The Lahore Journal
of Business

The Lahore Journal
of Business

Lahore Journal of Business

(HEC recognized journal in “Y” category)

The Lahore Journal of Business is aimed at providing a specialized forum for dissemination of qualitative and quantitative research in various areas of business administration. The LJB invites researchers, policy makers and analysts to submit original theoretical and empirical papers that explore and contribute to the understanding of various areas in the business domain. The Journal aims at bringing together state-of-art research findings, particularly from emerging markets, in various business disciplines including (but not limited to) accounting, banking, management, marketing, finance, investments, human resource management and organizational behavior.

Volume 9, Issue 1, Articles

The Lahore Journal of Business, Volume 9, Issue 1, Apr - Sep 2020

Sagheer Muhammad Sehrish Mubeen and Mah Noor Shahzadi
The Lahore Journal of Business, Volume 9, Issue 1, Apr-Sep 2020, pages 1-31, https://doi.org/10.35536/ljb.2020.v9.i1.a1

This study investigates whether the dividend policy (the decision to distribute funds, and the distribution channel preferences) of the banking sector of Pakistan is affected during any periods of domestic and global financial crisis. Using a sample of publically listed commercial banks, between the periods of 2002 till 2015, this research document that, unlike other countries, the banks in Pakistan fail to indicate a decline in the level of funds that are distributed to the investors. Even though the importance of the other means of distribution has increased over time, a major portion of the total payout is still covered by the cash dividends. Moreover, the results of the multinomial logit model, demonstrate that the payout policy of the commercial banks listed on the PSX, is not influenced by the global financial crisis. Furthermore, the analysis reveals that more liquid, profitable, and growth oriented banks have a higher tendency to pay dividends, than the other banks that do not fall in this category. The empirical results also indicate that the signaling hypothesis is a relevant economic phenomenon. These findings provide insights to different stakeholders in developing the relevant policies needed to cope up with crisis situations, such as the current ongoing Coronavirus pandemic.

Naveed Khan, Abdul Rafay and Amer Shakeel
The Lahore Journal of Business, Volume 9, Issue 1, Apr-Sep 2020, pages 33-58, https://doi.org/10.35536/ljb.2020.v9.i1.a2

With it being considered as a value-added activity, the Internal Audit function (IAF) of a firm is one of the most important functions in an organization. During the last decade, the role of this particular function has become very useful, especially in creating awareness regarding the Prevention, Detection and Assessment (PD&A) of fraudulent activities. In many countries, carrying out an Internal Audit is a legal compulsion for public companies, in order to establish an effective, and efficient IAF. This study aims to explore the relationship between the various attributes of IAF (effectiveness, independence, staff training, qualification and experience), and the PD&A of fraudulent activities in Pakistan. For this purpose, the convenient sampling technique, for data collection, is used and the questionnaires are collected from the respondents belonging to Pakistan. The questionnaire has been prepared in the form of a Likert scale. Respondents for this study include (1) staff members working in the Internal Audit (IA), finance and accounting departments of the companies listed on the Pakistan Stock Exchange (PSX), and (2) staff members of firms that are engaged in external statutory audit in Pakistan. Descriptive statistics show the details regarding the demographic questions, IAF and PD&A of the fraudulent activities that take place in the companies. Moreover, in order to get to the effective and relevant results, the regression analysis is performed in order to find out if there exists any relationship between these variables. The results show that all five independent variables positively affect the PD&A of fraudulent activities. However, three of the independent variables (IAE, IAT, and IAQ) are statistically significant, whereas two of the variables taken into account (IAI, and IAE) are statistically insignificant. It is recommended that the IAF should be more independent, and effective so as to attain the required results. Moreover, firms should also focus on the qualifications and proper training of the staff that are responsible for executing the IAF.

Imran Riaz Malik and Attaullah Shah
The Lahore Journal of Business, Volume 9, Issue 1, Apr-Sep 2020, pages 59-85, https://doi.org/10.35536/ljb.2020.v9.i1.a3

Derivatives, and their influence on the dynamics of underlying stock markets, is an interesting topic of debate, which predates their introduction. The unresolved influence of derivatives on their underlying stock markets still intrigues many. In this regard, researchers/stakeholders are still curious about the (de)stabilizing influence of derivatives on the overall market. In disposition of these observations, two contradicting hypothesis have been studied widely and have remained the focus of attention in several theoretical and empirical studies. These hypotheses are explained in several ways. Among many, one explanation refers to the destabilizing influence of derivatives, due to the enhanced involvement of noise traders, after the introduction of derivatives. This aspect remains the topic of discussion for this study. After the formal introduction of the SSFs (Single Stock Futures) in Pakistan, this topic became a cause of concern for the stakeholders of this market as well. Hence, this study attempts to tap into this aspect of the de(stabilization) debate, by proposing a modified version of the famous Sentana & Wadhwani (1982) model. In order to tap the potential shortcomings of the S&W model, this study contributes to the extant literature in several ways: 1) It adds the feature of trading volume in the model to analyze and study the potential movement of noise traders from spot to futures market, due to the ease of trading that the futures markets offer, 2) the new, modified model adds a lagged term for returns in order to tap the potential asynchronous inefficiencies, 3) it considers the Generalized Error Distribution (GED) instead of the Gaussian Distribution, in order to realize the fact that returns are not normally distributed. Generally speaking, the modified version of the model not only extends the original model in terms of its explanation, but also empirically tests this aspect in the Single Stock Futures (SSFs) market of Pakistan. This model tested whether SSFs promote, or inhibit the noise trading post-SSFs. After putting it to test, the newer model did not report any negative or positive impact of the introduction of SSFs on the underlying stocks. This may conclude that the proclaimed (de)stabilizing role of the SSFs, in the context of Pakistan, is not justified. This may also imply that the stringent regulatory frameworks, post the Global Financial Crisis, (GFC) for the resumed SSFs, are not justified and require revision.

Ghulam Saghir and Emad Tabassam Ch
The Lahore Journal of Business, Volume 9, Issue 1, Apr-Sep 2020, pages 83-103, https://doi.org/10.35536/ljb.2020.v9.i1.a4

The main objective of this study is to find out how, the two different types of risks, i.e. Liquidity Risk & Credit Risk, affect the overall profitability/financial performance of commercial banks in Pakistan. We used methods that were applicable on a panel data for long run and short run time specifications. Thirtythree scheduled banks listed with the SBP, as of December 2018 have been used for the purpose of the data analysis. The panel data that is used for this study stretches across a period of 10 years, with 33 cross sections. The findings of this current study revealed that the financial performance of the banks present in Pakistan is negatively, and significantly influenced by the credit risk. In addition to this, it was revealed that the lesser the non-performing loans, the lower the risk factor that is experienced. The financial risk comprising of credit risk and liquidity risk tends to have a significantly robust impact on the overall enactment of the commercial banks in Pakistan. This study will prove beneficial for the top management of the financial institutions developing economies, as it will enhance their existing knowledge regarding the impact of financial risk, which will eventually infiltrate into the intensity and quality of the financial performance of the banks. This will also enable banks, and other financial institutions to involve all the relevant stakeholders, in order to determine how they can minimize the effects of the financial risk, so as to maximize the overall returns.

Ramla Sadiq and Safia Nosheen
The Lahore Journal of Business, Volume 9, Issue 1, Apr-Sep 2020, pages 105-144, https://doi.org/10.35536/ljb.2020.v9.i1.a5

This paper carries out the empirical tests in order to validate the hypothesis that resource intangibility, in the form of intangible assets, contributes towards the intellectual capital, and the competitive advantage in the banking sector. Furthermore, it also determines whether the intangibility of a banks’ resources contribute towards the sustainability of the competitive advantage. Finally, it determines which aspects of the banking performance, the intangible assets actually contribute to. In this context, this research utilizes the secondary data, which is extracted from the annual reports of commercial banks that are listed on the primary stock exchanges of Pakistan. The sample that is taken into consideration is divided into two main categories in order to carry out the analysis. These categories include the classification into the Islamic banks and the conventional banks. The Islamic window operations have not been included in the analysis, as the details required for the variable calculations are not consistently available. Moreover, this bifurcation in the sample is also a unique aspect of this research, as the prior literature primarily focuses on the determinants of the intellectual capital in the banking sector. However though, there is no direct study regarding the differences in the resource intangibility in the Islamic banks and the conventional banks, and their subsequent impact on the intellectual capital and competitive advantage. The time frame for the analysis is taken from the year FY2008-FY2018. Also, the findings of this study lead to striking implications for both the Islamic banking theory and the managerial practices in the banking sector of Pakistan. The resource intangibility is to be managed very differently across both categories. Where the intangible assets represent a significant contribution to both the intellectual capital and the competitive advantage for Islamic banks, they also represent a negligible impact on the intellectual capital, and the competitive advantage for conventional banks. This holds true for the conventional performance measures that are taken for the banking sector as well, as shown in the robustness analysis. Future studies may focus on additional countries to determine the consistency of these patterns. Furthermore, the additional explorations are possible, especially when considering this phenomenon. These include the impact of the bank size, the market position, and the country of location, etc.