Audit and Accounting Review

Decoding Finance Lease Trends: How Firm Life Cycle Stages Influence Leasing Decisions Globally

Ahmad Ghazali, Mubashar Tanveer — Tue, 31 Dec 2024 00:00:00 +0000

The current study aims to analyze the influence of Firm Life Cycle Stages (FLCS) on the finance lease decisions of non-financial and non-utility firms around the globe. Data is gathered from S&P Capital IQ Pro for the period of 2000–2023. The final sample consists of 72,031 firm-year observations, covering a broad range of non-financial and non-utility firms around the globe. To estimate the relationship between FLCS and finance leases, the current study employed Fixed Effects regression as the main method and Ordinary Least Squares (OLS) regression as a complementary method. Moreover, to confirm the consistency of findings across different model specifications, the robustness of results was tested by splitting the total finance lease into current and long-term portions. The regression results of both methods indicate that finance lease usage changes with FLCS in an inverted U-shaped pattern. This demonstrates the lower use of finance lease by firms in the introduction and decline stages and a higher use of finance lease in the growth and maturity stages. These findings are substantiated by robustness tests. Thus, the overall results prove that a finance lease is a flexible financial tool and firms adapt it according to the specific requirements of life cycle stages. The findings have implications for both investors and financial managers. This may help investors in evaluating their investment decisions when considering the consequences of finance lease adjustments. Moreover, it would also aid them in accomplishing the goal of shareholder wealth maximization through proactive and effective decision-making. In the future, this phenomenon may be examined separately for segments based on economic development or regions.

Influence of International Standards of Internal Auditing on the Proficiency of Internal Audit Mechanism in Public Sector Universities of Pakistan

Zahid Qadeer, Sammar Abbas, Tanveer Ahmed — Tue, 31 Dec 2024 00:00:00 +0000

The current study aims to explore how the International Standards of Internal Auditing (ISIA) impact the proficiency of Internal Audit (IA) mechanism in the public sector of Pakistan. The study targets the public sector Higher Education Institutes (HEIs) of Pakistan which are the recipients of hefty financial resources from government. A questionnaire was distributed to 250 employees working in Internal Audit and Finance Department besides the members of statutory bodies of public sector HEIs of all five provinces (stratum) across Pakistan by using the purposive sampling. One hundred and fifty (150) valid responses were received back. The Institute of Internal Auditors (IIA) has framed two broader categories of ISIA, for instance (i) Attribute Standards (IAS) (ii) Performance Standards (IPS.) By deploying SPSS version 22.0, the results of regression analysis amongst ISIA and IA mechanism reveals that in the category of attribute standards of internal auditing, 3 out of 4 standards have a significant positive impact on the proficiency of (IA) mechanism in public sector HEIs of Pakistan. While, in the category of performance standards of internal auditing; only 3 out of 6 standards have a significant positive impact on the proficiency of (IA) mechanism. The findings would be useful in strengthening the Internal Audit Functions (IAFs) in public sector of Pakistan. Policymakers are recommended to implement the international standards of internal auditing which may lead towards enhanced proficiency of IA mechanism in public sector.

A Low-Risk vs. Market-Based Portfolio in Equity Market: Evidence from Global Financial Crisis and Global Pandemic Crisis in Pakistan

Muhammad Wajid Raza, Bahrawar Said, Ijaz Hassan — Tue, 31 Dec 2024 00:00:00 +0000

The study tests the characteristics of a low-risk-based portfolio compared with a broader market-capitalization weighted portfolio (benchmark portfolio) in Pakistan Stock Exchange (PSX). This study considers all listed stocks at PSX as an investment universe. Low-risk stocks were assessed by measuring the idiosyncratic risk. Extensive back-tests were performed to compare the financial performance for 2005-2022. Results show that the market-capitalization-based portfolio outperforms the low-risk-based portfolio in terms of annualized returns. However, the latter significantly reduces the risk and leads to superior risk-adjusted performance. The low-risk portfolio indicates resilience to market turmoil and reduces the downside risk of the market portfolio. The risk-return relationship appears to be stronger in the case of idiosyncrasies. The effect of the GFC-2008 and the GPC-2020 are also investigated; the results indicate that a low-risk-based portfolio carries higher returns while the market capitalization portfolio carries relatively higher risk. Both individuals and institutional investors can enhance the risk-adjusted performance of their portfolios by adopting a low-risk-based strategy.

Roadmap to Sustainable Finance: A Bibliometric Analysis of Socially Responsible Investment in Financial Institutions

Zahid Bashir, Sabeeh Iqbal, Muhammad Aamir — Tue, 31 Dec 2024 00:00:00 +0000

The current study aims to examine the role of Socially Responsible Investment (SRI) in Financial Institutions (FIs), as well as research gaps and future directions. A bibliometric analysis is conducted using the Elsevier Scopus database and 658 relevant documents were identified through advance searches. The current study used performance analysis and scientific mapping method to achieve the objectives. The results show that the international collaboration exists in the discipline. It includes the evidenced from the prominent journals and the names of authors with extensive co-authorship among countries, such as China, the UK, the USA, Spain, India, Italy, Germany, and France. The keyword co-occurrences shed light on the most emerging topics in this domain, such as mutual funds, sustainable development, and the factors that integrate Environment, Society, and Governance (ESG) for financial decision-making process. Additionally, the study focused to emphasize SRI in FIs between 2011 and 2023. Therefore, the emerging significant themes point towards interdisciplinary and worldwide collaboration. This study came up with its findings in the light of new perspectives not only through an in-depth analysis of SRI within FIs but also by capturing the emergence of interdisciplinary and collaborative efforts worldwide.

Mitigating Tax Avoidance through Corporate Governance: The Mediating Role of Financial Distress

Zahid Maqbool, Muhammad Haroon Rasheed, Salma Sadiq — Tue, 31 Dec 2024 00:00:00 +0000

The post-pandemic era has brought Pakistan into a spiral of economic instability and downturn, making taxation a vital avenue for the economic survival of country. One of the key avenues of revenue collection for an economy is its manufacturing sector. Therefore, the current study analyzed the facilitating role of financial distress to examine the relationship amongst governance mechanisms and tax avoidance. The sample comprised data collected from 167 firms for 13 years, from the time period of 2011-2023. Panel data Generalized Method of Moment (GMM) regression model is utilized for analysis. Findings indicate that the firms in Pakistan tend to get involved in tax avoidance during economic distress and effective corporate governance may significantly reduce this behavior. The mediation analysis established that the association of board structure and tax avoidance is channeled through financial distress. This association highlighted those weak corporate mechanisms in a firm leading to financial distress which, in turn, leads to tax avoidance behavior. Hence, addressing corporate governance issues in the firm may also indirectly influence the tax avoidance behavior in the corporate sector of Pakistan. Furthermore, the control variables including firm size (FS), market-to-book ratio, return on assets (ROA), and leverage (LEV) have non-significant influence on tax avoidance. The study provided some unique implications related to tax avoidance, particularly with context to a struggling economy, such as Pakistan. These findings may also help tax officials to be more cautious of the firms that have weak indicators of corporate governance. Furthermore, in weak economic scenarios, such as Pakistan, tax avoidance practices tend to increase across the business sectors. Lastly, this association between tax management and financial distress would enable the investors' needs to assess premium cash flow and the risk of capital costs.