Pakistan Stock Exchange Research Articles

Economic Shockwaves: Examining Stock Market Behavior in Pakistan Amidst the COVID-19 Pandemic

The COVID-19 pandemic sent shockwaves through global economies, particularly affecting capital markets and stock price returns across major indices. This study examines the response of various industries listed on the Pakistan Stock Exchange (PSX) to the initial COVID-19 lockdown implemented on March 23, 2020. The research evaluates stock market reactions within a 61-day event window, with a focus on Average Abnormal Returns (AAR) and Cumulative Average Abnormal Returns (CAAR). The study encompasses nine diverse industries and employs regression analysis to compute alpha and beta coefficients. Notably, the findings reveal short-lived negative impacts across industries, followed by swift recoveries, indicative of the stock market's resilience in Pakistan. Descriptive statistics highlight sector-specific characteristics, while regression results emphasize low stock return volatility. The study underscores the role of government interventions and investor confidence in mitigating the pandemic's economic impact, providing valuable insights for investors, policymakers, and researchers. This research contributes to our understanding of stock market dynamics during crises, particularly in emerging economies.

Understanding the Moderating Role of Dollar Exchange Rate in Shaping the Linkages Between Foreign Direct Investment and Pakistan Stock Exchange Performance

The stock exchange market is a crucial component of the economy, providing investors with the opportunity to participate in the shares of different enterprises. This study investigates the influence of the United States Dollar exchange rate and foreign direct investment (FDI) on the Karachi Stock Exchange-100 index, a key component of the Pakistan Stock Exchange. Utilizing monthly data from July 2008 to March 2023, the research employs an Augmented Dickey-Fuller test for stationarity and Johnson Cointegration test for model confirmation. Results from the Granger Causality test highlight significant long-term relationships between FDI, inflation, interest rates, balance of payments, and the Karachi Stock Exchange-100 index. Conversely, the exchange rate and FDI exhibit statistical insignificance in the short term. Introducing moderation effects, the exchange rate demonstrates negligible long-term impact but reveals a negative short-term association with the Karachi Stock Exchange-100 index. Impulse response analysis indicates positive reactions to shocks for FDI, balance of payments, and the dollar exchange rate, with inflation and interest rates exhibiting negative responses. The study's novel contribution lies in uncovering the nuanced temporal dynamics between economic indicators and the stock market, offering valuable insights for policymakers crafting investment strategies to navigate market volatility and enhance stock market returns.

A Comprehensive Examination of Corporate Governance's Impact on the Cost of Equity: Evidence from Pakistani Non-Financial Listed Firms

Purpose: This study explores the intricate relationships between various corporate governance variables and the Capital Asset Pricing Model (CAPM) as a proxy for the cost of equity for non-financial firms listed on Pakistan Stock Exchange (PSX) during the period from 2011 to 2020.
 Design/Methodology/Approach: Employing a convenience sampling approach and fixed effects regression to account for unobserved heterogeneity, the research discerns both significant and non-significant associations, offering insights into the unique dynamics of the Pakistani financial landscape.
 Findings: Notable findings include direct and statistically significant association between BETA and CAPM, as well as the influential role of CEO duality. The Coefficient of Variation (CV), Earnings Before Interest and Taxes (EBIT), and governance-related factors like the governance index and insider ownership exhibit significant associations with CAPM. Conversely, board size, board independence, market-to-book ratio (MBR), and market debt ratio do not show statistically significant impacts on the cost of equity.
 Implications/Originality/Value These nuanced results contribute valuable insights for financial decision-makers and policymakers operating within the specific context of the PSX.

Do Powerful CEOs Benefit Firm Performance in Pakistan?

Manuscript type: Research paper Research aims: This study examines the impact of Chief Executive Officer (CEO) power dimensions on firm performance. Design/Methodology/Approach: A panel data of 110 Pakistani firms listed on the Pakistan Stock Exchange for the period of 12 years (2008- 2019) was analysed using the GMM approach. Research findings: The GMM regression results revealed significant relationships. The analysis suggests that CEOs with considerable structural, ownership, prestige, and expert power tend to exhibit superior performance, as these factors are positively correlated with firm performance. Conversely, CEO family power appears to have no discernible impact on firm performance. Importantly, the robustness of our findings underscores the consistent nature of these relationships. Theoretical contribution/Originality: This study makes a valuable contribution to the existing literature by demonstrating the positive influence of CEO power on firm performance, which aligns with the theoretical framework of the Approach/Inhibition theory of power. The originality of this research stems from its examination of individual dimensions of CEO power and their impact on firm performance, as well as the inclusion of the additional dimension of family power. Practitioner/Policy implication: The insight from this study suggests that powerful CEO leadership is beneficial for firm performance and the concentration of power at the CEO position should be seen positively rather than the negative perspective provided by agency theory.

Role of Working Capital Management in Enhancing Firm Profitability: An Empirical Study on the Manufacturing Companies of Pakistan

Working capital management is a crucial instrument and one of the key aspects of any business management. It is considered as an accounting technique to maintain the organization's liquidity and financial balance and is regarded as a critical part of financial management in the company. This study emphasizes on investigating the role played by working capital management in enhancing the profitability of companies from the manufacturing sector listed in Pakistan stock exchange during the period 2018-2022. Return on equity and return on assets are used as the profitability measures; however, account receivable turnover, inventory turnover and cash conversion cycle are used as the measures of working capital management. To evaluate the results, the least square regression model is used. The results show that inventory turnover has a significant positive association with both ROA and ROE, which implies that inventory management and sales acceleration have a positive effect on the company's return on assets and return on equity. Similarly, the association of accounts receivable turnover with ROA and ROE is also significant and positive, demonstrating that good credit management and prompt receivables collection improve the return on equity and assets. The research also reveals a significant positive association of both ROA and ROE with the cash conversion cycle. Higher returns on assets and equity are connected with a higher cash conversion cycle. The results suggested that the managers should speed up the collection of receivables as quickly as possible and quickly sell the inventory so that the cash thus generated can be reinvested in productive assets, which can increase the company’s profitability. The study's findings provide an important guideline to financial managers in managing the appropriate level of working capital to enhance firms’ profitability.

Post COVID-19 Analysis of Conservatism Effect Bias on Individual Investors of the KMI-30 Index at Pakistan Stock Exchange

This study examines how conservative bias affected Pakistan Stock Exchange KMI-30 index investors after COVID-19. The main goal is to assess conservative bias in Pakistani stock market decision-making. Data from 162 respondents was carefully collected and analyzed using logistic regression, association testing, descriptive statistics, and correlation analysis. The study illuminates the impact of conservative bias on Pakistan's stock market investment selections. Both male and female investors react similarly to conservative bias, indicating that gender does not greatly change its effects. Conservative bias is more common in highly educated people, especially those with graduate and doctoral degrees. Younger investors (18-25) are less susceptible than 26-30-year-olds. Investors with one to three years of experience are more conservative, while those with less than a year or over three years are less vulnerable. Marital status barely affects financial prejudice. These findings emphasize the importance of demographic and experience characteristics in investment strategies and financial advice. The study underlines that good investment requires understanding psychological aspects affecting investor behavior, not just numbers. Understanding the human aspect in investment decision-making can help financial advisers, and regulators tailor advice and regulations to the varying needs and vulnerabilities of different investor groups, creating a more informed and resilient investing community.

Effect of Corporate Diversification on the Value of Cash Holding

The purpose of this research is to examine the relationship between corporate diversification on the value of cash holding. Furthermore, the research also examined the corporate diversification‐value of cash holding relationship with good and poor corporate governance (CG); industrial competitiveness and industrial non‐competitiveness; family and non‐family oriented firms; Sharia and non‐Sharia compliant firms. The data is used for the years 2017 to 2022 of non‐financial firms registered on the Pakistan Stock Exchange. The result predicts that corporate diversification exerts a negative effect on the value of cash holding but this negative relationship becomes positive in good‐governed firms, completive industries and Sharia label firms. On the other hand, corporate diversification exerts a negative effect on the value of cash holding in family‐oriented firms due to agency problems.

Asymmetric Volatility Spillover among Macroeconomic Variables and Pakistan Stock Exchange

The present research focused on the association of macroeconomic variables uncertainty with the volatility of stock market in Pakistan. The research explored uncertainties in macroeconomic series by common version of EGARCH and GARCH variances were used as proxies of volatilities. Furthermore, the series were incorporated into mean and variance equations to model spillover effect between stock market and indicators of macroeconomy. The association was additionally checked through VECM and Wald test methods. The investigation used monthly observations from January 2001 to December 2020. Findings revealed a significant causality amid macroeconomic volatility and stock exchange volatility. The outcomes also reconciled with Banumathy and Azhagaiah (2015); Wang (2011). A bilateral causal relationship was found between volatilities of gold prices and manufacturing output with stock market, whereas uni-directional causality was from exchange rate, inflation and oil prices toward stock market.

Effect of Female board member on firm Performance: Evidence from Pakistan

This study examines the impact of women on boards as corporate governance on corporate performance, with a focus on evidence from Pakistan. The study used a sample of 100 non-financial corporations listed on the Pakistan Stock Exchange, selected using a dedicated sampling methodology and covering the period from 2010 to 2019. The results of the survey shown that women board members have a significant impact on the company's performance, indicating that women have effective management skills in asset management and related activities. The literature unanimously supports the idea that the presence of women on boards of directors has a significant impact on company performance. The importance of this study lies in the fact that it explores the different dimensions of women on boards of directors as aspects of corporate governance, providing valuable insights into the decision-making process of investors. In particular, the study contributed to the literature by addressing gaps associated with emerging economies, particularly in Pakistan, as most existing research focuses on developing countries.

Impact of Macro and Micro Economic Variables on Volatility of Stock Prices: Empirical Evidence from Pakistan's Cement Industry

The stock market is the instrument employed for the efficient use and accessibility of funds. The study looks at the macro and micro factors that influence how volatile stock market prices might be. The CPI, which measures inflation, EPS, or earnings per share, GDP, or gross domestic product, and ROE, or return on asset, are the macro variables examined in this study. One considers the stock price to be a dependent variable. The Pakistan Stock Exchange's (PSX) list of cement sector businesses is taken. The entire cement industry sector was chosen, but the number of companies decreased from twenty-two to just fifteen. The remaining companies were eliminated since the data was not available. In the current analysis, ten years of data—from 2012 to 2020—are used. Panel regression models are utilized while keeping in mind the nature of the data; yet, standard deviation and data dispersion are used for volatility.

Risk Perception as a Mediator Between Heuristic Biases and Investment Decision Making: Case Study of Pakistan Stock Exchange

Risk Perception as a Mediator Between Heuristic Biases and Investment Decision Making: Case Study of Pakistan Stock Exchange

A Systemic Contribution and Vulnerability of Non-financial Firms: A Cross Industry Analysis

This paper quantifies the systemic importance of non-financial firms by assessing their contribution and vulnerability to systemic shocks. We apply two firm-specific measures, namely Delta CoVaR (ΔCoVaR) and Marginal Expected Shortfall (MES), to evaluate the systemic risk of 205 non-financial firms listed on the Pakistan Stock Exchange over the period from 2005-2021. We apply quantile regression methodology to quantify (ΔCoVaR). We confirm that a significant number of firms contribute to both system-wide shocks and are vulnerable to systemic risk of the whole system. We find that firms with a high-risk score in one area are not always high-risk in another. Measures of systemic risk vary significantly across time, between firms and industries. Energy and transport industries are top contributors to systemic risk however, tobacco and pharmaceuticals are among the top industries that are vulnerable to systemic risk of the whole system. We conclude that non-financial firms are systemically important and this risk should be mitigated. This research offers significant insights for policymakers and other relevant stakeholders both domestically and internationally. It aims to help policymakers examine their macro-prudential policy, which now solely takes into account financial firms, to limit the risk that can spread throughout the entire system.

Portfolio Optimization Using ANNs and Mean-Semi Variance Markowitz Model: A Comparative Study of South Asian Economies

This study uses many portfolio approaches to optimize mean semi-variance portfolios using artificial neural networks for South Asian investors. These methods include the mean-semi variance strategy, minimal variance approach, limited portfolios with transaction costs and turnover constraints, constrained portfolios with risk and return diversification limits, and the equally weighted approach. These portfolio strategies are analysed using the excess Sharpe ratio and the Information Ratio for financial efficiency and diversity, respectively, and validated using the 130/30 portfolio strategy. The Pakistan Stock Exchange (PSX), Bombay Stock Exchange (BSE), Dhaka Stock Exchange (DSE), Columbo Stock Exchange (CSE), and Nepal Stock Exchange (NEPSE) supply daily data for empirical research. We use a large data collection from 2017 to 2021. The study found that ANN-generated estimators using a mean semi-variance optimization strategy outperformed alternative portfolio optimization methods in South Asian markets. The research reveals that ANN-based returns outperform correlation statistics, descriptive analysis, and mean square prediction error (MPSE). The study suggests utilizing naive diversification as a benchmark for other portfolio optimization methodologies.

The Spill-over Effects between Oil and Gas Marketing and Exploration Firms of Pakistan Stock Exchange (PSX) KSE-100 index: During the Times of COVID-19 and Russian-Ukraine War

This study aims to trace the mean and volatility spillover effects between oil and gas marketing and exploration firms registered in KSE-100 index in the Pakistan Stock Exchange (PSX). Daily data of 8 firms (MGAS, PPL, PKOL, APL, HITE, HASC, PSO, and SHEL) for the period of 30th November 2019 to 30th November 2022. The whole data set is divided into two subsets, one is after COVID-19 (after 26th February2020) and the other is after the start of Russian-Ukraine war (after 24th February 2022). After that Hamao et.al (1990) uni-variate ARCH-GARCH type modeling is employed to the data in order to explore the dynamic linkages between the Marketing and Exploration firms (oil and gas) registered in KSE-100 index (PSX). The results from the data sets are indicating that there is mix movements between the oil and gas marketing and exploration firms in the KSE-100 index (PSX). The results are providing evidence there is Mean spill over from MGAS to APL, HASC, HITE, PSO, and SHEL. From PKOL to APL, HASC, HITE, PSO, and SHEL. From PPL to APL, HITE, PSO. And there is Volatility spill over from MGAS to APL, HITE, PSO and SHEL. From PKOL to APL, HITE, PSO, and SHEL. From PPL to APL, HASC, HITE, PSO, and SHEL. This linkage is developed between MGAS, PPL, and PKOL to APL, HASC, HITE, PSO, and SHEL due to the co-movements among the mentioned firms. The Augmented Dickey-Fuller Test is run on the return series and the test is insignificant in all series which is indicating that our return series are stationary at level, ARCH-LM test is run on return series and ARCH-LM test is also insignificant in all the return series means that there is no heteroskedasticity present in the return series.

Evaluation of Behavioral Biases and Investment Decision: An Evidence from Pakistan Stock Exchange (PSX)

Investors act irrationally while making decisions, according to research in the subject of behavioral finance. The main goal of this study is to assess the behavioral biases that influence the choices made by individual equities investors from Punjab. For investors, agents, and other market participants, this study is useful and aids in making better investment decisions. The study takes into account the private investors who buy common stocks in the Pakistani province of Punjab. The Fuzzy Analytical Hierarchy Process (F-AHP) is used to examine the behavioral biases that influence certain common stock investors' choices. The familiarity bias, optimism bias, herding bias, mental accounting bias, loss aversion bias, regret aversion bias, availability bias, anchoring bias, representative bias, and overconfidence bias are the most prevalent behavioral biases taken into account in this study. Mental accounting bias, herding bias, anchoring bias, and representational prejudice were the four factors that had the greatest impact. "I prefer to invest in the well-known companies that have wider media coverage (C101)" was one of the top six sub-criteria. The financial effects of my choices are better than I anticipated (C96). "The financial ramifications of my choices turn out to be immediate" (C95). The company's news (from newspapers, television, and magazines) influences my investment choice (C84). “My investment for purchasing new stock is totally based on information released regarding the stock (C43).” “I have particular skills and experience for decision making (C13).”

The Impact of Credit and Liquidity Risk on Bank Performance

Banks exist to make a profit so that they can continue to operate, grow, and expand. Bank stability has been challenged over the previous two decades as a result of political intervention, nonperforming loans (NPLs), and interest rate changes. They need to monitor these micro and macro-level factors to identify and manage risk. Thus, the current study explores the impact of credit risk (NPL, Z-Score) and liquidity risk (LR) on the performance of South Asian banks measured with ROA and ROE. The sample of the study comprised a total of 35 listed banks of South Asian Countries (Pakistan (20) and India (15)) and the sample period spans 10 years from 2011 to 2020. The information was obtained from data stream and the financial statements of selected banks listed on the Pakistan Stock Exchange (PSX) and Bombay Stock Exchange (BSE). The findings show that credit and liquidity risk has a major impact on the performance of South Asian banks. Overall, credit risk has a negative impact on bank performance. However, the Z-score value in the estimation derived with ROE, on the other hand, demonstrates a positive connection with bank performance. The current study’s findings suggest that bank management in developing countries should provide timely monitoring and supervision of their long-term borrowers to control credit risk.

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.

Boardroom Alchemy: Unravelling the Debt and Agency Costs in Manufacturing Sector of Pakistan

The current study aims to investigate boardroom diversity and its varying characteristics by using agency theory to examine the effect of debt and agency costs in the manufacturing sector of Pakistan. Precisely, it seeks to examine how board size, independence, and gender diversity affect the financial matrices of a firm’s profitability. Therefore, the study utilized an imbalanced panel of 105 manufacturing companies that were listed on the Pakistan Stock Exchange (PSX) 2003 to 2022. Furthermore, the study utilized static and dynamic panel models to examine and evaluate the proposed hypotheses. The findings of this study indicated that there is a positive relationship between board size, gender diversity, and debt and agency costs for manufacturing enterprises in Pakistan. Conversely, it was observed that board independence has a negative impact on the debt and agency costs of firms. Future research can use experimental or longitudinal approaches, including varied businesses, to investigate qualitative research for deeper insights. Cross-cultural comparisons would support the findings. Consequently, this study highlighted the importance of exercising caution when evaluating the influence of board composition on debt and agency costs. The results of the study also prompted inquiries regarding the financial ramifications of initiatives aimed at promoting gender diversity.

Systematic Risk in Energy Sector: Evidence from Pakistan Stock Exchange

Given the importance of systematic risk for the profit maximization and for the growth of the organization, the objective of the current study is to measure the systematic risk in energy sector companies listed in Pakistan Stock Exchange. To quantify the risk, the study has utilized the Capital Asset Price Model (CAPM). The study used the monthly stock price of Oil & Gas exploration companies and Oil & Gas marketing companies. This study examined the sensitivity and relationship of a sample of major oil and gas corporations to different financial risk factors. The results are aligned with theory of corporate finance and risk because our hypothesis upholds that bigger the organizations, better is their capacity to reduce the probable effects of the progressions in the political, social and practical climate which will lead the organizations to have a low systematic risk.

An Empirical Nexus between Corporate Governance Practices and Cost of Equity: Evidence from PSX-Listed Firms

The current study scrutinizes the relationship between the cost of equity and corporate governance practices within companies listed on the Pakistan Stock Exchange (PSX).The Capital Asset Pricing Model (CAPM) is applied to determine the cost of equity. A Sys-GMM model was applied to a sample of 170 businesses listed on the Pakistan Stock Exchange (PSX) from 2014 to 2019 to establish a connection between the variables. Sys-GMM is effective in addressing endogeneity issues related to corporate governance variables. In addition, the Sys-GMM results were compared with pooled OLS and fixed effects. It was discovered that the subsequent approaches failed to address the endogeneity issue, consequently yielding biased results. The findings unveiled a negative nexus amid cost of equity and block ownership. The output indicated that board size plays a key role in reducing the cost of equity. Interestingly, audit quality is directly related to equity cost, however, female directors and leverage were not linked with the cost of equity. The findings will direct policymakers in expanding or adapting the scope and depth of corporate governance practices, which will certainly facilitate the production of the right corporate climate in the country.