Performance of Banking Industry After Privatization in Pakistan: A Case Study of Mcb Bank Limited

This research work aims to investigate the impact of privatization on the performing efficiency of MCB Bank Limited Privatization and the phenomenon of denationalization after the failure of socialism and communism globally. As the direction of enteritis was predetermined by state which in long term affected the performance of state-owned entities on many fronts even they reached at the verge of collapse and state was compelled to inject capital for their survival. Ultimately the state took drastic steps and initiated the process of denationalization and privatization to keep the industry intact in the changed scenario. In 1974, during Z.A. Bhutto regime Pakistan’s banking industry was nationalized with prime objective to address the issues of backward segments of economy but unfortunately after privatization industry was used for political motives and witnessed poor performance and financial indiscipline due to frequent interference in the affairs of banks particularly in lending activities and hiring of inefficient human resources. Resultantly banks failed to deliver as per expectation of masses and could not deliver quality customer services on one hand and accumulation of infected portfolio on the other which in turn swallowed the profitability and the capital of banks. It is revealed that bank has tremendously performed in all Key Performing Indicators, it has improved its profitability manifold, deposit base is significantly enhanced and became more liquid and solvent.

Information Environment Quality and its Impact on Return and Investment Decision

This study contributes to literature in four ways to explore the dynamics of stock price synchronicity (SPS). Firstly, it tests the weak form of market efficiency. Secondly, measures the effect of information environment on SPS by using firm specific variables i.e. liquidity, illiquidity, cost of information, trading cost and investor attention. Thirdly, this study attempts to investigate the relationship between information environment and foreign investment. Fourthly, role of information environment premium or SPS premium in explaining equity returns is explored. This study investigates the weak form of efficiency of Karachi stock exchange using a set of parametric and non-parametric tests that include Jarque-Bera and Kolmogrov-Smirnov (KS) test for normality, autocorrelation and Run test for autocorrelation, Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) for stationarity and multiple variance ratio (MVR) test. The results of the study indicate that daily, weekly and monthly returns do not follow random walk. So, investors can use technical analysis to devise investment strategies. This study also examines the relationship between SPS and firm specific variables associated with information environment. Results indicate that age, size, institutional ownership, book to market ratio, trading cost, liquidity, illiquidity and returns have significant impact on SPS. Various proxies of liquidity and illiquidity are used to test the robustness of results. These proxies include volume, turnover rate, value traded, Amihud illiquidity and percentage of zero volume days. The results suggest that the differences in idiosyncratic volatility are not linked with the more or less information of firm specific attributes. It appears to be linked with noise in returns. Findings of this study are in line with West (1988) and Lettau Malkiel and Xu (2001). This study further suggests that low stock price synchronicity is a result of imbedding of firm specific variables information in to stock prices. If quality of information environment is good, market model R square will be higher represented by large institutional holding, greater age, lower trading cost, large size, value stocks, low illiquidity, high liquidity and large information events. In next phase, this study examines the relationship between foreign investment and information environment. Results indicate that Institutional ownership, age, trading cost, size, liquidity and illiquidity influence foreign investment. Institutional ownership, size and percentage of zero volume days have significant and positive impact on foreign investment and trading activities have negative association with foreign investment. Such deviations might be the effect of herding, noise trading and instable dynamics of emerging markets. Finally, this study explores the impact of size premium, value premium, information efficiency premium on average equity returns using the methodology proposed by Fama and French (1992, 1993). Result indicates that size premium, values premium and information efficiency premium are priced by the market. Market premium, size premium, value premium and information efficiency premium significantly explain equity returns in single factor, three factor and four factor model. Capital asset pricing model (CAPM) is valid for explaining average equity returns but multifactor model captures additional information. Therefore, it can be concluded that size premium, value premium and information efficiency premium are considered as systematic risk and priced by the market.