Browsing by Author "Dr. Talat Afza"

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Corporate Derivatives as a Tool for Risk Management: A Comparative Analysis of Pakistan and Malaysia
(Library Information Services COMSATS University Islamaabad Lahore Campus, 2017) Atia Alam; FA10-PMS-003; Dr. Talat Afza; LHR TP 5290
The growing usage of derivatives since the last few decades has increased academic concerns regarding the value relevance of derivatives. Hedging theorists state that considering market imperfections, use of derivatives enhances firm value by minimizing risk. The existing literature has mostly examined the direct effect of derivative usage on firm risk and value, but empirical evidence on ‘how’ and ‘when’ use of derivatives enhances firm value is still missing. Present study primarily adds to the existing literature by identifying ‘how’ and ‘when’ derivative usage increases firm value by using moderated mediation techniques through a bootstrap technique of Hayes (2015). In addition, the current study explores the empirical literature by comparatively analyzing the countries where derivative markets are still in development phase like Pakistan and Malaysia. The sample consists of 167 Pakistani and 266 Malaysian firms for the period of 2004-2010. Findings demonstrate that derivatives play a significant risk management role in both Pakistan and Malaysia, though the effectiveness of the moderating role of derivative usage on the relationship between risk and value is limited in Pakistani non-financial firms. Results on the basis of firm’s types of derivative instruments show no moderating mediating role of a firm’s risk on the relationship of derivative usage and Malaysian firm’s value as they are mostly involved in operational hedging. Whereas, Pakistani firms have high value enhancing benefits of foreign currency derivative usage in case of no ER exposure as firms might have exposed due to imports and other commodity prices. In case of interest rate derivative usage, Malaysian firms use fewer interest rate derivatives in times of low IR exposure as they have more access to external financing at lower costs because of developed capital market.
Corporate Derivatives as a Tool for Risk Management: A Comparative Analysis of Pakistan and Malaysia
(Library Information Services, COMSATS University Islamabad, Lahore Campus, 2018) Atia Alam; FA10-PMS-003; Dr. Talat Afza; LHR TP 5290
The growing usage of derivatives since the last few decades has increased academic concerns regarding the value relevance of derivatives. Hedging theorists state that considering market imperfections, use of derivatives enhances firm value by minimizing risk. The existing literature has mostly examined the direct effect of derivative usage on firm risk and value, but empirical evidence on ‘how’ and ‘when’ use of derivatives enhances firm value is still missing. Present study primarily adds to the existing literature by identifying ‘how’ and ‘when’ derivative usage increases firm value by using moderated mediation techniques through a bootstrap technique of Hayes (2015). In addition, the current study explores the empirical literature by comparatively analyzing the countries where derivative markets are still in development phase like Pakistan and Malaysia. The sample consists of 167 Pakistani and 266 Malaysian firms for the period of 2004-2010. Findings demonstrate that derivatives play a significant risk management role in both Pakistan and Malaysia, though the effectiveness of the moderating role of derivative usage on the relationship between risk and value is limited in Pakistani non-financial firms. Results on the basis of firm’s types of derivative instruments show no moderating mediating role of a firm’s risk on the relationship of derivative usage and Malaysian firm’s value as they are mostly involved in operational hedging. Whereas, Pakistani firms have high value enhancing benefits of foreign currency derivative usage in case of no ER exposure as firms might have exposed due to imports and other commodity prices. In case of interest rate derivative usage, Malaysian firms use fewer interest rate derivatives in times of low IR exposure as they have more access to external financing at lower costs because of developed capital market.
Corporate Governance, Financial Constraints and Dividend Policy: Evidence from Pakistan
(Library Information Services, COMSATS University Islamabad, Lahore Campus, 2018) Muhammad Azeem; FA11-PMS-002; Dr. Talat Afza; LHR TP 5327
Information asymmetry between insiders and outsiders creates various issues for a firm, such as the agency problem where managers pursue their own interests even at the cost of the wellbeing of the firm’s shareholders and probable external financial constraints where external investors discount risk by causing a surge in the cost of financing. Normally, a firm manages the issues of the agency problem and external financing constraints by omitting or initiating dividend payments. In most existing studies, scholars have focused on the direct relationship between corporate governance and dividend policies and, thus far, they have produced inconclusive and contradictory results. Most probably, these studies have not considered the role of financial constraints in dividend payment decisions. Moreover, the substantial emergence of corporate scams, along with weak regulatory environments coupled with the underdevelopment of the financial sector of Pakistan, has encouraged the study of the aforesaid tradeoff. Therefore, this study investigated the impact of corporate governance on dividend policies in the presence of financial constraints using a sample of 139 non-financial firms listed in the KSE in Pakistan, where a weak regulatory framework generates agency problems and the underdevelopment of financial sector causes financing constraints for businesses. The results reveal that, in Pakistan, dividends are an Outcome of governance practices. As the quality of firm-level governance improves, shareholders are provided with the legal strength to ultimately force firm managersto pay dividends.Along with the agency problem, the availability of external financing is an important factor related to dividend payment decisions in Pakistan. When a company is confronted with the agency problem and financial constraints simultaneously, managers try to avoid costly external financing rather than reducing agency problem. The corporate regulatory machinery of Pakistan completely inherits the characteristics of low efficiency, and as a result, the issue of unsymmetrical firm-level governance practices has emerged. Eventually, the influence of financial constraints on dividend policies also varies across different corporate governance regimes.
Determinants of Corporate Dividend Payout Policy: Evidence from Emerging Economies of South Asia
(Library Information Services, COMSATS University Islamabad, Lahore Campus, 2017) Hammad Hassan Mirza; SP10-PMS-001; Dr. Talat Afza; LHR TP 4788
The present study analyzes the effect of firm and country level factors on corporate dividend payout in emerging economies of South Asia. Existing studies mainly investigate the determinants of dividend payout in developed economies with little focus on country level economic, legal and cultural factors especially in emerging economies. The results of previous studies are mixed and inconclusive regarding the relationship of firm level factors and dividend payout. This study contributes to the existing literature by providing evidence on moderating role of country level factors in determining the relationship between firm level factors and dividend payout policy in South Asia. The study uses the data of listed non-financial companies of Bangladesh, India, Pakistan and Sri Lanka, from 2006 to 2010. Firm and country level models are estimated using lest square, Tobit, Logit and TSLS techniques. The analysis is conducted in two parts, first the effect of firm level factors with dividend payout in each of four South Asian countries is compared, and second the impact of country level factors on the relationship of firm level factors and dividend payout is investigated. At firm level estimation the results show that dividend payout increases with increase in managerial ownership in Bangladesh and India but decreases in Pakistan and Sri Lanka. Institutional ownership positively affects payout in Bangladesh and India but not in Pakistan and Sri Lanka. Operating cash flow and lagged dividend are important determinants of payout in South Asian countries but cash flow sensitivity does not affect payouts. Regarding country level factors, in high investors’ protection regime, the shareholders enforce managers to pay dividend, which is in line with dividend outcome model. This shows that investors’ protection does not substitute dividend payouts in South Asia. Furthermore, legal rights protection of creditors and employees does not adversely affect dividend payout. Regarding cultural attributes, the study finds that the uncertainty avoidance negatively moderates the relationship between cash flow and dividend payout
Determinants of Corporate Dividend Payout Policy: Evidence from Emerging Economies of South Asia
(Library Information Services COMSATS University Islamabad Lahore Campus, 2014-01-30) Hammad Hassan Mirza; SP10-PMS-001; Dr. Talat Afza; LHR TP 5289
The present study analyzes the effect of firm and country level factors on corporate dividend payout in emerging economies of South Asia. Existing studies mainly investigate the determinants of dividend payout in developed economies with little focus on country level economic, legal and cultural factors especially in emerging economies. The results of previous studies are mixed and inconclusive regarding the relationship of firm level factors and dividend payout. This study contributes to the existing literature by providing evidence on moderating role of country level factors in determining the relationship between firm level factors and dividend payout policy in South Asia. The study uses the data of listed non-financial companies of Bangladesh, India, Pakistan and Sri Lanka, from 2006 to 2010. Firm and country level models are estimated using lestsquare, Tobit, Logit and TSLS techniques. The analysis is conducted in two parts, first the effect of firm level factors with dividend payout in each of four South Asian countries is compared, and second the impact of country level factors on the relationship of firm level factors and dividend payout is investigated. At firm level estimation the results show that dividend payout increases with increase in managerial ownership in Bangladesh and India but decreases in Pakistan and Sri Lanka. Institutional ownership positively affects payout in Bangladesh and India but not in Pakistan and Sri Lanka. Operating cash flow and lagged dividend are important determinants of payout in South Asian countries but cash flow sensitivity does not affect payouts. Regarding country level factors, in high investors’ protection regime, the shareholders enforce managers to pay dividend, which is in line with dividend outcome model. This shows that investors’ protection does not substitute dividend payouts in South Asia. Furthermore, legal rights protection of creditors and employees does not adversely affect dividend payout. Regarding cultural attributes, the study finds that the uncertainty avoidance negatively moderates the relationship between cash flow and dividend payout.
The Impact of Corporate Governance Structure on Mutual Fund Fees
(Library Information Services COMSATS University Islamabad Lahore Campus, 2014-02-03) Irsah Zafar; FA11-MSMS-033; LHR TP 4437; Dr. Talat Afza
The purpose of this study is to analyze the impact of corporate governance structure as measured by board composition, ownership structure and audit committee quality on mutual fund fees. The panel data for the period of 2007-2012 is used for all open and close end funds registered with Mutual Fund Association of Pakistan (MUFAP). Generalized least square (GLS) random effect model is used to measure the impact of governance structure on mutual fund fees. The results of this study indicates that board composition i.e. smaller board, high proportion of independent directors, independent chairman, low proportion of insider and directors from asset management on the board act as effective governance mechanism and mitigate conflict of interest between managers and investors. High managerial ownership and external block-holders ownership enhance fund governance and discourage managers to charge high fee from investors. This study also analyze the audit committee quality by presence of independent directors in audit committee and find that disclosure of fund all expenditures become more transparent to investor if more independent directors in audit committee. The findings of this study suggest that funds gain experience with age and become more efficient in managing their cost due to economies of scale. This study provides evidence that fund fee declined with average increase in fund size. Results show that income funds, index funds, money market fund and fund of funds have low fees as compare to equity and asset allocation funds. Overall, this study explores that mutual funds with good corporate governance structure perform their ﬁduciary duties and act in the best interests of their shareholders.
The Relationship Between Corporate Governance and Firm Value: Role of Discretionary Earnings Management
(Library Information Services COMSATS University Islamaabad Lahore Campus, 2015) Sajid Nazir; FA10-PMS-001; Dr. Talat Afza; LHR TP 5287
Corporate governance practices help in enhancing firm value by effectively monitoring the managerial decisions as well as reducing the level of information asymmetry and agency problem between empowered managers and dispersed minority shareholders. The present study investigates the relationship between corporate governance and firm value for the developing economy of Pakistan. The study has also taken into consideration the moderating role of discretionary earnings management in corporate governance-firm value relationship, which is considered to be a relatively ignored research issue in corporate finance literature. In addition to focusing on individual mechanisms of corporate governance (i.e. audit, board, compensation, ownership), the present study has also constructed a composite corporate governance index to investigate the role of effective corporate governance in mitigating earnings management and enhancing firm value. The data of 208 firms listed at Karachi Stock Exchange for a time period of 2004 2011 has been used for analysis and accounting, market and economic measures of performance have been used as firm value. The study finds that corporate governance plays a vital role in enhancing firm value in long as well as short run. Constitution of internal audit committees as an effective internal audit system is essential for the enriched progress of a firm. The monetary incentives and compensation paid to the top executives motivates them to work in the best interests of the company which increases not only short term accounting value of firm but also long term market and economic value. The findings reveal that discretionary earnings management practices by corporate managers damage the firm value in long term and it could be mitigated by effective corporate governance mechanisms. Moreover, this value damaging role of discretionary earnings management negatively moderates between effective corporate governance and firm value. Firms with earnings manipulation weakens the impact of effectiveness of governance system and leads to lower firm value. Finally, the study suggests some practical implications based upon the findings for investors, policy makers and manager.
The Relationship Between Corporate Governance and Firm Value: Role of Discretionary Earnings Management
(Library Information Services, COMSATS University Islamabad, Lahore Campus, 2018) Sajid Nazir; FA10-PMS-001; Dr. Talat Afza; LHR TP 5287
Corporate governance practices help in enhancing firm value by effectively monitoring the managerial decisions as well as reducing the level of information asymmetry and agency problem between empowered managers and dispersed minority shareholders. The present study investigates the relationship between corporate governance and firm value for the developing economy of Pakistan. The study has also taken into consideration the moderating role of discretionary earnings management in corporate governance-firm value relationship, which is considered to be a relatively ignored research issue in corporate finance literature. In addition to focusing on individual mechanisms of corporate governance (i.e. audit, board, compensation, ownership), the present study has also constructed a composite corporate governance index to investigate the role of effective corporate governance in mitigating earnings management and enhancing firm value. The data of 208 firms listed at Karachi Stock Exchange for a time period of 2004 2011 has been used for analysis and accounting, market and economic measures of performance have been used as firm value. The study finds that corporate governance plays a vital role in enhancing firm value in long as well as short run. Constitution of internal audit committees as an effective internal audit system is essential for the enriched progress of a firm. The monetary incentives and compensation paid to the top executives motivates them to work in the best interests of the company which increases not only short term accounting value of firm but also long term market and economic value. The findings reveal that discretionary earnings management practices by corporate managers damage the firm value in long term and it could be mitigated by effective corporate governance mechanisms. Moreover, this value damaging role of discretionary earnings management negatively moderates between effective corporate governance and firm value. Firms with earnings manipulation weakens the impact of effectiveness of governance system and leads to lower firm value. Finally, the study suggests some practical implications based upon the findings for investors, policy makers and manager.