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Financial literacy and behavioural biases of individual investors: empirical evidence of Pakistan stock exchange
Get PDFPurpose: Financial literacy is a crucial element of financial decision-making, exerting significant influence on the behaviour of individual investors, while making budgetary, house financing, stock investing and retirement planning decisions. So, the purpose of this research is to determine the relationship between financial literacy and behavioural biases of individual investors in Pakistan.
Design/methodology/approach: In this research paper, a sample of 300 observations was obtained through questionnaires from individual investors residing in Lahore and invested in Pakistan Stock Exchange. The data obtained, was passed through Cronbach’s Alpha and Exploratory Factor Analysis (EFA). The hypothesis developed for the research was tested by Pearson’s Chi-square and Ordinal Regression Analysis.
Findings: The hypothesis testing of the research concluded that there is a negative association between financial literacy and behavioural biases of individual investors. So, it means; with an increase in level of financial literacy, the likelihood of investor facing behavioural biases reduces. It also appeared that male respondents have more financial literacy than female respondents
Originality/value: Previous studies in the field of finance, identified different factors causing the financial behaviour of individual investor of Pakistan, and also focused on level of financial literacy in Pakistan, but these studies have not emphasized the crucial relationship between financial literacy and behavioural biases of individual investors. Thus, the unique empirical analysis developed in this paper has accentuated the financial literacy as a factor that mitigates behavioural biases of individual investor.
Doi: https://doi.org/10.1108/JEFAS-03-2019-003
Editorial
Get PDFWe introduce the issue 49th of the Journal of Economics, Finance and Administrative Science with the articles presented in the English version, according to the requirement of the most prestigious databases.
The first paper, “Model for assessing the quality of marketing-management education”, analyses a model that incorporates resource-capability variables linked to learning outcomes for students and the competitive positioning of universities. The article proposes some policies to university marketing teachers in designing high-quality marketingmanagement educational programs and in developing self-diagnostic tools that allow a better performance of the university. The next article, “Dimensions of tax burden: A review on OECD countries”, aims to examine how the changes in some macroeconomic indicators affect the tax burden. The authors used a panel data analysis method, based on 34 OECD member states. The results go along the literature of Public Finance related to the burden of the tax and Government attendance. The article “Investigation of optimal inflation targets for 15 major oil-exporting sub-Saharan African countries: A panel threshold estimation” investigates the optimal inflation targets in a panel of 15 major oil-exporting sub-Saharan African countries using annual data over the period 1996-2017. The authors found a threshold-effect level of 14.47%
Doi: https://doi.org/10.1108/JEFAS-06-2020-13
Resolución por inejecución de obligaciones mediante intimación del acreedor. Algunos comentarios sobre su regulación civil y registral
Get PDFIn the event of a serious breach of obligations, it’s logical the representation that assists the creditor exclusively affected, the possibility of resolve the agreement, for loss of interest in claiming the due; however, to achieve this purpose, the law has the necessary observance of certain requirements, which cannot be ignored within the framework of private autonomy, or because the creditor wants to resolve the agreement unilaterally. It’s precisely the affectation of the indicated interest that makes it possible to distinguish between immediate and deferred resolution procedures, proposing that the so-called intimidation resolution be considered in the last group, given that it’s assumed that the creditor maintains interest in to obtain the due, although it will lose it if, within the granted period, the unfaithful party maintains the state of non-performance of obligations. Being a full-fledged resolution, in which a constitutive jurisdictional qualification is omitted, it should be able to register said resolution, despite the fact that the current registry regulation does not expressly authorize it, for which purpose, warning of contingencies, certain alternatives are proposed for reasonably protect the interests of the parties involved.Ante un grave incumplimiento de obligaciones, resulta lógica la representación que le asiste exclusivamente al acreedor perjudicado, la posibilidad de resolver el contrato, por pérdida de interés en reclamar lo debido; no obstante, para lograr dicho propósito, la ley dispone que necesariamente se observen ciertos requisitos, los cuales no pueden ser obviados en el marco de la autonomía privada ni en razón de que el acreedor desee extinguir unilateralmente al contrato. Es precisamente la afectación del indicado interés lo que permite distinguir entre procedimientos de resolución inmediata y diferida, por lo que se propone que la denominada resolución por intimación sea considerada en este último grupo, dado que se asume que el acreedor mantiene interés en lograr lo debido, aunque lo perderá si, dentro del plazo otorgado, la parte infiel mantiene el estado de inejecución de obligaciones. Siendo una resolución de pleno derecho, en la que se prescinde de una calificación jurisdiccional constitutiva, debería poder inscribirse registralmente dicha resolución, pese a que la actual regulación registral no lo autorice de forma expresa, para cuyo efecto, advirtiéndose de las contingencias, se proponen ciertas alternativas para cautelar razonablemente los intereses de las partes comprometidas
Dimensions of tax burden: a review on OECD countries
Get PDFPurpose: The tax burden, defined as the ratio of the collected taxes in a particular period against the total product, is commonly used to determine the effect of fiscal and tax policies on the socioeconomic structure. The purpose of this study is to examine how the changes in some macroeconomic indicators affect the tax burden.
Design/methodology/approach: System generalized method of moments approach is used for 34 Organisation for Economic Co-operation and Development (OECD) members in the period of 1993-2016.
Findings: Based on the research findings, variables such as income per capita, foreign trading volume, the capacity of employment, unemployment and economic share of industry sector effect tax burden in a statistically significant and positive direction. The reason that lies behind the positive effect of unemployment on tax burden is the fact that the sense of social state is not abandoned. Thus, it is predicted that the state will increase public transfer expenditures in the short term due to unemployment, this increase will impose a financial burden on the public sector both in the medium and long term and finally, there will be an increase in the tax burden.
Originality/value: Results in the literature suggest that there are many reasons for increasing tax burden such as socio-economic development, financial and organizational structure and the globalization process. However, according to this study, it seems that gross domestic product per capita, the size of the industry sector, openness, employment capacity and unemployment rate also have a positive and significant effect on tax burden in the long run. Ultimately, these results demonstrate that tax burden, one of the most important indicators of the public sector size in the sample of the states and period in hand, is influenced positively by all independent variables and increases slightly but surely. These results suggest that the tax state is still a determinative factor in the socioeconomic field within its taxation tools.
Doi: https://doi.org/10.1108/JEFAS-12-2018-013
Corporate governance and business innovation among listed Moroccan companies
Get PDFPurpose: This paper aims to clarify the relationship between corporate governance (GOV) and business innovation (INOV). Does it provide the empirical evidence of how different GOV mechanisms affect INOV within listed Moroccan companies?
Design/methodology/approach: The paper opted for a confirmatory quantitative study using a closedended questionnaire using a fifth-degree Likert scale. The questionnaire was administered to 54 listed Moroccan firms represented by their senior management having mainly a finance and economics background.
Findings: The paper provides empirical insights and evidence about how mechanisms of GOV impact INOV within listed Moroccan companies. It suggests that effective mechanisms of GOV foster and incubate INOV.
Research limitations/implications: There have been very empirical studies that investigate the relationship between GOV and innovation. As such, the authors’ conceptual framework relies more on the theoretical aspect of this subject than empirical one. Therefore, researchers are encouraged to test the proposed propositions further.
Originality/value: A review of the few existing empirical studies shows mitigated results regarding the relation between GOV and innovation. The findings of this study show a significant positive relation between GOV and its mechanisms and INOV.
Doi: https://doi.org/10.1108/JEFAS-05-2019-007
An introduction to pensionomics
Get PDFPurpose: The purpose of this paper is to explore the concept of pensionomics as a prospective tool for pension evaluation. This paper suggests a paradigm shift – a multi-disciplinary synthesis of differing perspectives in evaluating pension’s overall performance based on past work on pension evaluation – incorporating non-economic variables with significant impact on economic growth and social development.
Design/methodology/approach: This paper suggests a new analytical tool called “Pensions Consistency (PC) Index” that identifies the level of consistency and the strengths and weaknesses within any pension system. The new conceptual framework focusses on building inter-sectoral and holistic policies able to respond to the new multi-dimensional dynamic environment.
Findings: The consideration of pensionomics concept as an evaluation tool for pension schemes provides insights that are helpful in explaining performance differentials. Taking definition, classification and evaluation as a guiding principle, the new conceptual framework can be a useful point of reference for the overall evaluation of pension schemes, revealing deficiencies that traditional evaluation methods cannot detect. The multi-disciplinary approach focusses on building inter-sectoral and holistic policies that are able to respond to the multi-dimensional uncertainties of the new dynamic environment.
Research limitations/implications: The heterogeneity and complexity in event dynamics are systemic in the sense that the impact is far from linear. The idiosyncratic nature of unexpected and unpredictable events is rather a result of multi-dimensionality based, among others, on magnitude, frequency, timing, intensity and impact. It is plausible to argue that crisis episodes can destabilize critical systems of economic activity, producing economic spillovers that can directly or indirectly affect the sustainability of pension schemes. If the calculation of direct economic impact is readily traceable, the estimation of indirect economic impact can be an onerous task.
Practical implications: Pensionomics places the concept of retirement in a multi-disciplinary context. Pensionomics overcomes theoretical and empirical limitations encountered by the path-dependency perspective, developing a new research agenda to study pension schemes under historical, cultural, social, political, economic, political and environmental prism. Integrating diversified data, techniques, perspectives and concepts, pensionomics’ objective is to connect natural and man-made events with social protection mechanisms for the development of a dynamic social protection framework where individual, community and society needs are met effectively and efficiently by implementing tailored policies, closely related to their specific context.
Social implications: The concept of retirement has evolved constantly, transforming societies and shaping both income and non-income dimensions of well-being. Pension entitlement turned gradually from a political discourse to a human right discourse. Pension schemes have extended the scope of insurance coverage beyond labour markets and the lifecycle, supporting the broader needs of entire population. Furthermore, pension schemes are widely acknowledged as drivers of economic growth: they enhance labour productivity; foster smooth consumption; and create a stable economic environment for investment and innovation. Current expectations require pension schemes to adopt proactive and reactive policies to examine options for mitigation or for modification of potential consequences in anticipation of exceptional events.
Originality/value: This paper suggests a paradigm shift, a multi-disciplinary approach called pensionomics, and this “multi-disciplinary” focus builds a new analytical framework to evaluate pension’s overall performance based on past work on pension evaluation, incorporating non-economic variables with significant impact on economic growth and social development. PC-Index introduces a comprehensive evaluation tool to study the coverage, performance, efficiency, effectiveness, current trends and future possibilities of pension schemes.
Doi: https://doi.org/10.1108/JEFAS-04-2019-005
Loss aversion, overconfidence of investors and their impact on market performance evidence from the US stock markets
Get PDFPurpose: The current study aims to investigate the impacts of two behavioral biases, namely, loss aversion and overconfidence on the performance of US companies. First, the impact of loss aversion on the economic performance of companies was assessed. Second, the impact of overconfidence on market performance was discussed.
Design/methodology/approach: This study used around 6,777 quarterly observations on the population of US-insured industrial and services companies over the 2006-2016 period. Ordinary least squares (OLS) regression in two panel data models were used to test the hypotheses formulated for the study.
Findings: It was documented that the loss-aversion bias negatively affects the economic performance of companies and this is achieved for both sectors. In contrast, the findings suggest that overconfidence positively affects market performance of industrial firms but negatively affects market performance in service firms. Further robust evidence was found that overconfidence bias seems to be dominant, and hence, investors may tend to be more overconfident rather than more loss-averse.
Originality/value: This research can be extended by focusing on the following question: What is the impact of the contradictory (positive and negative) effects of an investor's loss aversion and overconfidence on the US company performance in case of realization of a stock market crisis or stock market crash?
Doi: https://doi.org/10.1108/JEFAS-07-2017-008
External debt and growth: role of stable macroeconomic policies
Get PDFPurpose: This study aims to examine the impact of external debt on economic growth in Bangladesh within a broader macroeconomic scenario.
Design/methodology/approach: In the process of doing so, it assesses the empirical cointegration, long-run and short-run dynamics of the concerned variables for the period of 1980–2017 applying the autoregressive distributed lag (ARDL) bounds testing approach to cointegration. First, debt-gross domestic product linkage explores the impact of external debt impact on economic growth using a set of macro and country risk variables, and then this linkage is also analyzed along with a newly formed macroeconomic policy (MEP) variable using principal component analysis.
Findings: The study results reveal the negative impact of external debt on GDP growth, but the larger positive impact of MEP index indicates that this adverse effect of debt can be mitigated or even nullified by sound MEP and appropriate human resource policy.
Originality/value: The dynamic effects of different shocks (external debt and macro policy variable) on economic growth by vector autoregression impulse response function also confirm our ARDL findings.
DOI: https://doi.org/10.1108/JEFAS-05-2019-006
Examining the differential impact of monetary policy in India: a policy simulation approach
Get PDFPurpose: Though an accumulating body of study has analysed monetary policy transmission in India, there are few studies examining the differential impact of monetary policy action. Against this backdrop, this study aims to analyse the differential impact of monetary policy on aggregate demand, aggregate supply and their components along with the general price level in India.
Design/methodology/approach: The study develops a structural macroeconometric model, which is primarily aggregate and eclectic in nature. The generalized method of movements is used for estimation of behavioural equations, while a Gauss–Seidel algorithm is used for model simulation purposes.
Findings: The paper presents the results of two policy simulations from the estimated model that highlight the differential impact of monetary policy. The first one, hike in the policy rate by 5% and second is a reduction in bank credit to the commercial sector by 10%. The results from the first policy simulation experiment reveal that interest hike has a significant negative impact on aggregate demand, aggregate supply and general price level. However, the maximum impact is borne by investment demand and imports followed by private consumption. While as among the components of aggregate supply maximum impact is born by infrastructure output followed by the manufacturing and services sector with the agriculture sector found to be insensitive in nature. The results from the second policy simulation experiment revealed that pure monetary shocks have a significant negative impact on aggregate demand, aggregate supply and general price level. However, the maximum impact is born by private consumption and imports followed by investment demand. While as among components of aggregate supply maximum impact is borne by infrastructure followed by the manufacturing and services sector with the agriculture sector found to be insensitive in nature. From both policy simulation experiments, the study highlighted the relative importance of the income absorption approach as opposed to the expenditure switching effect.
Practical implications: The results obtained in this study provides a strong framework for design the monetary policy framework. The results are in a view of the differential impact of monetary policy action among the components of both aggregate demand and aggregate supply. This reflection of differential impact has immense significance for the macroeconomic stabilization as the central bank will have to weigh the varying repercussion of its actions on different sectors. For instance, the decline in output after monetary tightening might be conceived as mild from an overall perspective, but it can be appreciable for some sectors. This differential influence will have an implication for policy design to care for distributional aspects, which otherwise could be neglected/disregarded. Similarly, the output decline may be as a result of either consumption postponement or a temporary slowdown in investment. However, the one emanating due to investment decline will have lasting growth implications compared to a decline in consumer demand. In addition, the relative strength of expenditure changing or expenditure switching policies of trade balance stabilization may have varying consequences in the aftermath of monetary policy shock. Accordingly information on the relative sensitiveness/insensitiveness of different sectors/ components of aggregate demand towards monetary policy actions furnish valuable insights to monetary authorities in framing appropriate policy.
Originality/value: The work carried out in the present paper is motivated by the fact that although a number of studies have examined the monetary transmission mechanism in India, a very few studies examining the differential impact of monetary policy action. However, to the best of the knowledge, there is no such studies, which have examined the differential impact of monetary policy in the structural macroeconometric framework. The paper will enrich the existing literature by providing a detailed account of the differential impact of monetary policy among the components of both aggregate demand and aggregate supply in response to an interest rate hike, as well as a decrease in the money supply.
Doi: https://doi.org/10.1108/JEFAS-05-2019-007
Identifying fiscal inflation in India: some recent evidence from an asymmetric approach
Get PDFPurpose: Among the many factors fueling the inflationary tendencies in an economy such as monetary shocks, structural shocks, demand shocks, external shocks and demographic changes, the issue of inflation (INF) has also been found to be related to fiscal policy decisions of the government. The purpose of this study is to investigate the inflationary tendencies in India particularly from the fiscal point of view. The study also examines the influence of other potential determinants such as output growth rate, interest rate, tradeopenness (TO) and oil price inflation (OPI).
Design/methodology/approach: To examine the dynamic nature of association between fiscal deficit and inflation, the study applies the Toda-Yamamoto (1995) test and Breitung and Candelon (2006) test to investigate the nature of causality in time and frequency domain frameworks. In addition, to scrutinize the possibility of a long-run association, that too from an asymmetric point of view, the study applies a Non-linear Autoregressive Distributed lag model (NARDL) given by Shin et al. (2014). Finally, non-linear cumulative dynamic multipliers are used to trace the traverse between disequilibrium position of short-run and subsequent long-run equilibrium of the system.
Findings: The authors found a unidirectional causality from fiscal deficit to inflation in case of time domain analysis and no feedback causality is reported. However, in case of frequency domain design, causality from fiscal deficit to inflation is found at low frequencies only, i.e. no short-run causality is established and hence dynamic nature of the relationship between the two variables is vindicated. Using NARDL model, the results document the existence of an asymmetric long-run direct association between fiscal deficit and inflation. However, an increase in deficit is found to be more inflationary and a decrease affects the inflation with a lower magnitude. The asymmetric impact of fiscal deficit on inflation can be explained through the existence of liquidity constraints, consumption-investment downward inflexibility and the downward price stickiness. Contractionary monetary policy action is found to be more effective than an expansionary one, signifying the asymmetric influence of monetary policy actions on the inflation of India. Similarly, in a supply-constrained economy with downward price rigidity, the authors found an asymmetric impact of output growth and output decline on inflation. As regard to the trade-openness, although an asymmetry is reported, the signs refute the validation of Romer (1993) hypothesis. Finally, the impact of oil price inflation on the inflationary pressures is according to theory but the coefficients are devoid of statistical significance.
Practical implications: These results indicate some important policy recommendations. Fiscal consolidation strategy should be executed in an appreciable manner to achieve the sound fiscal health and lower INF. The disciplined fiscal strategy would also be imperative for an effective monetary policy. Monetary authorities should possess noticeable credibility to manage the macroeconomic system and policy stances should be implemented according to requirements of the economy. Growth in output should be encouraged to have twofold benefits to the economy – reducing INF on the one hand and fiscal deficits on the other.
Originality/value: The study contributes to the existing literature in the following ways. First, taking note of dynamic nature of the relationship between these two variables, the study examined the deficit INF nexus in a dynamic and asymmetric framework. The novelty of the study is ensured by the very nature of it is the first study in case of India to identify the fiscal INF in an asymmetric configuration. The authors applied a NARDL model, given by Shin et al. (2014) to examine the existence of any cointegrating relationship in an asymmetric paradigm. Second, the nature of causality between fiscal deficit and INF has been examined in a time domain and FD framework to portray precisely the casual interactions between these two variables in the short-run and long run. The study will, therefore, enrich the existing literature along the asymmetric lines .
Doi: https://doi.org/10.1108/JEFAS-03-2019-003