Muhammad Ishfaq Ahmad

Political system of a country and its non-performing loans: a case of emerging markets

This paper analyses the trend of non-performing loans over the last one decade in the banking sector of Pakistan. This study also examines the factors which influences on NPLs. Using data from 1998-2009, this paper argues strongly that democratic political system of a country has positive influence on the non-performing loans. It also finds statistical evidence that board size have positive association with non-performing loans while board independence and ownership concentration have negative association with non-performing loans regardless the bank type.

Transparency and Financing Choices of Family Firms

Past literature indicates that family firms were different from nonfamily firms in term of performance, governess and disclosure. But there was very little evidence which specified the financial structure of family firm. Maturity and leverage, two proxies are used to examine the financial structure of family firm in this particular study. This study shows that family firms are different from non-family firms in terms of debt maturity and leverage. Moreover, transparency is negatively related to maturity which indicates that more transparency decreases maturity, while family firms have more debt maturity which suggested that family firms are more relying on long-term debt and there is a chance of expropriation in family firms due to less transparency. Furthermore, transparency is positively related with leverage which indicates that more transparency increases leverage, while family firms also have positive relationship with leverage which specifies that more transparency leads family firms’ financial structure more toward debt.

Do Dividend Payout Ratio Drive the Profitability of a Firm: A Case of Energy and Textile Sector of Pakistan?

This paper investigates the relationship between dividend payout ratio and profitability of a firm. For this, two main sectors of Pakistan are selected, energy and textile. We employed the date of 2004–2015. We employed the logarithmic regression analysis. The results of logarithmic regression show that there is a negative impact of dividend payout ratio on next year earnings of a firm.

Financial Leverage Hits Corporate Performance

The study has been conducted to explore the relationship between financial leverage and financial performance. The study also involves macroeconomic perspective by involving few macro variables like interest rate. It has been conducted on the nonfinancial sector of Pakistan including all nonfinancial companies listed at Karachi Stock Exchange (KSE) as a sample. The study has been conducted over a period of 7 years, 2005 through 2011. Regression analysis has been performed in order to analyze the data. The results of the study exhibit that financial leverage, measured by debt to equity ratio, has significant impact on financial performance variables, measured by return on assets (ROA) and return on capital (ROC), whereas on the other two variables, return on equity (ROE) and earnings per share (EPS), its effect is insignificant. On the other hand, two variables, namely, gross domestic product and interest rate, were used as indicators of overall economy, and their impact was also studied on financial performance. The results show that their effect on financial performance is insignificant. Combining all the results together, it can be concluded that financial performance is majorly determined by firm’s choice of financial leverage and not by the overall health of the economy specifically in context of nonfinancial firms in Pakistan. Managers in the search for improved performance apply firm-specific strategies, which they believe will provide their firms with the competitive advantage in the marketplace.

Assesing Performance of Moving Average Investment Timing Strategy Over the UK Stock Market

Predicting stock returns, despite being complicated, has always been of interest to investors, financial analysts, academicians and policy makers. The finance theory, broadly, follows two approaches, namely fundamental and technical analyzes, in order to forecast future prices. Fundamental analysis uses variables related to intrinsic properties of the stock to estimate price, or value. In contrast, technical analysis utilizes historical data on prices (or other information) to drive signals about future prices. Despite its practical usage, profitability of technical analysis remains questionable. While prior studies apply technical analysis, especially moving average, on US stocks, this study follows the methodology adopted by Han, Yang and Zhou (2013) to assess the performance of moving average technical analysis on UK stock market. The study uses daily data on UK-DS Market-PRICE INDEX, 1-Month T-Bill rate, and all stocks listed on London Stock Exchange, United Kingdom (UK). Data has been downloaded from Thomson Reuterss DataStream over a period of more than sixteen years from December 31, 1999 to February 29, 2016. Data on risk free rate and market index do not have any missing values. However, stock prices do include missing values; we replace all of them by not available (NA). We apply moving average investment timing strategy to five quantile portfolios sorted by volatility and compare their performance with respective buy-and-hold portfolios. We also asses risk adjusted returns of quantile portfolios using CAPM. For robustness check, we test the strategy for alternative lag lengths, random switching, and breakeven transactions costs. The results suggest that MA strategy substantially outperforms buy-and-hold strategy in UK stock market by producing significantly higher average returns and risk adjusted returns, lower standard deviations, higher Sharpe ratios, and reasonable success ratios. Results are quite robust to most of the lag lengths and quantiles. However, random switching strategy does not produce significant results in this case. We test MA strategy for various lag lengths; the strategy based on 10-day lag length performs the best. This indicates that signals generated from closer history provide better proxy for future trading. Finally, although breakeven transaction costs are considerably larger than actual transaction costs in UK, other variables measuring trading behaviour under MA strategy provide mixed results when seen in relation to volatility. The Uk stock market is weak from the efficiency empirically proved through this study, then the investors should be able to exploit predictable patterns of share returns in order to earn excess returns on a regular basis. There is reasonable degree of predictability in their security returns.