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This study examines the risk management solutions used in the banking sector to meet the many risks. The report also evaluates how conventional and Islamic banks in Pakistan manage risk. This study used primary sources. First, senior managers, risk managers, and chief risk officers from Islamic and normal banks fill out a questionnaire. 51 financial institutions responded. Data analysis uses descriptive statistics, cross-tabulations, t-tests, an ANOVA, and the LSD test. Regular banks' operational risk management strategies and stress test results differ from Islamic banks statistically. The study found no statistically significant difference between Islamic and conventional banks in how well they used risk management tools and systems, how much market risk VaR they used, how much credit risk exposure they had, how they reduced that risk, and how they analyzed their credit risk portfolios.

Principles of Islam advocate risk distribution and prohibit speculative activities. Therefore, financial derivatives under Islamic Sharia would achieve hedging in the true sense and could be applied more effectively to reduce risks and speculation. With the increased complexities of financial capital markets, effective financial instruments are required and Islamic financial derivatives may be the answer to averting a similar global financial crisis in the future. Based on various schools of thought and fiqh in Islam, we provide a critique of Islamic Sharia tenets in relation to conventional derivative instruments. We also illustrate how conventional financial derivatives may be integrated into Islamic finance an existing model. The key challenge for Islamic finance is agreement on a universal set of Islamic laws, regulations and principles that are acceptable across all the sects of Islam. As it is there is a non-consolidation of fatwas and a lack of a common Islamic jurisprudence.Our review highlights that the problem lies in the non-acceptance of a universally acceptable Islamic conceptual framework and not in the lack of financial engineering capability.

The present study investigates market-wide herding of stock market, industry indices of Pakistan, China and USA, A-cross border herding of Pakistan stock market with Chinese stock market and USA stock market. With Cross-Sectional-Absolute-Deviation, to check whether geographical distance matters to influence the stock markets or not and USA is its major influential, cannot be ignored. Market-wide herding in Pakistan is found only during 2004 and 2008 and A-cross border herding for Pakistan is only found from the USA which support asset pricing model and market efficiency. Pakistan market do not herd around China, this negates geographical distance matters, and influence in determining investor behaviour in stock markets. It is revealed, Pakistan stock market does not observe as much herding behaviour in stock investment as other markets (USA and China), so it can be said that Pakistan stock exchange index which is representative of Pakistan Stock market is efficiently operating in contest of Herding.

With the worldwide dispersion of COVID-19, banking sector, among others, needs to adapt to unexpected challenges. For this purpose, this study examines the impact of sustainable banking regulations on bank-specific characteristics pre and during COVID-19 period in Pakistan for the period spanning from 2006 to 2020. Moreover, financial stability is employed to test its moderating role on sustainable banking regulations. The dynamic estimator, named the system-Generalized Method of Moments, is used to analyze the endogenous nature of the data. Findings suggest that capital adequacy ratio, deposit ratio, and loan ratio are positive whereas leverage ratios are negatively related to profitability and market return. Overall, findings reveal that sustainable banking regulations influenced the bank-specific characteristics substantially. Importantly, the year-wise averages of variables reveal that Pakistani banks have made significant improvements in profitability, market return, capital adequacy, and deposit ratio pre and during pandemic era. Additionally, the financial stability significantly moderates the relationship highlighting lower default risk and the effectiveness of sustainable banking operations. Practically, despite global lockdowns, economic and trade restrictions during COVID-19, State Bank of Pakistan, sustained health of banking sector through its well-regulated monitoring mechanism.

This study examines the effectiveness of the corporate governance structure when coping with any potentially unexpected events. For the purpose of this research, an event study has been conducted in order to investigate the market responses of various firms through the Cumulative Average Abnormal Return (CAAR) of the stocks listed on the Pakistan Stock Exchange (PSX). The stocks data under consideration is that which was presented after the assassination of Benazir Bhutto in 2007. The overall results indicate that firms that are governed conventionally do not perform well in the markets during a crisis situation. In our comparison of conventionally, and non-conventionally governed firms, the overall pooled results show that the former record a lower CAAR. This, in short, indicates that conventional corporate governance structures may not be equipped to take timely and dynamic actions that are deemed necessary in the face of a crisis. Moreover, our results suggest that firms which have less diversified ownership, and governance mechanisms are less vulnerable to such unanticipated events. There are two reasons that support our hypotheses: first, strict governance mechanisms, and a resultant cautious/conservative approach may not allow firms to take timely and proactive decisions during these situations and second, there is a lower chance of existing agency problems, as family owners would be working for the protection of their own wealth during these events. Therefore, our findings ultimately reveal that the conventional corporate governance structures that work during normal time period, may become ineffective during a crisis. This study, aims to fill a gap in the literature in order to provide fresh insights into the stock market dynamic, and corporate governance risk management. Furthermore, it also highlights the benefits of family owned structures, and unconventional corporate governance systems, that may outperform conventional governance structure in some situations. This, however, raises the question whether one governance framework could be the correct fit in all the situations.

Purpose The Corruption Perception Index (CPI) for 2016 shows Pakistan as among the more corrupt nations in the world with a ranking of 117 among 176 countries surveyed. This situation raises concerns about members of the society and especially about the business communities. This paper aims to examine whether the tendency to corruption is also prevalent amongst business students, the future leaders and executives of business organizations. Design/methodology/approach The study uses survey questionnaires in the manner of Parsa and Lankford (1999) to examine the ethical levels of business students. It uses Levene’s (1960) tests for equality of variances and the t-test for equality of means to examine whether there are difference in the ethical perceptions between: bachelors (BBA) and graduate (MBA) students; business students who have taken the ethics course and those who have not; and female and male students. The authors also examine the overall ethical perceptions of business students. Findings The results show that students seem to make a clear distinction in respect of what they consider as acceptable and unacceptable ethical behavior. They would not indulge in behavior that directly falls within the category of stealing, misusing of company’s resources and undertaking actions that are wrong or dishonest, which may stem from their religious indoctrination. However, they would consider as acceptable behavior the overlooking of safety violations, not telling on peers; and fudging of the truth to get the job done. The latter attitude appears to be in line with business objectives of achieving targets irrespective of the means employed and that inform business education. We do not find any differences between the behavior of women and men which may be the outcome of the same religious indoctrination and educational perceptions. While there is a difference in the ethical perceptions between students who have taken the ethics course and those who have not, the course is not able to counter the lack of ethics among business students. There is a need for some stronger measures to inculcate a set of ethical values within students. However, we did find that some of the unethical behavior is diluted at the MBA level in comparison to BBA students. Originality/value This study provides new insights into the ethical perceptions of students in an Islamic emerging country. There is a conflict between ethics conveyed through Islamic precepts, and the ethics of business education with a focus on profits/revenues, costs, performance and competition that endorses a Machiavellian attitude of achieving goals at any cost and the love of money (Tang and Chen, 2008). It is the first study to suggest a differentiation in the ethical behavior of business students that exhibit both ethical and unethical behavior. There appears to be a clear segregation between what students deem as acceptable and unacceptable ethical behavior that may result from their personal/religious beliefs, and their business attitudes that strongly informs their ethical behavior. It provides a basis for developing more customized and effective ethics courses in Pakistan and suggests more importantly that ethics needs to be integrated into business concepts imparted in business programs at universities.

The paper evaluates the impact of corporate governance on the Loan Loss Provisions (LLPs) of banks. Linear regression model is applied on a strongly balanced panel data obtained from eighteen commercial banks of Pakistan for the years 2011-2016. The study considers several corporate governance mechanisms such as independent directors, board of directors, Chairman-CEO duality, attendance in board meetings etc. and takes LLPs as proxy for credit risk. Our findings suggest that with reference to Pakistani banks, corporate governance does have an influence on loan loss provisioning. The results clearly indicate that larger boards in Pakistani banks provide ineffective governance through increased loan loss provisioning, while independent directors and director attendance at meetings do not seem to matter. On the other hand where one strong family member dominates, the CEO-Chairman duality appears to induce a reduction in the percentage of LLPs and therefore causes decreases in credit risk. This reflects that the separation of these two positions could lead to higher accountability and responsibility, where there is higher transparency with segregation of duties. The paper concludes that effective corporate governance plays an important role in credit risk management in banks and recommends that regulations are needed to further endorse the validity of CEO-Chairman duality in Pakistan.

The primary objective of the study is to determine the relative and incremental information content of Economic Value Added (EVA) as compared to the traditional accounting measure of Earnings per Share (EPS). The study employs the methodology derived from Easton and Harris (1991). The study sample comprises 30 largest listed non-financial firms on Pakistan Stock Exchange (PSX) and covers the period from 2005-2014. The findings indicate that EPS outperforms EVA in capturing the market trends of stock return performance. The results of the research negate the common notion of EVA as a superior measure of firm performance. Although, evidence obtained from empirical tests illustrates that EVA provides marginal incremental information combined with EPS, but it is low. The study offers academicians, practitioners and investors a more accurate measure by which to assess performance in the markets.

Purpose No systematic models are being used in empirical research that provide assurance for the choice of proxies that are being used. The purpose of this paper is to examine the validity of the proxies being used in empirical research, and as a case study, it focuses on the area of financial derivatives. Design/methodology/approach First, the authors review results of proxies from the financial derivatives literature and follow with empirical tests to confirm the findings from the review. Findings The review shows that proxies provide mixed results. The findings are further supported by the results from empirical tests. It suggests that measures used in the studies related to financial derivatives theory may need to be refined and highlights that no solid bases or tests have been developed for the proxies used to measure the constructs. Research limitations/implications As individual proxies are examined across studies, a meta-regression analysis cannot be used, and there is no other available model to capture this type of examination. The approach adopted has some limitations but provides a basis for examining the reasonableness of proxies as measures of constructs. Originality/value This is the first study that attempts to examine the strength of proxies in capturing related constructs. The methodology is unique to a review of past studies in financial derivatives. It supports the need for developing more rigorous models/bases for the measures being used, and this is an area that has been ignored in empirical research.

Purpose The purpose of this paper is to investigate the financing behavior of firms in Pakistan. Previous studies have investigated corporate leverage determinants within any particular industry, such as manufacturing industry, textiles industry, etc., with varying results. This is one of the few studies that examine the determinants of leveraging attitude of firms across industrial sectors for textiles, large industries, and small industries. Thus, the study provides an insight into the general debt financing behavior in Pakistan and allows a basis for comparison of the leveraging decisions across industries. Design/methodology/approach The study employs the structural equations methodology which captures the endogenous relationship between profitability and leverage. Thereby, eliminating bias and providing more accurate results. Findings The findings suggest that the leveraging decisions differ across sectors and that each industry has its own distinctive debt requirements/characteristics. The authors conclude that a singular approach taken by investors and analysts would provide inaccurate assessment of firms’ debt financing policies and strategies. Research limitations/implications There is a limitation on data availability in emerging countries, and a larger sample would have provided more robust results. Therefore, the study has only taken three sector sub-divisions, and more industry categories would have provided in-depth insights into the industry-wise leveraging behavior. Practical implications This is the first study to suggest that the borrowing attitude of firms differ across industries and vary due to their specific needs. This has implications for government regulators, investors, and creditors in providing a more customized approach to analyzing and meeting the external financing needs of firms. Originality/value This study is the first to use simultaneous equations model to eliminate bias that is prevalent in similar studies in Pakistan. The SEM captures the endogenous relationship between profitability and leverage. The research provides important information about the underlying financing behavior across industries, which has largely been ignored.

Purpose –The extant literature is divided regarding the impacts of firm size on financial derivatives and the empirical studies provide conflicting results and offer opposing viewpoints. There is strong evidence to suggest that firm characteristics differ between larger and smaller sized firms and that derivative users are generally larger firms. Firm size may also influence the risk management behavior of corporate governance and reveal some biases and personal agendas. However, this area is largely unexplored and warrants investigation. This is the first study that examines whether corporate governance risk management over financial derivatives is sensitive to firm size considerations. Design/methodology/approach – The authors employ Maddala’s simultaneous equations methodology to examine the firm’s derivatives usage simultaneously with debt borrowings, as both form basis of the capital structure decisions of the firm. Further we split the data into large and small size firms to examine the size effects of corporate governance risk behavior, departing from the method employed in the derivatives literature. Findings – The authors provide empirical evidence to suggest that corporate governance is consistent in their risk management of financial derivatives use and that they are not influenced by any firm size considerations. Research limitations/implications – Additional examination of the risk and value effects on firm performance based on firm-size differences would provide additional insights into the hedging effectiveness of corporate governance in respect to financial derivatives. Practical implications – The findings provide assurance that corporate governance is not influenced by firm size with respect to financial derivatives. Therefore, governance regulations and accounting standards requirements do not need to provide any restrictions/modifications on the size of firms employing financial derivatives instruments. Originality/Value – This is the first study to examine the effects of firm size on corporate governance risk management over financial derivatives. The area is unexplored and has far reaching consequences. If firm size has an impact on corporate governance, then regulators would need to develop varying controls based on the firm size to cater to differences in risk management by corporate governance. As it is corporate governance mechanisms do not make any distinctions based on firm size, and the study supports the need for one set of corporate governance controls across all size firms.

This is the first study to provide a comprehensive review of current literature that investigates the corporate governance and financial derivatives relationship, an area which is largely unexplored. There is no previous examination of the existing research studies related to corporate governance-derivatives, therefore, this study contributes to the research and provides researchers a platform from which to extend further research in the area of corporate governance and financial derivatives. This study reviews existing literature and provides an understanding of the concepts of derivatives hedging, the special features that underlie the determinants of derivative use and corporate governance. It presents the theories surrounding derivative use by firms in their efforts at risk management. It investigates three main areas in the relationship of derivatives and corporate governance: corporate governance as a determinant of derivatives; derivatives, corporate governance and firm value; and derivatives, corporate governance and firm risk. This is a comprehensive review of the extant literature related to financial derivatives and corporate governance. It provides both the theoretical basis of the financial derivatives theories and discusses the empirical results under each section.

Do proxies capture the constructs that they propose to measure? The objective of this paper is to examine the strength of proxies being used in empirical research, and as a case study it focuses on the area of financial derivatives. The review indicates that there is no consensus in the research findings and results of the proxies are mixed. It is further supported by results of the empirical tests on the determinants of derivatives. It suggests that measures employed in the studies related to financial derivatives theory may need to be refined. This is the first study that attempts to examine the strength of proxies in capturing its related constructs. The methodology employed is unique to a review of past studies in financial derivatives, as it compares significant results against the insignificant results, which is important in any examination of the validity of proxies. In the larger context, the study supports the argument that there is a need for developing a stronger basis and more rigorous models for the measures being used, and this is an area that has largely been ignored in empirical research.

Firms respond differently to the level of financial distress faced by the firm (Purnanandam 2004, 2008). Similarly, financial constraints could have a varying effect on corporate governance risk management behavior. This study examines the monitoring effects of corporate governance on financial derivatives usage when controlling for different levels of financial distress and is an extension of an earlier paper on the subject (Tashfeen 2016). The results show that selective corporate governance mechanisms are sensitive to varying financial distress. When levels of leverage are considered, then the corporate governance-derivatives relationship either becomes insignificant or negative for audit committee size, CEO age, block holders, board size and board meetings. This suggests that varying intensities of financial distress need to be incorporated in studies where the risk management impacts of corporate governance are examined. The study uses a simultaneous equations model to examine the effects of leverage and derivatives decision simultaneously. It is the first study to consider levels of financial distress in a study of corporate governance-derivatives risk management and makes important contributions to the literature.

This is the first comprehensive study of board gender diversity and its policies on derivatives risk management, through an examination of the value, risk, and hedging effects on risk control. Applying a simultaneous equations model to address the endogenous effects of financial and derivatives hedging decisions, our findings suggest that women directors provide a monitoring impact on derivatives decisions that result in a hedging value premium and reduction in risk. Further, gender diversity influence on investment policies achieve a value premium, and its financial strategies provide both a value enhancing and risk reducing benefit through the reduction in leverage, within firms that hedge with derivatives. While, in response to equity risk gender-diverse boards encourage the increase in cash reserves. Additional quantile analyses support the monotonic associations of gender diversity with firm value, and with firm risk. We find women directors on boards are effective risk managers and policy makers. Whether this may be attributed to risk aversion as proposed by some researchers, conservative attitude or just better risk acumen, it suggests that gender diversity adds value to boards of directors in their risk management of financial derivatives and therefore board gender diversity should have a larger representation on boards of firms that use derivatives.