PhD

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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.
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.

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