Downside systematic risk in Pakistani stock market: role of corporate governance, financial liberalization and investor sentiment

Hussain, Shahzad and Akbar, Muhammad and Malik, Qaisar Ali and Ahmad, Tanveer and Abbas, Nasir (2021) Downside systematic risk in Pakistani stock market: role of corporate governance, financial liberalization and investor sentiment. Journal of Asia Business Studies, 16 (1). pp. 137-160. ISSN 1558-7894

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Abstract

Purpose
The purpose of this paper is to examine the impact of corporate governance, investor sentiment and financial liberalization on downside systematic risk and the interplay of socio-political turbulence on this relationship through static and dynamic panel estimation models.

Design/methodology/approach
The evidence is based on a sample of 230 publicly listed non-financial firms from Pakistan Stock Exchange (PSX) over the period 2008–2018. Furthermore, this study analyzes the data through Blundell and Bond (1998) technique in the full sample as well sub-samples (big and small firms).

Findings
The authors document that corporate governance mechanism reduces the downside risk, whereas investor sentiment and financial liberalization increase the investors’ exposure toward downside risk. Particularly, the results provide some new insights that the socio-political turbulence as a moderator weakens the impact of corporate governance and strengthens the effect of investor sentiment and financial liberalization on downside risk. Consistent with prior studies, the analysis of sub-samples reveals some statistical variations in large and small-size sampled firms. Theoretically, the findings mainly support agency theory, noise trader theory and the Keynesians hypothesis.

Originality/value
Stock market volatility has become a prime area of concern for investors, policymakers and regulators in emerging economies. Primarily, the existence of market volatility is attributed to weak governance, irrational behavior of market participants, the liberation of financial policies and sociopolitical turbulence. Therefore, the present study provides simultaneous empirical evidence to determine whether corporate governance, investor sentiment and financial liberalization hinder or spur downside risk in an emerging economy. Furthermore, the work relates to a small number of studies that examine the role of socio-political turbulence as a moderator on the relationship of corporate governance, investor sentiment and financial liberalization with downside systematic risk.

Item Type: Article
Identification Number: https://doi.org/10.1108/JABS-09-2020-0356
Dates:
DateEvent
1 July 2021Accepted
12 July 2021Published Online
Uncontrolled Keywords: Downside Risk, Socio-political turbulence, Corporate Governance, Investor Sentiment, Financial Liberalization
Subjects: CAH17 - business and management > CAH17-01 - business and management > CAH17-01-01 - business and management (non-specific)
Divisions: Faculty of Business, Law and Social Sciences > College of Business, Digital Transformation & Entrepreneurship > Centre for Accountancy Finance and Economics
Depositing User: Gemma Tonks
Date Deposited: 07 Feb 2024 13:24
Last Modified: 07 Feb 2024 13:24
URI: https://www.open-access.bcu.ac.uk/id/eprint/15194

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