Talat Afza

DOES DEFENCE SPENDING IMPEDE ECONOMIC GROWTH? COINTEGRATION AND CAUSALITY ANALYSIS FOR PAKISTAN

This study revisits the relationship between defence spending and economic growth via a Keynesian model in Pakistan using the autoregressive distributive lag bounds testing approach to cointegration. Empirical evidence suggests a stable cointegration relationship between defence spending and economic growth. An increase in defence spending reduces the pace of economic growth confirming the validity of Keynesian hypothesis in this case. Current economic growth is positively linked with economic growth of previous periods while a rise in non-military expenditures boosts economic growth. Interest rate is inversely associated with economic growth. Finally, unidirectional causality running from military spending to economic growth is found.

Determinants of extent of financial derivative usage

The adaptation of free market policies in the world economy has increased the employment of risk management practices in corporation’s financial decisions in order to reduce the variability in firm’s future cash flows, due to the highly volatile exchange rates and interest rates. It is generally argued that, extensive usage of derivative instruments can minimize the firm’s cash flow unpredictability by reducing financial distress costs, underinvestment problem, tax convexity and managerial ownership. Current paper attempts to identify the factors affecting the corporation’s extent of both foreign currency and interest rate derivative instruments by Tobit model using the sample data of 105 non-financial firms listed on Karachi Stock Exchange. Aligned with the Pakistan derivative market, firm’s extent of derivative usage is found to be positively related with lower financial distress costs, higher debt, underinvestment problem and fewer managerial holdings. Key words:

Marginalized women social well‐being through enterprise development

Purpose – The purpose of this exploratory paper is to explore and categorize the impediments which surround the remote women entrepreneurs and limit their growth opportunities to be successful entrepreneurs in Pakistan.Design/methodology/approach – The paper is based on the primary data collected through interviews and focus group discussions with the remote women entrepreneurs from selected cities across four provinces of Pakistan.Findings – Social and gender discrimination, lack of access and control over resources, limited educational opportunities, weaker family support, absence of self‐actualization, and little entrepreneurial orientation are few impediments classified as barriers to the growth of remote women entrepreneurs in Pakistan.Research limitations/implications – Research findings will help the future researchers understand the characteristics of remote women entrepreneurs residing in Pakistan, moreover, the findings of this paper also provide a panoramic view about the social and working con...

Institutional Shareholdings and Corporate Dividend Policy in Pakistan

The present study investigates the impact of institutional ownership and growth opportunities on dividend policy based on the sample of 120 Listed Companies of Karachi Stock Exchange (KSE), Pakistan, during 2002 to 2007. The estimated results, using OLS and Tobit regression models, suggest that dividend payouts are positively affected by growth opportunities, proportion of shares held by insurance companies and profitability and negatively affected by leverage. However, no significant impact of ownership by Modarbah, NIT and miscellaneous institutions on dividend payout is observed. Large companies are less likely to pay high dividends but the relationship of size with dividend payout is insignificant. Estimated results are robust to alternative proxy of dividend policy that is, Dividend Intensity.

Role of Institutional Shareholders' Activism in Enhancing Firm Performance: The Case of Pakistan

Globalization and financial breakdown of many corporate conglomerates in the developed world engrossed the attention of researchers and policy makers towards the need and importance of an effective corporate governance system for resolving the agency conflict between the stakeholders and managers, and hence a firms’ success. Among corporate governance mechanisms, how ownership is structured between all the shareholders of a firm is considered to be of much importance. The purpose of this article is two-fold: first, to analyze the impact of institutional ownership on firm performance and, second, to throw some light on the two scenarios of institutional ownership prevailing in Pakistan’s capital market. In the first scenario, financial institutions have a board representation (active financial institutions), while in the second scenario, financial institutions do not have board representation (passive financial institutions). Using the data of 200 non-financial Pakistani firms listed at the Karachi Stock Exchange (KSE) from 2005 to 2011, the results revealed that institutional ownership significantly impacts a firms’ performance. It is also found that the firm performance can be enhanced through effective monitoring by active financial institutions that have long-term stakes in firms through board nomination.

Financial Development and Estimation of Import Demand Function in Pakistan: Evidence from Combined Cointegration and Causality Tests

This article explores the relationship between financial development and imports focusing on economic growth and import prices as potential contributors to this relationship. We have applied combined cointegration and causality tests using multivariate model for long-run and augmented Dickey–Fuller (ADF) as well as Phillips–Perron (PP) unit root to test the order of integration of the variables. The empirical evidence confirms the presence of a long-run relationship among the series. Financial development increases imports demand. Economic growth and imports prices decrease imports consumption. Imports are negatively affected by relative prices.

Macroeconomic determinants of stock market capitalization in an emerging market: fresh evidence from cointegration with unknown structural breaks

This article explores the macroeconomic determinants of stock market development in an emerging market (Pakistan) over the period of 1974–2010. We have applied Zivot–Andrews unit root test for integrating properties of the variables and the autoregressive distributed lag bounds testing for cointegration. The direction of causality between the variables is investigated by applying the vector error-correction model Granger causality approach. Our results revealed that variables are cointegrated for long run relationship. Economic growth, inflation, financial development and investment increase stock market development, but trade openness decreases it. The causality analysis confirms that stock market development is a Granger cause of economic growth, inflation, financial development, investment and trade openness. This article indicates the importance of trade openness while formulating a comprehensive financial policy.

Do Group Affiliated Firms Specialize in Debt? Evidence from Pakistan

Purpose - – The purpose of this paper is to examine the debt structure of group affiliated firms in Pakistan for the period of 2009-2011. The study seeks to know the level of debt specialization in group affiliated firms. If they do; then how are they different from stand-alone firms? Design/methodology/approach - – The study primarily uses Herfindahl-Hirschman Index and Excl90 as measures of debt specialization, which are further used in cluster, threshold and conditional analysis. Corporate groups are characterized to subsidize their affiliates through internal debt market and loan guarantee. Logistic regression model is used to analyze association among the measures of debt specialization and firm-specific characteristics for group affiliated and stand-alone firms. Findings - – The results show that about 85 percent firms use more than 50 percent of debt from one debt type. However, group affiliated firms are more inclined toward debt specialization than stand-alone firms. Tangibility and book leverage are negatively and significantly associated to the measures of debt specialization. Moreover, internal debt market and loan guarantee are suggestive reasons of debt specialization in group affiliated firms. Practical implications - – This study highlights the issue of group affiliation and its significance on firm’s debt structure. It has implications for determination of the optimal financing strategy. In the context of emerging economies, group affiliated firms can create market imperfections as a protection shield. In case of emerging markets, it is recommended to strengthen regulatory mechanism to avoid such market imperfections. Originality/value - – Prior studies have explored the phenomenon of debt specialization for rated and unrated firms. However, firm group affiliation is widely studied in the context of capital structure. This is a pioneer study to establish and analyze a link between firm group affiliation and debt specialization.

Does Harberger–Laursen–Metzler (HLM) Exist in Pakistan? Cointegration, Causality and Forecast Error Variance Decomposition Tests

This article investigates the validation of Harberger–Laursen–Metzler hypothesis using Pakistani data over the period of 1978Q1–2012Q4. We have used Gregory–Hansen cointegration approach accommodating structural break in the series. The results confirm the presence of cointegration between the variables. The impact of terms of trade is positive on Pakistan’s trade balance. Domestic income improves local trade balance. Foreign income has a positive impact on Pakistan’s trade balance. The causality analysis indicates the presence of feedback effect between terms of trade and trade balance. Domestic income Granger causes trade balance. The unidirectional causality is running from foreign income to Pakistan’s trade balance. This study opens up new directions for policymakers for improvements in terms of trade to sustain trade balance in Pakistan.