Audit and Accounting Review

Boardroom Alchemy: Unravelling the Debt and Agency Costs in Manufacturing Sector of Pakistan

Zahid Bashir, Muhammad Aamir, Sabeeh Iqbal — Thu, 21 Dec 2023 00:00:00 +0000

The current study aims to investigate boardroom diversity and its varying characteristics by using agency theory to examine the effect of debt and agency costs in the manufacturing sector of Pakistan. Precisely, it seeks to examine how board size, independence, and gender diversity affect the financial matrices of a firm’s profitability. Therefore, the study utilized an imbalanced panel of 105 manufacturing companies that were listed on the Pakistan Stock Exchange (PSX) 2003 to 2022. Furthermore, the study utilized static and dynamic panel models to examine and evaluate the proposed hypotheses. The findings of this study indicated that there is a positive relationship between board size, gender diversity, and debt and agency costs for manufacturing enterprises in Pakistan. Conversely, it was observed that board independence has a negative impact on the debt and agency costs of firms. Future research can use experimental or longitudinal approaches, including varied businesses, to investigate qualitative research for deeper insights. Cross-cultural comparisons would support the findings. Consequently, this study highlighted the importance of exercising caution when evaluating the influence of board composition on debt and agency costs. The results of the study also prompted inquiries regarding the financial ramifications of initiatives aimed at promoting gender diversity.

Comparative Analysis of Trust in Financial Institutions Across four Provinces in Pakistan

Aribah Aslam, Ghulam Ghouse — Thu, 21 Dec 2023 00:00:00 +0000

Trust in financial institutions (ToF) is considered essential for an effective financial system, yet, little has been explored regarding what determines them, particularly in the case of Pakistan. By using World Values Survey data (wave 7), large cross-provincial differences are observed for the trust on banks, which confirmed the influence of several socio-demographic indicators. The findings indicate that men tend to trust banks more than women in most cases and trust in banks tends to increase with income, but not in every province. However, it decreases with age in provinces like Balochistan, and media and internet access bring novel results for the trust in financial institutions. Additionally, trusting religious and political institutions, such as trust in government or civil wars, and economic values may affect the trust in financial institutions too. Therefore, the current study suggests to policymakers that a uniform strategy may not work equally well in boosting trust in financial institutions (ToF) across all provinces of Pakistan. However, media literacy and financial education can be prioritized, particularly in areas with lower educational attainment, which could be instrumental in fostering confidence in banks.

Liquidity Creation and its Impact on Economic Growth: Moderating Role of Firm Size

Asad Ali, Usman Ahamd — Thu, 21 Dec 2023 00:00:00 +0000

The study aims to examine the influence of Liquidity Creation (LC) on Pakistan's Economic Development (GDP) to investigate the moderating role of firm size and its abiding association in this relationship. Banks create liquidity by managing their portfolios of assets and liabilities with various maturities. The current study used an estimated amount of liquidity created by commercial banks in Pakistan using the "Catfat" model over the last twenty-two years. The estimated LC is employed in this study to assess its influence on GDP growth. Additionally, the research examines the moderating role of firm size between LC and GDP. Furthermore, secondary time series data for this research was collected from the financial statements and World Bank Data from 2000-2021. The study employs a regression technique to test the hypotheses. The outcomes indicate that LC has a significant positive impact on GDP. It implies that when commercial banks create liquidity, it boosts economic growth. The results revealed that firm size does not moderate the relationship between the LC and GDP, neither strengthens nor weakens. The study put forward that conventional banks play a substantial role in contributing to Pakistan's economic growth by creating liquidity in the market. The study holds importance in its ability to shape economic policies, provide financial institutions direction, and offer investors advantages. It contributes to academic research, provides practical insights, and has worldwide applicability in enhancing comprehension of financial systems and their influence on economic growth.

Estimating Cost Efficiency Function and Market Power Indicators of Commercial Banks: An Empirical Study of Iraq

Bha Aldan Abdulsattar Faraj , Gökhan Övenç — Thu, 21 Dec 2023 00:00:00 +0000

Even though the commercial banks in Iraq faced various issues, especially after the banking sector in Iraq gained recognition in 2004. The scarcity of empirical evidence on the real issues facing the banking sector makes it difficult for decision-makers and policymakers to take adequate measures to address potential problems. This paper contributes to the empirical literature by measuring and analyzing cost efficiency in addition to the Lerner index to measure the power of the banking market in Iraq. A sample of panel data is utilized from 20 Iraqi commercial banks for the period 2010-2020. The data envelope analysis DEA is used to measure banks’ cost efficiency. The empirical results gave evidence of a decrease in the price cost efficiency index in the banking sector during the transitional period, and the Lerner index gave negative results, which is an indication of the decline in the market power of Iraqi banks. This paper suggests that studies should be expanded to measure the power and weaknesses of the banking sector, which led to a decrease in the cost-price efficiency and the strength of the behavior.

Fintech Adoption and its Impact on Sustainability: Risk Benefit Analysis of an Emerging Economy

Naila Sadiq, Ummul Baneen, Syeda Fizza Abbas — Thu, 21 Dec 2023 00:00:00 +0000

This study aims to analyze how the six variables, such as perceived legal risk, perceived performance risk, perceived cyber risk, perceived financial risk, perceived economic benefit, ease of use, and monetary benefit affects the adoption of financial technology, with the moderating effect of gender and education. Additionally, it explores the impact of Fintech adoption on economic, environmental, and social sustainability of Pakistan. For this purpose, a quantitative research approach has been employed by using a well-designed questionnaire. Moreover, the sample size of 312 was considered and the responses were collected through Google forms. The data collected was then analyzed using SPSS. The study’s findings revealed that the perception of the advantages of using fintech has a positive impact on its adoption. The perception of risk has a negative impact, however, this impact is much lesser than the benefits. Risk perception negatively impacts sustainability while benefits perception impacts sustainability positively. Thus, this study can provide policymakers in emerging economies with valuable insights into the perceived risks and benefits of Fintech adoption for sustainable development. This study gives insight to the practitioners and researchers on how perceived risk and benefit can impact Fintech adoption and how its adoption, in turn, impacts sustainability. The research can contribute to informed policy decisions, support the development of robust regulatory frameworks, advance knowledge, and promote inclusive growth in emerging economies.