistan Stock Exchange. We use a panel data approach and STATA MP-14 to analyze the impact of two capital structure measures (debt-to-equity ratio and debt-to-total assets) and three board diversity measures (female representation, female executive presence, and male executive presence) on three financial performance indicators (firm size, firm age, and return on equity). Our findings reveal a significant positive association between debt financing and female board representation, as well as a positive relationship between capital structure and female executive presence. However, we find an insignificant and negative relationship between capital structure and managerial ownership. This study contributes to the existing literature on corporate governance and capital structure by highlighting the importance of board diversity in emerging markets. Future studies can build on our findings by exploring the relationship between capital structure and board diversity in other developing countries and comparing the results to identify potential variations.

Does institutional quality complement the relationship between ownership structure and corporate social responsibility?

The key purpose of the Study is to examine if institutional quality complements the relationship between Ownership Structure and Corporate Social Responsibility disclosure and performance in the light of legitimacy and agency theory. To the best of my knowledge, it is the first study in literature of finance. The sample comprises of 112 top-performing listed firms (based on market capitalization) at Pakistan Stock Exchange from 2010 to 2019. Institutional quality comprised of world governance indicators which is developed via principal component analysis, an instrumental variable approach and content analysis are used for CSR Disclosure Index to demonstrate the relationship between ownership structure and CSR. The resources complementary phenomenon is adopted to examine the institutional quality's role. Our results show significantly positive impact of Institutional and Foreign Ownerships on CSR while negative significant influence of CEO Duality and Family Ownership on CSR, suggesting that well governed firms will be more socially responsible. In addition, the findings suggest the institutional quality's positive moderating role on the relationship between ownership structure and CSR, signifying the institutional quality's complementary role for the weak corporate environment in Pakistan. Our findings are robust to a series of tests by using Generalized Method of Moment (GMM).

Testing Illiquidity and Momentum Factors with Asset Pricing: Evidence from Emerging Capital Markets of South Asia

This paper explores the asset pricing factors which pose aggregate risk to the portfolio returns in the Pakistan Stock Exchange (PSX). The purpose is to test the illiquidity and momentum factors along with the well-documented three factors in asset pricing model using Fama and French (2015) and Lam and Tam (2011) for one of the emerging markets of South Asia, i.e., Pakistan, using 20-year monthly data from January 2001 to December 2020. This paper adopts the methodology of Fama and French (2015) as used in the developed market and Lam and Tam (2011) for the emerging market phenomenon, to formulate the portfolio returns based on Size, Book-to-Market(BM), and the Liquidity, and test these returns against the factors causing the return variations. The results based on the 3-factor model, liquidity-adjusted model, and the momentum-based model validate factors of excess market return (CAPM), size, value, liquidity, and momentum as significant risk factors in explaining the variations in portfolio returns of PSX stocks. The portfolio access returns for PSX stocks are adjusted for risk factors with mixed significant response holding average explanatory power. Our results are robust to the GRS F-test.

Board composition, ESG practices, and firm performance: Evidence from the Pakistan stock exchange

This study delves into the intricate relationship between corporate governance factors, including board size and the proportion of non-executive directors, and firm performance, with a specialized focus on environmental, social, and governance (ESG) considerations. Employing a secondary data analysis methodology, the research draws insights from a comprehensive dataset comprising 100 companies listed on the Pakistan Stock Exchange over a period spanning from 2018 to 2022. The study investigates these relationships using rigorous regression analysis to uncover significant findings. The analysis reveals a robust positive correlation between larger board sizes and firm performance, indicating that companies with expanded boards tend to exhibit improved financial performance within the Pakistani market landscape. Conversely, a higher proportion of non-executive directors is associated with decreased performance, highlighting potential challenges stemming from board composition. Furthermore, the research unveils the pivotal role of ESG practices in augmenting the positive relationship between board size and firm performance. However, it notes that this enhancement weakens as the proportion of non-executive director’s increases, suggesting a nuanced interplay between corporate governance structures and ESG considerations. Practically, the study underscores the critical importance of fostering diverse and well-structured boards while integrating ESG principles into corporate governance frameworks. By carefully considering board composition and embracing ESG practices, organizations can not only enhance their financial performance but also promote sustainability and long-term value creation, aligning with evolving stakeholder expectations and regulatory requirements in the Pakistani business landscape.

Does Volatility Spillover among Sectors Varies from Normal to Turbulent Periods? Evidence from Pakistan Stock Exchange

This study investigates how six financial market performances are affected by spillover volatility sectors in both during and following the 2007 financial crisis in Pakistan. By offering a wealth of material to fill in the gaps during the 2007 pre- and post-financial crisis timeframe, this study adds to the body of current knowledge. The pre-crisis era, which ran from January 1, 2003, to December 31, 2007, was used for the analysis on the Pakistani sectors. The period from January 1, 2008, to December 31, 2015, was known as the post-crisis era. The Pakistan Stock Exchange and other sources provided the data, which was routinely gathered. An ARCH, GARCH & EGARCH model is used to investigate the asymmetric volatility spillover among the six industries. The results provide compelling evidence for the existence of a spillover impact in Pakistani businesses in the years after the crisis. Furthermore, there is a significant transmission of volatility throughout Pakistan's many industries during the financial crisis. Overall, the results provide insight into the varying degrees of integration between sectors in Pakistan, ranging from stable to volatile eras. The results indicate that no significant vulnerability was detected. Additional elements can be included and the timing of data can be adjusted. In this study, data is currently gathered monthly. However, in the future, data might be collected on a daily, weekly, or yearly basis to enhance the reliability of the data and its corresponding conclusions. This study expands the existing body of research on volatility and spillover effects in several industries of Pakistan. This research is an innovative study being conducted in six market sectors. The primary impetus for conducting this inquiry is the financial catastrophe in the United States, which has had repercussions on global markets as a whole. Moreover, this time frame is also utilized to inspect the correlation in between financial crises and stock market returns in Asian emerging markets.

Information Asymmetry and Investor's Financial Behavior: A Mediation of Perceived Risk and Perceived Failure

This study aims to investigate the influence of information asymmetry on the financial behavior of investors in the Pakistan Stock Exchange (PSX), utilizing the Theory of Planned Behavior (TPB) and Information Asymmetry. Additionally, the study explores the mediating role of Perceived Risk (PR) and Perceived Failure (PF) in the relationship between information asymmetry and negative affect (NA). The present study used a quantitative research methodology and a cross-sectional research design to gather data at a single point in time. The random sampling technique is employed. The researchers adopt a five-point Likert scale to collect data from the participants. The acquired data is evaluated using this study's smart partial least squares (PLS 3) method. Smart (PLS 3) allows us to break down the analysis into two primary sections. In the first section, we evaluate the measuring framework. The second section involves a structural model evaluation. This survey received 151 responses from PSX investors. A direct relationship was observed between knowledge asymmetry, perceived risk, and perceived failure. A pessimistic attitude exhibits a negative correlation with one's financial behavior. The study's results supported that investors' behavior in the financial markets could be significantly limited by information asymmetry and its various aspects. Finally, the study concludes with a discussion of its limits, recommendations for further investigation, and theoretical, methodological, and practical consequences.

Business Group’s Performance: Market and Non-Market Measures in Pakistan

This study examines the influence of market and non-market strategies on the financial performance of firms affiliated with business groups. The study analyzed 136 non-financial firms affiliated with business groups, listed on the Pakistan Stock Exchange for the period 2010 to 2020. Market strategies focused on firm related resources diversification, financial constraints and internal capital generation rate. Whereas, non-market strategies focused on political connections and corporate social responsibility. Using fixed effect panel regression model, we found that for business-group firms, both market and non-market strategies significantly increase financial performance. Diversification, financial constraints and internal capital generation drive market success, while political connections and strong corporate social responsibility contribute through non-market measures. This suggested that business group affiliated firms should carefully choose a mix of market and non-market resources for optimal performance. This is also suggested that regulatory authorities shall introduce such policies that smoothen the business operations and encourage managers of affiliated firms to employ more combinations of market and non-market resources to get competitive advantage and promote responsible business practices within the groups.

Intellectual capital and firm risk: evidence from an emerging economy

Purpose Intellectual capital (IC) plays a pivotal role in determining corporate risk profiles in the contemporary knowledge era. Consequently, this study aims to analyze the impact of IC on firm risk (FR) among the manufacturing companies listed on the Pakistan Stock Exchange (PSX). Design/methodology/approach The authors have adopted the modified value-added intellectual model which combines human capital efficiency, structural capital efficiency, efficiency of capital employed and relational capital efficiency. FR has been used as the dependent variable, measured as the standard deviation of the daily stock prices. The study has used panel data from a sample of 40 manufacturing companies listed in the KSE-100 Index from 2015 to 2021. Findings The results suggest that IC has a significant impact on the FR of manufacturing companies listed on the benchmark index of PSX. Moreover, this relationship is direct; thus, an increase in IC would also increase FR measured by the change in stock prices. Research limitations/implications The current study has only used linear techniques. Future researchers may consider investigating the impact of IC at varying levels of FR using nonlinear techniques. Practical implications This study provides corporate managers and policymakers valuable insight into the need to strike a balance between investment in IC and their FR, particularly in an emerging market context. Originality/value IC is frequently associated with firm performance. However, the relationship between IC and FR has generally been underexplored. This study adds to the strand of limited IC literature by investigating the impact of a modified IC model on FR in an emerging economy.

Corporate Social Responsibility’s Hidden Power in context of Pakistan: Amplifying Firm Performance

This research explores the impact of Corporate Social Responsibility on the performance of firms listed on the Pakistan Stock Exchange in the cement and sugar industries. This link is examined using panel data derived from financial reports from 2013 to 2022. The study includes generally used performance indicators, such as Return on Assets, Return on Equity, and Earnings per Share, by previous literature. The corporate social responsibility data is generated from information released by firms about philanthropic activities, contributions, and R&D projects. The study also takes into account other financial and control variables such as firm size, firm age, and leverage. The random sampling approach is used to create a sample of 28 non-financial listed organizations. Several statistical tests are used in the study, including panel data technology, correlation, random effect, and fixed effect models. According to the findings of this study, corporate social responsibility has a favorable impact on company performance. These findings are consistent with previous research done in developing nations and are relevant for Pakistani businesses, which operate in different economic environments than their Western counterparts. This study provides significant insights for organizations and regulatory agencies. Furthermore, the paper makes suggestions for future research, such as the assessment of context variables such as ownership structure, the consideration of other periods, and the investigation of other industrial sectors.

Effects of female CEO and female CFO on internationalization and firm performance

PurposeThe study aims to examine the influence of female chief executive officer (CEO) and female chief financial officer (CFO) on the linkage between internationalization and firm performance.Design/methodology/approachThis study used 2926 firm-year observations of nonfinancial firms listed on the Pakistan Stock Exchange over the period 2012–2021. This study used ordinary least squares regression method to test the hypotheses, and additionally, generalized method of moments estimation and fixed effect analysis were used to check for the robustness of the results.FindingsUsing the framework of upper echelons theory and resource dependence theory, this study reports that internationalization has a positive impact on firm performance. Moreover, the results show that the presence of female CEO and female CFO strengthens the positive relationship between internationalization and firm performance. The results add to the gender diversity literature by highlighting the positive role of female CEOs and female CFOs on the internationalization and performance of firms in a male-dominated society.Originality/valueThis study adds to the limited literature on the internationalization of businesses in an emerging market and provides empirical support to upper echelons theory and resource dependence theory by highlighting the benefits brought to the firm through female CEOs and female CFOs.

Nexus between boardroom independence and firm financial performance: evidence from South Asian emerging market

This study empirically investigates the linkage between boardroom independence and the financial performance of non-financial firms in an emerging market featured by family-controlled businesses and concentrated ownership. The relationship is tested in a sample of 152 non-financial firms listed on the Pakistan Stock Exchange over a period from 2003 to 2018. Firms’ financial performance is measured through return on assets (ROA), return on equity (ROE), market-to-book ratio (MBR), and Tobin’s Q (TQ), while boardroom independence is measured through the proportion of non-executive directors on the corporate board. Using the dynamic GMM approach to address the possibility of endogeneity, it was found that boardroom independence is significantly negatively related to the financial performance of the sample firms. This negative impact is due to the reason of close ties of outside independent directors (non-executive directors) with dominant shareholders and management in personal, financial, and social terms. A significant negative influence of the board size and CEO duality on firms’ financial performance was also observed. The present study will add to the existing literature on corporate governance and firm financial performance using firm-level manually collected data. Further, our findings will also help the policymakers by providing empirical insights for strengthening corporate governance mechanisms in emerging market economies, specifically in the context of Pakistan.

The Impact of Environmental, Social, and Governance (ESG) Performance on Dividend Policy and Economic Outcomes of Pakistani Firms: A Survey-based Research

The purpose of this study was to measure the effectiveness of environmental, social, and governance performance on the dividend policies of registered firms on the (PSX) Pakistan stock exchange. A data set of 261 respondents from the employees of companies listed on the Pakistan Stock Exchange was collected and analyzed using Smart PLS 3. The findings of measurement model assessment and structural model were used for the analysis of the data. Based on the statistical data, the study found that environmental performance, social performance, and governance performance are three significant antecedents of the dividend policy of registered firms on the Pakistan stock exchange (PSX). The research has contributed to the literature about implications of dividend policy. The policy implications of this research are also significant for improving the dividend policy of firms registered on the Pakistan Stock Exchange. This study also aligns with the Sustainable Development Goals (SDGs), particularly SDG 12 (Responsible Consumption and Production) and SDG 13 (Climate Action), by examining how ESG performance influences dividend policies in firms on the Pakistan Stock Exchange. The findings underscore the importance of integrating sustainability into corporate strategies to enhance financial outcomes and support global sustainability targets.

CEO attributes and borrowing costs: exploring the moderating role of financial literacy

ABSTRACT This study examines the effect of Chief Executive Officer (CEO) attributes on borrowing costs and the moderating role of the CEO’s financial literacy on this relationship. We employed 2926 firm-year observations of non-financial firms listed on the Pakistan Stock Exchange. We used ordinary least squares regression to test the hypotheses and further employed fixed effect analysis, generalized method of moments estimation and two-stage least squares analysis to resolve the possible endogeneity concerns. Our empirical results indicate that CEO age, tenure, ownership and gender are negatively associated with borrowing costs, whereas CEO duality is positively associated with borrowing costs. Furthermore, we report that a financially literate CEO strengthens the relationships in the cases of age, tenure, ownership and gender while it weakens the relationship in the case of CEO duality. Our results provide novel evidence in this context and extend empirical support to upper echelons theory in the case of an emerging economy.