Full Text Articles
The Lahore Journal of Business, Volume 6, Issue 2, Oct - Mar 2018
Syed Sikander Ali Shah, Dr. Ali Murad Syed and Sana Sheikh
This study examines the potential interaction of a firm’s financing and investment decisions. It studies broadly how firms manage underinvestment and liquidity risks. To estimate the effects of these decisions, the study has incorporated four simultaneous equations using the partial dynamic adjustment model. Panel data of non-financial Pakistani firms have been used in this study. The findings of this study demonstrate that Pakistani high growth firms depend on high-leverage strategies and give greater importance to underinvestment risk rather than liquidity risk. Furthermore, growing Pakistani firms are not adopting low-leverage strategies ex ante to participate in future growth opportunities ex post. This study also examines whether or not Pakistani firms are paying special attention to the mixing of debt maturity that affects the firm’s investment decisions and its value.
Safi Ullah Khan and Muhammad Faisal Rizwan
Employing stock price data from a developing market, we examine whether investors’ trading patterns are characterized as herd behavior at the market and industry levels. Unlike results for some developing markets, linear models of herd behavior find no evidence of herd formation, in any of the sectors, during periods of large market movements. However, non-linear models find significant nonlinear herding behavior only for two sectors of the whole sample, and when we group the sub-samples based on up and down market movements. Overall, empirical results tend to support the notion of no herd formation in Pakistan’s market. Two main explanations may be offered for the results: first, a developing market, characterized by thin trading and low turnover, with few of the stocks from various sectors actively traded in the market. Second, individual investors that dominate Pakistan’s equity market and low levels of institutional investor’s presence preclude herd formations.
Ayesha Afzal, Nawazish Mirza, and Azka Mir
This paper applies dynamic panel estimates on 22 commercial banks in Pakistan to determine the factors that affect their asset quality. Consequently, the study tests for a comprehensive array of both bank-specific and macroeconomic variables collected quarterly from 2008 to 2016. The empirical analysis confirms that bad asset quality can be explained by retarded GDP growth and unfavorable movement in exchange and lending rates. Within the bank-specific variables, non-performing loans are the most responsive to loans to the agriculture and energy sectors, level of capitalization, size of the lending institution and quality of management.
Dr. Safia Nosheen, Naveed-Ul-Haq, and Muhammad Faisal Sajjad
The link between disclosure of corporate information and the cost of equity in firms is one of the most important issues in finance. This paper aims to examine the connection between corporate governance, disclosure quality of information, and the cost of equity in Pakistani-listed (PSX-listed) firms. Using the Generalized Methods of Movements (Sys-GMM) model, a sample of 167 non-financial firms listed on Pakistan Stock Exchange (PSX) for the period of 2011-2015was analyzed. Sys-GMM estimation was applied to overcome the problem of endogeneity among corporate governance variables. To test the robustness of GMM estimations, we compared the results of pooled ordinary least squares (OLS) and fixed-effect estimations and found they did not overcome the problem of endogeneity, providing spurious results. We found a negative association between cost of equity and
disclosure quality of financial statements. The findings suggested that the board size, concentrated ownership and CEO duality, are found as significant factors in reducing the cost of equity of PSX-listed firms. Audit committee independence and audit quality of the firm showed a positive relationship with the firm’s cost of equity. Our findings suggest that employing a high-quality auditor and independent director’s results in increased cost of equity for PSX-listed firms. Furthermore, no significant relationship between independence of the boards and duration of the authorizations of financial statements by the board of directors is found. The results also revealed the investors demand more return on their investments if inadequate and incomplete information is disclosed in the annual reports of the firms. This study provides useful insights for Pakistani corporate governance regulators, the executive management of Pakistani firms, and their investors.
Syed Ahmad Hashmi, Shamila Nabi Khan
The purpose of this study is to ascertain the influence of price and promotion on brand equity, which eventually leads to the determination of consumer’s preference for a particular brand. This research aims to add value to the current field by testing this relationship under the influence of three other mediating dimensions including the brand image, brand loyalty and quality of the product. In order to test the proposed model, the Structural Equation Modeling technique was used in this study. Within this realm, the CFA and path analysis were used to assess the validity and reliability of the latent constructs. The results of the research revealed that the price and promotion of a particular product have a statistically significant relationship with its brand equity. The results also seem to reject the mediating effect of brand image, perceived quality and brand loyalty between price and brand equity. The relationship of promotion, however, does allow for mediation by the perceived quality of a brand, but rejects the other two hypotheses. A number of researchers in Pakistan have previously conducted research on brand equity, albeit using different predictors in different industries. It must be noted that this proposed model of price and promotion, and its effects on the brand equity has not been thoroughly tested in the Pakistani context. Hence, this study proves to be a preliminary basis for further research on the linkages between price, promotion actions and brand equity.
The Lahore Journal of Business, Volume 7, Issue 1, Apr - Sep 2018
Saad Shahid and Rida Ayaz
The Lahore Journal of Business, Volume 7, Issue 1, Apr-Sep 2018, pages 1-32, https://doi.org/10.35536/ljb.2018.v7.i1.a1
The purpose of this study is to examine whether an organization can create customer engagement by practicing market orientation, personalization and using multi-channel marketing. The proposed conceptual framework is empirically tested using quantitative data. Survey data were collected from 240 students of both private and public universities in Pakistan. The findings show support that market orientation and personalization do not lead to customer engagement but multichannel marketing does have a relationship with customer engagement. The proposed mediation of personalization and multi-channel marketing was not empirically supported. The results of this research suggest that firms should practice multi-channel marketing to interact with the target market. Multichannel marketing is most likely to keep the existing and potential consumers engaged. This study adds value to the literature by providing an explanation of the impact of the two inbound marketing themes; personalization and multi-channel marketing and their consequent relationship with customer engagement.
Ramla Sadiq, Tahseen Mohsan Khan and Noman Arshed
The Lahore Journal of Business, Volume 7, Issue 1, Apr-Sep 2018, pages 33-59, https://doi.org/10.35536/ljb.2018.v7.i1.a2
The primary purpose of this study was to conduct an exploratory and explanatory analysis to determine the impact of structural income on performance of the all commercial banks in Pakistan from 2008 to 2015. It aimed to establish the theory on dual impact of income diversification and ownership on bank performance in a developing economy. This population was divided into two categories – ownership mode characterized into conventional and Islamic banks and category mode characterized into five proportions of non-markup and mark up income structures. The divisions were analyzed on the basis of change in assets and equity and gross income, using a non-linear approach. This approach ensured robustness of analysis and clearer outcomes regarding strategic approaches in this sector. Ownership mode finding suggested conventional banks tilt towards non-markup income significantly for asset and gross income base increase and Islamic banks insignificantly towards markup income. Our findings also showed that conventional banks lead Islamic banks, and banks with nonmarkup income between 30%-40% lead other bank categories in terms of managing profitability. Islamic banks are ahead of conventional banks, and category1 banks with non-markup income above 50% are ahead of all other categories in terms of utilization of funds.
Muhammad Akhtar, Faqir Muhammad and Muhammad Ayub Siddiqui
The Lahore Journal of Business, Volume 7, Issue 1, Apr – Sep 2018, pages 61-84, https://doi.org/10.35536/ljb.2018.v7.i1.a3
In this empirical study, the authors examined the extent to which financial sophistication and personality effects stock market participation. Using archival research methodology, our hypothesis has been tested on a random sample of 451 stock market participants. Moderation has been tested through Andrew Hayes process. Extroversion and openness to experience positively impact stock market participation, while consciousness, agreeableness, and neuroticism have a negative impact. Financial literacy, trading experience and gender are the likely paths by which personality impacts stock market participation. Financial literacy can modify the relationship between some basic personality traits and stock market participation. It shows that behavior finance is not completely predetermined by one’s DNA and also identifies which traits are less influenced by financial literacy. Perhaps this implies that these traits are more predetermined by one’s innate characteristics.
This study provides an interdisciplinary contribution by extending Big Five taxonomy as a viable approach for stock market participation. Future research may investigate the impact of family resources, investment exposure, and parent’s financial literacy, which were beyond the scope of the current study. The theoretical and practical implications of the study with respect to stock market participation are discussed.
Imtiaz Ahmad and Hafiz Ihsan Ur Rehman
The Lahore Journal of Business, Volume 7, Issue 1, Apr-Sep 2018, pages 85-111, https://doi.org/10.35536/ljb.2018.v7.i1.a4
The current study was designed to observe the impact of consumer ethnocentrism and brand personality on purchase intention, perceived quality and brand trust in the Pakistani clothing market. Famous Pakistani clothing brands were selected to examine the impact of consumer ethnocentrism and brand personality on purchase intention, evaluation of the product and brand trust. 300 questionnaires were distributed to consumers. The response rate was 90%. The sample comprised 52.2% males and 47.8% females. Two-level Structural Equation Modelling using LISREL 8.80 was employed to determine the convergent and discriminant validity. The study has concluded that Pakistani consumers are highly ethnocentric and ethnocentrism strongly affects purchase intention of domestic brands among Pakistani customers. The research found that brand image has a greater effect on purchase intention, perceived quality and brand trust than consumer ethnocentrism. Results also demonstrate that quality, as perceived by consumers, influences purchase intention which indicates that alone, brand personality and consumer ethnocentrism tendencies do not guarantee sales of local brands. This study puts both consumer ethnocentrism and brand personality into one model to access its role on consumer behavior. The results of the research can assist domestic marketers to comprehend the role of consumer ethnocentrism propensity and brand personality in purchasing domestic products, quality perception and building trust among young customers. To the best of the researchers’ knowledge, it is one of the pioneer studies in the context of Pakistan that casts light on the significance of ethnocentrism in evaluating domestic products by contributing to the literature of marketing.
Adnan Bashir and Arshad Hassan
The Lahore Journal of Business, Volume 7, Issue 1, Apr-Sep 2018, pages 113-136, https://doi.org/10.35536/ljb.2018.v7.i1.a5
This paper examines and compares the relationships between capital regulations, risk and efficiency of Islamic banks with conventional banks in Pakistan from 2003 to 2015. By employing seemingly unrelated regression (SUR) this study finds that capital regulations have no significant effect on the risks taken by Pakistani Islamic banks. Capital regulations have increased the operational efficiency, while it has neither decreased nor increased the cost efficiency of the banks. The results of this study find no major difference in the capital regulations, risk and efficiency relationships between Islamic and conventional banks. The findings of this study also highlight the significant difference in the effect of capital regulations on the bank risks before and after the Global Financial Crisis of 2008, while there is no difference in the impact of capital regulations on bank efficiency before and after the 2008 crisis.
Kanwal Iqbal Khan, Muhammad Mudassar Ghafoor, Muhammad Sheeraz and Shahid Mahmood
The Lahore Journal of Business, Volume 7, Issue 1, Apr-Sep 2018, pages 137-157, https://doi.org/10.35536/ljb.2018.v7.i1.a6
This paper attempts to understand the linkage of dividend decisions and investors’ perceptions within the context of the Pakistani corporate sector. It is intended to proffer new evidence for designing dividend policies that satisfies investors’ perceptions. Data are collected from individual investors by using questionnaires to obtain opinions about essential factors, patterns, processes and preferences for cash dividends. Results indicate that stability in the rate of dividend, compatibility with the inflation rate and continuity of dividend payment are the topranking factors for investors. Stock dividends are preferred by Pakistani investors if their company is not paying cash dividends, and share buy-back decisions are taken negatively. The theoretical explanation for preferring dividends indicates that Pakistani investors support dividend signaling theory, agency cost, clientele effect, asymmetric information effect, tax effect and rational expectation models. That is why it exhibits a positive relation between dividends and investors’ perception. The contributions and recommendations for further studies are also addressed.