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Apr 1, 2011 - Dr Ebrahim Soltani. Lecturer in Operations ...... Tabibi, Seyed Jamal Aldin; Nasiri pour, Amir Ashkan; Zanjani Valimoghadam, Sahar. Relation of ...
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APRIL 2011

ISSN 2073-7122 VOL 2, N O 12 INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

Vol .2, No. 12 April 2011

Interdisciplinary Journal of Contemporary Research in Business Double Blind Peer Reviewed Journal

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Editorial Board IJCRB is a peer reviewed Journal and IJCRB Editorial Board consists of Phd doctors from all over the world including USA, UK, South Africa, Canada, European and Asian countries.

Prof. Renee Pistone Harvard University, Lifetime Fellow - Harvard URI. 706 McCormick Dr Toms River, New Jersey USA Voice: 732.668.4533

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Oxford University , St Catherine's College, Oxford, OX1 3UJ www.stcatz.ox.ac.uk/ , www.ox.ac.uk/ Phone: +44 1865 271700 , Fax: +44 1865 271768 Dr. Kenan Peker Department of Agricultural Economics, University of Selcuk, http://www.selcuk.edu.tr/ University of Selcuk, 42079 Konya, Turkey, Tel: 90-332-231-2877 Dr. A. Sathiyasusuman Senior Lecturer, Dept. of Statistics, University of the Western Cape, South Africa Dr Mahdi Salehi Assistant Professor, Accounting and Management Department, http://www.znu.ac.ir/ Zanjan University , D.N 1 Nagilo Alley, Hidaj City, Zanjan Province, Zanjan, Iran , Tel: 98-9121-425-323 Dr Heryanto Regional Development Bank of West Sumatra Jalan Pemuda No. 21 PO Box 111 Padang 25117 West Sumatra Indonesia Tel: +62-8126771699 Dr. Dave Hinkes Assistant Professor of Managment & Marketing Sam Walton Fellow , Lincoln Memorial University , Harrogate, TN ,UK Tel 423.869.6441 Dr. Francis A. Ikeokwu Sr., Ph.D., MAC, MBA, CFC Adjunct Professor, American Intercontinental University http://www.aiuniv.edu/ Dr Charles C. Dull Sr. MBA, Ph.D. American Intercontinental University http://www.aiuniv.edu/

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Dr Cara Peters Assistant professor of marketing , Winthrop University , Rock Hill, South Carolina. PhD in business administration , University of Nebraska Peer-reviewer of the Journal of Consumer Psychology; Consumption, Markets, and Culture; and Journal of Academy of Marketing Science. Dr Mahmoud M. Haddad PhD in Finance 214 Business Administration Building University of Tennessee-Martin ,Martin, TN 38238 Tel No +1731-881-7249 Dr G.A. Abu Department of Agricultural Economics, College of Agricultural Economics, Extension and Management Technology, University of Agriculture, P.M.B.2373, Makurdi, Benue State, Nigeria. Phone: +234-803-607-4434; fax: +234-44-534040 Dr.Rashid Rehman Associate Professor , College of Business Studies Al Ghurair University , Dubai, UAE. Dr Ebrahim Soltani Lecturer in Operations Management Kent Business School University of Kent , UK Dr Pu Xujin Business School, Jiangnan University, Jiangsu Wuxi,P.R.China ,214122 Tel: (86510) 85913617 , FAX: (86510) 62753617 , Mobile: (86) 13616193600 Dr. E. B. J. Iheriohanma Ph. D. Sociology Directorate of General Studies, Federal University of Technology, Owerri Imo State Nigeria. Tel +2348037025980. Dr Etim Frank Departmentof Political Science-University of Uyo-Akwa Ibom State-Nigeria Phd (Political Science/Public Administration) University of Calabar SL Choi University Teknologi Malaysia School of Business Management Southern College Malaysia Dr. Nek Kamal Yeop Yunus Senior Lecturer, Department of Business Management Faculty of Business & Economics, Universiti Pendidikan Sultan Idris, Tanjong Malim, Malaysia.

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Dr. S. I. Malik PhD Bio Chemistry & Molecular Biology (National University of Athens) NHEERL. Envrironmental carcinigenei division RTP Complex NC 27713, US Environmental protection Agency , 919-541-3282 Dr. Bhagaban Das Reader, Department of Business Management Vyasa Vihar, Balasore-756019 Orissa T. Ramayah http://www.ramayah.com Associate Professor , School of Management ,University Sains Malaysia, Tel 604-653 3888 Dr. Wan Khairuzzaman bin Wan Ismail Assoc. Professor International Business School, UTM International Campus Jalan Semarak 54100 Kuala Lumpur, MALAYSIA Zainudin Hj Awang Faculty of Information Technology and Quantitative Sciences, MARA University Technology MARA Kelantan 18500, Malaysia ,Tel: 60-9-9762-302 Ravi Kiran Associate Professor, School Of Management & Social Sciiences, Thapar University. Dr.Suguna Pathy Head, Department of Sociology, VNSG University, Surat Birasnav M Assistant professor, Park Global School of Business Excellence, Kaniyur, Coimbatore Dr. C.N. Ojogwu Phd Education Management - University of Benin, Benin City, Edo state, Nigeria. Senior lecturer - University of Benin.

Dr. Nik Maheran Nik Muhammad General Conference Co-Chair, GBSC 2009, www.nikmaheran.com Dr. A. Abareshi Lecturer, School of Business IT and Logistics RMIT University, Melbourne, Australia Office: +61 3 99255918 Dr Ganesh Narasimhan Lecturer, Management Sciences ,Sathyabama University Board of Advisor - AN IIM Alumina Initiative & International Journal Economics, Management, & Financial Markets Denbridge press, New York, USA

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Contents Title

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MAX WEBER S THEORY RE-VISITED: MODERN ORGANISATION CULTURE STIMULATING PRODUCTIVITY Dr Andries J du Plessis, Prof. Jan C Visagie Dr D Wijnbeek

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CUSTOMER SATISFACTION TOWARDS E-SERVICES PROVIDED BY MUNICIPAL SERVICES: A CASE STUDY IN MAJLIS PERBANDARAN SUNGAI PETANI (MPSPK) Zaherawati Zakaria ,Kamarudin Ngah, Zaliha Hj Hussin Nazni Noordin, Mohd Zool Hilmie Mohamed Sawal, Zuriawati Zakaria

31

THE EFFECT OF LAND ADMINISTRATION POLICIES IN BUILDING DEVELOPMENT/PROJECT MANAGEMENT SUCCESS IN AWKA METROPOLIS Meze Nzedigwe K, Dr. Chinedu Chidinma Nwachukwu, Fidelis I. Emoh

44

RANKING EFFECTIVENESS OF INDUSTRIAL COMPANIES BASED ON INFORMATION TECHNOLOGY INDEX BY AHP/DEA Baqer Kord , Mahdi Eslamkhah

66

VENDOR SELECTION USING FUZZY APPROACH Nour Mohammad Yaghoubi, Hamid Hajihosseini

81

INVESTIGATING THE CONDITION OF COMPONENTS OF KNOWLEDGE MANAGEMENT IN LIBRARIES OF ISFAHAN Ali Attafar, Maryam Soleimani, Sayed Ahmad R Shokrani

88

STUDYING OF EFFECTIVE FACTORS ON TRUST LEVEL OF BANKS' CREDIT MANAGERS WITH REGARD TO PERSONAL CHARACTERISTICS OF MANAGERS OF CORPORATIONS Mehrdad Zolfalizadeh, Sara Farshadfar, Elham Nagheli

97

REWARD PRACTICE IN PRIVATE SECTOR: EMPLOYEES PERCEPTION Zaherawati Zakaria , Nazni Noordin, Mohd Zool Hilmie Mohamed Sawal Zuriawati Zakaria, Mohammad Faiz Mohammad Noor, Priscilla Maras

112

INVESTIGATING IMPACT OF ORGANIZATIONAL CLIMATE ON INTENTION TO KNOWLEDGE SHARING BEHAVIOR BY USING THEORY OF PLANNED BEHAVIOR (TPB) Mehdi Abzari, Rasoul Abbasi

121

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Title

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REVIEW AND RECOGNITION OF AUDITING APPLIED COMPUTER 135 SYSTEMS AT ISLAMIC AZAD UNIVERSITY (SANANDAJ BRANCH EVIDENCE) Ataollah Mohammadi Malgharni, Prof.Dr.Wan Fadzilah Wan Yusoff MANAGEMENT SCIENCES FACULTY HIRING CRITERIA AND TRAINING NEEDS Komal Khalid Bhatti

146

CRITICAL SUCCESS FACTORS IN EFFECTIVELY IMPLEMENTING A MAINTENANCE SYSTEM: A CASE STUDY Nour Mohammad Yaghoubi , Zohre Mir Seyyed Ali Banihashemi

155

THE STUDY OF EFFECTING FACTORS ON DIGITAL ENTREPRENEURSHIP (A CASE STUDY) Hadi Esmaeeli

163

REVIEW OF SPORT SERVICE QUALITY BY SERVQUAL MODEL (A CASE STUDY) Majid Vahidian Rezazadeh, Nour-Mohammad Yaghoubi Morteza Nikoofar

173

EMPIRICAL ANALYSIS OF SUCCESS FACTORS IN THE IMPLEMENTATION OF TOTAL QUALITY MANAGEMENT IN CONSTRUCTION INDUSTRIES IN NIGERIA. E.C. Ubani

182

SURVEYING OF AFFECTING PARAMETERS IN HUMAN RESOURCES 193 PRODUCTIVITY AND PROVIDE APPROPRIATE METHODS FOR ITS IMPROVEMENT. CASE STUDY: ISLAMIC AZAD UNIVERSITY OF BRANCHES IN REGION 13 Gholam-Reza Rahimi, Mir Hossein Seyyedi, Ghader Vazifeh Damirchi Mohammad-Reza Noruzi ROLE OF FIRM S LEVEL CHARACTERISTICS IN DETERMINING THE 201 CAPITAL STRUCTURE OF BANKS: EVIDENCE FROM THE PAKISTAN BANKS Fawad Ahmad, Dr. Zaheer Abbas IMPACT OF CORPORATE GOVERNANCE ON FINANCIAL 217 PERFORMANCE OF BANKS IN PAKISTAN Iqbal Mahmood , Zaheer Abbas PERFORMANCE MEASUREMENT BY DATA ENVELOPMENT ANALYSIS (DEA): A STUDY OF BANKING SECTOR IN PAKISTAN Jahanzaib Sultan, Muhammad Bilal, Dr. Zaheer Abbas

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EARLY WARNING SIGNS TO FORECAST FINANCIAL CRISIS IN PAKISTAN Hameeda Akhtar, Dr Zaheer Abbas, Ikramullah Toor

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EXCHANGE RATE AND MONETARY POLICY: A COMPARATIVE STUDY OF PAKISTAN AND 25 DEVELOPED-EMERGING ECONOMIES Nousheen Tariq Bhutta , Dr. Zaheer Abbas, Dr. Safiullah Khan

259

FINANCIAL INTEGRATION AMONG SAARC MEMBERS: TIME SERIES ANALYSIS OF INTEREST RATES Shazia Iqbal Khalid , Nishwa Iqbal , Mohammad Umer , Dr. Zaheer Abbas

275

ATTITUDE OF GOMAL UNIVERSITY TEACHERS TOWARDS STUDENTS EVALUATION SALAHUDDIN KHAN, MUHAMMAD SHAH, ALLAH NOOR, RAHMAT ULLAH SHAH

283

ASSESSING THE SATISFACTION OF INSURANCE CUSTOMERS AND ITS IMPACT WITH REFERENCE TO SAUDI ARABIA Dr. Abdalelah S. Saaty

290

RELATIONSHIP BETWEEN SCHOOL EFFECTIVENESS AND 306 ACADEMIC PERFORMANCE: A STUDY OF SECONDARY SCHOOLS IN KHYBAR PAKHTOONKHAW, PAKISTAN Shahnaz Parveen, Saeed Anwar, Dr.Muhammad Iqbal Majoka ROLE OF HIGHER EDUCATION COMMISSION IN THE PROMOTION OF RESEARCH CULTURE IN PUBLIC SECTOR UNIVERSITIES: A COMPARISON OF GENDER PERCEPTION. JAVED IQBAL, UMAR ALI KHAN, RAHMAT ULLAH SHAH, ZAFAR KHAN, BIBI ASIA NAZ & SHADIULLAH

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PRODUCTIVITY TRENDS IN PAKISTAN: AN ANALYSIS OF SERVICES SECTOR Khalil Ahmad , Muhammad Ilyas

321

AN ECONOMETRIC ANALYSIS OF EXPORT - LED GROWTH HYPOTHESIS: REFLECTIONS FROM PAKISTAN Hassan Mobeen Alam

329

FINANCIAL PERFORMANCE OF LEASING SECTOR. THE CASE OF PAKISTAN Hassan Mobeen Alam , Ali Raza, Muhammad Akram

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PECKING ORDER AND TRADE-OFF MODEL: THEORY VS PRACTICE Junaid-ul-haq, Rao Umer Nasir, Wasimullah

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MONEY SUPPLY AND PRICES RELATIONSHIP (EVIDENCE FROM PAKISTAN) SALEEM KHAN, PROF. DR. KHAIR-UZ-ZAMAN DR. MUHAMMAD AZAM, SAMI ULLAH

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EFFECTS OF ORGANIZATIONAL RESOURCES ON 373 ORGANIZATIONAL PERFORMANCE: AN EMPIRICAL STUDY OF SMES. Mohammad Ziaul Hoq, Prof. Dr. Ajay Amarsingh Chauhan ERROR ANALYSIS: LEARNING ARTICLES AND PREPOSITIONS AMONG SECONDARY SCHOOL STUDENTS IN PAKISTAN Nasir Ahmad , Dr.Maqsud Alam Bukhari, Shafqat Hussain

386

CONSUMER BRAND CHOICE IN A NO-BRAND AWARENESS SITUATION OF LOW INVOLVEMENT PRODUCTS Mohammad Ismail Soomro, Muhammad Masihullah Jatoi Dr. Rahman Gul Gilal

392

A MEASURE OF UNIQUENESS AND SOCIAL CHARACTER TO 405 PREDICT SHOPPING BEHAVIOR: A COMPARATIVE STUDY ON GENDER DIFFERENCE Mohammad Ismail Soomro, Dr. Rahman Gul Gilal, Muhammad Masihullah Jatoi AN EMPIRICAL COMPARISON OF CAPM AND FAMA-FRENCH MODEL: A CASE STUDY OF KSE Muhammad Azam, Jasir Ilyas

415

BOUNDARY-LESS BRAND MANAGEMENT Rizwan Ahmad Ch, Usman Asif, Kashif Javed, Muhammad Nizam

427

BRAND MANAGEMENT: WHAT NEXT? Sumaira Shamoon, Saiqa Tehseen

435

PREVALENCE OF PSYCHOLOGICAL PROBLEMS AMONG THE PEOPLE OF DISTRICT MANSERHA KHYBER PAKHTUN KHWA (KPK) PAKISTAN S. Farhana Kazmi, Tahir Pervez, AfshaWaheed

442

COMPARATIVE EFFECTIVENESS OF MALE AND FEMALE 458 TEACHERS AS PERCEIVED BY THEIR STUDENTS Liaquat Hussain, Allah Noor khan, Professor: Dr Muhammad Shah, Muhammad Sibtain

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A COMPARATIVE STUDY OF THE ATTITUDES OF STUDENTS 462 TOWARDS TEACHING OF ENGLISH POEMS THROUGH TRADITIONAL METHOD AND GROUP WORK ACTIVITIES AT HIGH AND HIGHER SECONDARY LEVEL Allah Noor Khan, Dr. Muhammad Shah, Dr.Aisha Bibi, Dr.Umar Ali Khan EFFECT OF COMPUTER ASSISTED INSTRUCTIONS ON ACADEMIC ACHIEVEMENT AND CLASSROOM INTERACTION OF SECONDARY SCHOOL STUDENTS. Liaquat Hussain, Professor: Dr Muhammad Shah, Allah Noor Khan

481

UNDERSTANDING BARRIERS TO INTRAPRENEURSHIP IN WORK AND SOCIAL AFFAIRS GOVERNMENTAL ORGANIZATION (A CASE STUDY IN IRAN) Habibollah Salarzehi , Amir Forouharfar

490

POST PURCHASE ANTECEDENTS: INTERPLAY BETWEEN BUYER REGRET, SOCIAL CLASSES AND PRODUCT TYPES. Afzaal Ali, Dr. Muhammad Ismail. Ramay

504

DETERMINANTS OF CONSUMER INTENTION TOWARDS BARGAIN 514 IN THE RETAIL MARKET. SOME FACTS FROM A DEVELOPING COUNTRY. Afzaal Ali, Dr. Muhammad Ismail. Ramay AN INVESTIGATION OF PERFORMANCE OF PUBLIC SECTOR ORGANIZATIONS Muhammad Razzaq Athar, Dr. Ashfaq Ahmad, Dr. Kashir ur Rehman

526

USER ACCEPTANCE DECISION TOWARDS MOBILE COMMERCE 535 TECHNOLOGY. A STUDY OF USER DECISION ABOUT ACCEPTANCE OF MOBILE COMMERCE TECHNOLOGY Sukena Sadia ECONOMIES OF SCALE IN BUFFALO MILK PRODUCTION IN DISTRICT DI KHAN Muhammad Sajjad, Dr. Munir Khan, Nasir Ahmad

548

ASSESSMENT OF THE CAUSATIVE FACTORS THAT MOTIVATE 555 PLAYERS TOWARDS PARTICIPATION IN SPORTS ACTIVITIES A CASE STUDY Mohibullah Khan Marwat, Dr. Salahuddin Khan, Professor Dr. Muhammad Shah

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JOB DESIGN AND JOB PERFORMANCE RELATIONSHIP: A STUDY OF PAKISTAN PUBLIC SECTOR EMPLOYEES. Dr. M. Safdar Rehman

562

EXPLICIT AND IMPLICIT FACTORS OF JOB SATISFACTION: A COMBINATION THAT WORKS Ishfaq Ahmed, Dr. Zulfqar Ahmad, Muhammad Musarrat Nawaz, Zafar Ahmad

577

JOB SATISFACTION OF MIDDLE LEVEL MANAGERS IN 587 PHARMACEUTICAL INDUSTRY OF PAKISTAN Dr. Zulfqar Ahmad, Ishfaq Ahmed, Muhammad Musarrat Nawaz, Zafar Ahmad WEAK-FORM EFFICIENCY OF TEXTILE SECTOR: AN EMPIRICAL EVIDENCE FROM PAKISTAN Dr. Taqadus Bashir, Prof. Dr. Mehboob Ahmad, Dr. Muhammad Ilyas Muhammad Usman Malik

600

CONSUMER OR CUSTOMER - DOES THE LITERATURE CARE FOR A DIFFERENCE? Tasweer Hussain Syed, Dr. Naveed Akhtar, Dr. Nawar Khan

618

THE REAL BATTLE STARTS NOW; MOVING BEYOND BRAND MANAGEMENT Fariha Naveed , Muhammad Naveed Babur

629

PATIENTS SATISFACTION TOWARDS SERVICE QUALITY IN PUBLIC HOSPITAL: MALAYSIA PERSPECTIVE Mahazril Aini Yaacob , Zaherawati Zakaria, Azni Syafena Andin Salamat Zuraini Yaacob, Noor Azlina Salmi, Nur Farrahdila Hasan Rafidah Razak, Saiidah Nafisah Abdul Rahim

635

THE RELATIONSHIP BETWEEN THE MANIFESTED AGGRESSION OF PARENTS AND THEIR DAUGHTERS S. Farhana Kazmi, Tahir Pervez, Neelam Aziz

641

FACTORS INFLUENCING THE TRADE BALANCE OF PAKISTAN Dr. Saqib Gulzar, Khuram Shafi

652

BRAND MANAGEMENT, WHAT IS NEXT? WORD OF MOUTH (WOM) AS A 6TH ELEMENT OF PROMOTIONAL MIX AND IMC Ahmed Nadeem, Haroon Rashid, Sheraz Ahmed Khan Niazi

659

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MODELLING MEAT EXPORT REVENUE FOR PAKISTAN Rana Muhammad Ayyub , Muhammad Bilal, Tahir Mahmood

667

TOTAL QUALITY MANAGEMENT IN EXPORTING SME S OF PAKISTAN: 675 A CASE STUDY OF SPORTS GOODS MANUFACTURERS AT SIALKOT Bilal Bin Saeed , SAF Hasnu RESEARCH ON CUSTOMER DROPOUTS IN MICROFINANCE BANK OF PAKISTAN Dr. Rehman Gul Gilal, Muhammad Masihullah Jatoi , Naeem Gul Gilal

689

EVALUATION OF EFFECT OF EXCHANGE RATE'S FLUCTUATION ON CAPITAL MARKET'S INDEX Dr. Saeed Fathi, Dr. Saeed Samadi, Mahmoud Tahmasebi Kahyani

700

GENDER ROLES IN THE PRODUCTION OF RUBBER IN 711 IKPOBA- OKHA LOCAL GOVERNMENT AREAS OF EDO STATE, NIGERIA. F. G. Otene A.I.Age, S.S.Onjewu, D. Y.Giroh, P. Ogwuche and F.O.Igbinosa STABILIZED EARTH MATERIAL AS A VERITABLE INSTRUMENT IN ACHIEVING A SUSTAINABLE LOWCOST HOUSING DELIVERY; A CASE FOR NIGERIA. Arc. Ikechukwu Onyegiri, Dr. Chinedu Chidinma Nwachukwu Onyegiri Jamike

720

FINANCIAL PERFORMANCE OF NON BANKING FINANCE COMPANIES IN PAKISTAN Hafiz Khalil Ahmad, Ali Raza & Waqas Amjad, Muhammad Akram

732

ENTREPRENEURSHIP AND ECONOMIC GROWTH Mohammad Farooq Hussain, Junaid Sultan, Saqib Ilyas

745

COMPARATIVE STUDY OF ACADEMIC ACHIEVEMENT OF SCIENCE AND ARTS STUDENT IN COMPULSORY SUBJECT AT SECONDARY SCHOOL LEVEL Liaquat Hussain, Allah Noor khan, Muhammad Latif, Iqbal Amin Muhammad Sibtain

752

COMPARATIVE STUDY OF THE USE OF ILLUSTRATIVE MATERIAL IN CLASS-ROOM AT UNIVERSITY LEVEL Liaquat Hussain, Allah Noor Khan, Muhammad Latif Iqbal Amin, Muhammad Sibtain

760

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ORGANIZATIONAL AGILITY, A WAY TO IMPORT THE 766 ADVANTAGEOUS ASPECTS OF COMPETITIVE MARKET (AN ANALYTICAL-COMPARATIVE APPROACH ON AGILITY MODELS) Nour-Mohammad Yaghoubi , Mehdi Kazemi Mahboubeh Rahat Dahmardeh, Farideh Arhami ATTOCK PETROLEUM LIMITED UNDER SWOT ANALYSIS (A STRATEGIC FUTURE) Iram Rani, Minhoon Khan Laghari Muhammad Masihullah Jatoi

784

EXTENT OF TRAINING IN BANKS AND ITS IMPACT ON EMPLOYEES MOTIVATION AND INVOLVEMENT IN JOB Muhammad Farhan Akhtar, Khizer Ali, Miss Shama Sadaqat, Shoaib Hafeez

793

TAKING RISK FOR MAKING LOSS! THE CASE OF KARACHI STOCK EXCHANGE Syed Kumail Abbas Rizvi, Bushra Naqvi, Sayyid Salman Rizavi

807

IMPACT OF GLOBAL FINANCIAL CRISIS ON THE HEALTH OF PAKISTANI BANKS Asad Ejaz Sh., Usman Yousaf, Farah Naz Naqvi Saima Sardar, Bushra Usman

816

CHILDREN AS PARTNERS IN THE HOUSEHOLD: ANALYSIS OF CHILDREN S HOUSEHOLD WORK Dr. Sayyid Salman Rizavi, Farida Faisal

836

GIRL-CHILD EDUCATION IN NORTHERN NIGERIA: PROBLEMS, CHALLENGES, AND SOLUTIONS Mukhtar Alhaji Liman, Ratnawati Mohd Asraf Shittu, Ahmed Tajudeen

851

NEW GROWTH THEORY: A PANEL DATA APPROACH Dr. Sayyid Salman Rizavi, Syed Kumail Abbas Rizvi Bushra Naqvi

860

TESTING STATIC TRADE OFF THEORY (A CASE OF MANUFACTURING INDUSTRIES IN PAKISTAN) AIMAN ALI

870

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SIGNIFICANT DETERMINANTS OF INCOME INEQUALITY IN PAKISTAN:A TIME SERIES ANALYSIS Hassan Khan, Saima Sarwar

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A SURVEY ON THE RELATIONSHIP BETWEEN FINANCIAL PERFORMANCE AND CORPORATE VENTURING Bahman Hajipour, Somayeh Mas'oomi

890

USER PERCEIVED QUALITY OF SOCIAL NETWORKING WEBSITES: A STUDY OF LAHORE REGION Dr. Sayyid Salman Rizavi, Dr Liaqat Ali Sayyid Haider Mustafa Rizavi

902

THE CHALLENGE OF CULTURE TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) CONVERGENCE Mukoro Dick Oluku , Ojeka, Stephen A.

914

TIME USE SURVEYS: METHODS, USES AND LIMITATIONS Dr. Sayyid Salman Rizavi, Farida Faisal

925

WELFARE IMPACT ANALYSIS OF LABOUR EMIGRATION AND WORKERS' REMITTANCES: A CASE STUDY OF PAKISTAN. Ms. Zainab Ijaz , Mr. Khalid Aftab

936

CAPM-EXCLUSIVE PROBLEMS EXCLUSIVELY DEALT Dr.Qaiser Abbas,Usman Ayub, Syed Kashif Saeed

947

EFFECTIVE TEACHING OF MATHEMATICS IN PRIMARY AND POST-PRIMARY SCHOOLS Nwaneri M.O

961

USING DIRECTION FINDER TO EVALUATE PROJECT LEADERSHIP DIMENSIONS . CASE STUDY: IRANIAN PROJECT MANAGERS Gholamreza Gudarzi, Maysam Chegin

966

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MAX WEBER S THEORY RE-VISITED: MODERN ORGANISATION CULTURE STIMULATING PRODUCTIVITY Dr Andries J du Plessis UUNZ (Academic partner of the University of Southern Queensland), Auckland , New Zealand Prof. Jan C Visagie School of Human Resource Sciences NorthWest University, Potchefstroom, South Africa

Dr D Wijnbeek School of Human Resource Sciences NorthWest University, Potchefstroom, South Africa

Abstract The purpose of this paper is to revisit the work of Max Weber, German sociologist, and to highlight important business anchors. The world and therefore organisations are changing and they need to understand their current situation, as well as to plan towards new horizons. It is important to understand action, as well as stimulate definite action in support of changing. Verstehen (understanding) of action (motive and motion) and constructions of ideal types (scenarios) spur important questions to modern organisations. The design of the study is based on a stratified random test sample; 265 questionnaires were distributed in the organisation. The response rate was 78%. The main findings indicate that the large gap between the current and preferred culture, creates and spurs a lot of stress and frustration. The gap indicates the specific readiness level for change in the company and may also point to a leadership crisis. The present study indicates a very strong role culture in the studied business, whilst personnel yearn for a performance culture. The gap identified is also of such a nature that change is inevitable. Keywords: MAX WEBER S THEORY; MODERN; ORGANIZATION; CULTURE; STIMULATING; PRODUCTIVITY 1.Introduction Organizational culture is the pattern of beliefs and values, rituals and sentiments that is shared by the members of an organisation. It influences the actions of all individuals and groups within the organisation (Du Plessis, 2010). According to Nel, Werner, Poisat, Sono, Du Plessis and Ngalo (2011) culture has an influence on most aspects of organisational life, for example how decisions are made, who makes the decisions, how does recognition take place, who is promoted, how people are treated, and how the organisation reacts to its environment. Evidently it is important to have a thorough

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knowledge of the culture within the company. Despite these, relatively few surveys in this regard, have been conducted in developing countries such as South Africa. There are different perceptions towards their culture in the specific organisation used in this study. The organisation and the industry experience a constant and fast changing environment, internal diversity, even spurred by new labour legislation, as well as different ideological undertones (Härtel & Fujimoto, 2010). Organisational culture forms the binding factor amongst employees and must therefore be utilized to steer employees with the prospect of ensuring a motivational climate, conducive to productivity in the midst of all the change (Stone, 2008). 2. MAX WEBER S VERSTEHEN 2.1 UTILIZATION OF VERSTEHEN In view of the above, this study had five major objectives. The first objective was to study the term action, descriptive of both behaviour and patterns of thought from a theoretical perspective. The Verstehen (understanding, if translated from German) theory of Max Weber provided the basis of the study in terms of: a true understanding of action; rationalising action into different ideal types that may be used in research; using qualitative, empirical, scientific research methods and still be able to Verstehen (understand) the subjective orientation of the individual actors performing actions, while also allowing the researcher the opportunity to come to terms with their own values regarding the specific study. Weber s contribution to the establishment of sociology as a science is enormous. More than forty years ago Sahay (1971:1) describes Weber as the most important and famous theorist in sociology. Not withstanding his influence, Abrahamson supports the fact that empirical studies on Weber s perspective are very scarce (1981:214). Max Weber s Verstehen theory focuses on building ideal types representative of specific study aspects. In this respect Whyte (1991:91) believes that Weber s studies could be seen as the origin of later studies on management and labour. 3. WEBER: BACKGROUND Weber lived from 1864 to 1920 in which he, a German, experienced the unification of Germany under Bismarck and the development of the German nation state. Weber saw phenomenal growth in Germany with industrialisation, as well as efforts in creating a German Empire culminating in World War I (Du Plessis, 2000). Max Weber was born to a middle class family where his parents influenced his life in a definite and different way. Weber s father was a bureaucrat who loved daily pleasures. His mother, instead, was a devout Calvinist who bypassed her day s activities to obtain eternal redemption. The difference in life style created marital tension that left a definite influence on Weber, the importance and his values about life (Du Plessis, 2000).

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Weber was a student, originally in law, but later also of economy, history and sociology. His life moods moved between manic periods of outstanding productivity and fatal depression. Not withstanding this, it seems as if Weber s work gives large insights into the processes of transformation and rationalisation (Du Plessis, 2000). 4.THE ROLE OF SOCIOLOGY AND OTHER SOCIAL SCIENCES Weber indicates that sociology has the task to deliver an asked for service to history. Sociology tries to create concepts and generalized uniformities and empirical processes with which the world could be understood in more than only an economical or nomothetical perspective. Weber defines sociology as the science that facilitates interpretative understanding of social action to arrive at the causal explanation of the cause and impact of the action (Stryker, 1980:43). From the Verstehen theory of Max Weber, it is argued that the actions of people must be understood before situations are explained. From this view this perspective links to symbolic interactions, ethno-methodology and other micro-sociological perspectives (Ritzer, 1996:227). Making use of ideal types, Ritzer (1996:227) is of the opinion that Weber focuses on large-scale structures and not primarily on what individuals do or why they do it. These large-scale structures are therefore not reduced to individual action. The opinion is rather that structures determine individual action and not individual motives per se. Structure therefore determines action. 5. THE TERM VERSTEHEN The German word for understanding is Verstehen. Weber s thoughts on Verstehen were general amongst German historians and came from hermeneutics. Hermeneutics, especially in Weber s time, was an effort in the understanding of the author s thoughts, as well as the basic structure of the text. The idea of interpretative understanding was first used by the historian Droysen and was intensely exploited by the follower Dilthey (Coser, 1971:220). The researcher can only truly explain social phenomena, if they clearly understand the meaning that people attach to their actions. Max Weber opens a total new way in his Sociology, measured against his predecessors. Weber focuses on individual human actors, whereas his predecessors viewed Sociology from sociostructural glasses (Du Plessis, 2000; Coser, 1971:114). Although Weber experienced critique that his research methodology of Verstehen is irrational and subjective, he argued that true Verstehen can only be realised by systematic, precise research, rather than just a feeling for a text or a social phenomenon. Weber distinguishes his theory of that of other Sociologists based on the following four anchors: Weber s sociological theory rests fundamentally on action as the primary unit of research.

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The definitions that Weber developed for the diversity of social action indicate his systematic approach. The accentuation of the meaning of social action per se. The framework of empirical generalizations (ideal types) with which he explain the modern world, those are bureaucracies and capitalism (Sahay, 1971:10). 6.DIFFERENT STUDY APPLICATIONS

6.1 CULTURE STUDIES Weber utilizes culture studies in his effort to understand, although he does stay collected about his culture studies. An analysis comes from a specific life and world view ( weltanschauung in German) and could therefore not be generally accepted (Van der Walt, 1997:14).

7. SOCIAL RELATIONSHIPS Different types of social action exist not per se, but originate from interaction based on a relationship at the time of interaction. Weber applies this viewpoint to amongst other, bureaucracies, and indicates typical characteristics such as depersonalization, routine and mechanically predictable activities.

ACTION Action, to Weber, is both motive and motion together in a means-ends relationship, because motion is meaningless or empty if it is without a motive, whilst a motive cannot be determined without motion. Social action therefore exposes or unlocks social motive and motion (Sahay, 1991:68). Weber s total sociology is based on his idea of social motion (Ritzer, 1996:228). Weber explores his methodology of ideal types to explain action according to four basic types. These ideal types show forward to Weber s concerns about larger social structures and institutions, because for him, it is systems that inhibit or stimulate specific action. Weber applies ideal types to clans, status and power and discusses themes such as rationalization, the economy, religion, the community and the city. The different classifications of social action serve a dual goal, namely: It allows Weber to make systematic typological divisions amongst orientations for action It creates a basis for his analysis of the development of Western society.

SCIENTIFIC STUDY IN THE SOCIAL SCIENCES Understanding (or Verstehen) to Weber is not the subtle intuitive sympathy that philosophers believe in (Du Plessis, 2000; Cloete, 1996:3), but intellectual, analytical and predictable explanations of action. This urge for scientific study may be translated to organization development and its methodology in studying organisations.

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Weber has a comparative approach throughout his work. Rex (as cited in Sahay, 1971:33) believes that it is possible to develop a sociological language and a limited number of categories that will explain all historical social systems. Weber underwrites the radical division of the German philosopher, Kant that natural sciences analysed with nomothetic methods and social sciences with ideographical glasses. To Weber a specific action implies a specific motive. A causal explanation may explain or show the cause (motive) and effect (motion) of a specific type of action (Parker & Brown, 1981:14). Because human actions do not comply with fixed rules as the physical sciences, Weber developed the concept of sufficient causality.

CONTROL AND CHANGE Weber saw society as a system where participant individuals aspire to regain control of their own actions and institutions that they created. The problem of control and order embrace the viewpoint that social institutions that were originally created by people take control over the people that originated it. Change is constant, especially in modern times with expanding technologies. Change implies action. Weber argues that values, underlying to motives, have to change to accept orderly change (Abrahamson, 1981:216). Anthropologists such as RadcliffeBrown and Malanowski, argues again that change in one element, influence other elements, but not necessarily to the same order.

IDEAL TYPES Social scientists build models or ideal types that explain the relationship amongst applicable key elements in the social world. Reality is then organized by creating analytical concepts. An ideal type can be defined as a one-sided accentuation of one or more premises and the synthesis of various independent, different, largely representative or sometimes absent concrete individual phenomena that is organised in accordance to a one-sided unified analytical construct. In its purest form, this cognitive construct cannot be found in reality (Ritzer, 1996:22). Weber recognizes that the definition of ideal types make it impossible in actual life. Not withstanding the reality, Weber argues that ideal types capture different social phenomena in a theoretical framework that can indicate similarities and deviations amongst different social actions. The ideal types therefore facilitate understanding and action based on that comprehension. Sahay (1971:72) list a few characteristics of ideal types as: Identifying the characteristics of a unique action or phenomena. Organizing the facts of an action so that the causal relationship amongst the different facts become clear The conceptualization of basic, general characteristics of social action in its purest form. There may be deviations of the pure form in practice. The above does not imply timeless ideal types, because concepts in the social sciences cannot be timeless but need to be specific, in the thoughts of Weber. Flowing from the motive for action, ideal types enclose a structure or basis with specific values that may change mainly by changes to the structure or basis (Abrahamson, 1981:208).

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VALUES IN RESEARCH Weber had a dualistic point of view regarding values of the researcher. At the one end Weber s standpoint is that a researcher has to be value-free or value neutral, although at the other end he also indicates that an attitude of moral neutrality have no relation with scientific objectivity (Du Plessis, 2000). 8. CRITIQUE All human knowledge is but manmade and relative to a specific time and to specific circumstances. It is also the expected that not even Max Weber s Verstehen is without critique. Some critiques assume that Weber s ideas are not neatly integrated into a consistent theory. It is also meant that Weber s ideas are very loose and general. The Weber literature was originally in German and translations into English are not perfect. Some also indicate that Weber s thoughts stretched over such a broad spectrum, that one cannot expect to see all of his ideas in one theory. 9. ORGANISATIONAL CLIMATE The second objective was to indicate, from literature, the essence of a motivational climate conducive to productivity in relation to organizational culture. Organizational climate is seen as the perceptions of employees about the actions of management, perceptions about communication patterns, dominant motivational styles, policies, procedures and practices which motivate or demotivate individuals on either an informal or formal level towards action from their positions in ensuring organizational success (Härtel et al, 2010, Du Plessis, 2010). Climate in general, stems from a certain organizational culture and culminates into certain practices. Managers / leaders commit themselves to practices where they accept individual differences, place people into meaningful positions, set challenging targets, ensure that targets are reachable, reward results applicable to individual needs and continuous control of organizational systems for fairness and equity and applicable reward systems. Management leaders create a climate through continuous articulation of their vision with emphasis on core values, commitment and assistance to employees through coaching, mentorship, feedback, role-modeling and enthusiasm, linked to honest recognition and rewards of success. The position of organizational climate may best be indicated by the following figure:

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FIGURE 1: the position of organizational climate

CURRENT PRACTICES CLIMATE CULTURE

(Schneider, 1990:416) The above figure supposes that a climate, consisting of perceptions of employees within an organization, reflects on culture as well as on practices. The perception that employees have is sculpted according to the culture that they experience in the organization. The practices again, are products of the specific climate - it flows forward from the climate and reflects and strengthens the climate. 10. ORGANISATIONAL CULTURE IN THE WORKPLACE The third aim of the study was to discuss culture as an element in the workplace. Organizational culture may be described as an ideal that serves as a filter for the actions of individuals to create internal integration and external adaptation over a long period. Individuals are socialized into a specific culture based on definite values, postulations and norms (Nel et al, 2011). Organizational culture develops from diverse inputs, where the focus is mainly on the role of management in the formation, establishment and adaptation of organizational culture, as well as the acceptance of the culture by individuals. The history and size of the organization together with workgroups play a significant part in organizational culture. It is also stressed that the typical managerial functions of planning, organizing, leading and control even if only indirectly, are affected by culture. The Harrison/Handy Cultural Typology was identified as possibly the best tool to study and measure organizational culture with. 11. AN ANALYSIS AND DISCUSSION OF THE MOST IMPORTANT FINDINGS The fourth objective of the study was to measure the perceptions of a specifically contracted managerial group in a large organization. Based on the theory, the culture analysis of Harrison and Handy were utilized so as to analyze individual perceptions on organizational culture and construct ideal types on culture which may form a mindmap for management. Harrison and Handy identified different phenomena with which they created idealtypes. To them, there are mainly four organisational cultures, namely: Power culture, consisting

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Role culture consisting Task or performance culture and Individual culture consisting. With a tested and proven questionnaire, exploring organizational culture based on the model of Harrison and Handy, the culture within a large national company was evaluated. The results were differentiated according to relevant discriminating factors. According to these factors, certain conclusions were made.

THE TARGET POPULATION Along a stratified random test sample 265 questionnaires were distributed in the organisation forming a representative percentage of groups in total. All questionnaires received back could not be processed for being spoiled or arriving after the return day. Only 207 of the 265 responses were usable. This response accounts for 78% of the test sample. The biographical picture, compiled from the different responses, illustrate that the dominant grouping is that of white males in the age groupings ranging from 36 to 55, and dominating the year s service grouping of 8 to 15 years at the center of middle management. The Paterson grading levels according to the original contract with management included D1 to D5. Changes, such as promotions, took place and therefore the bands were stretched to include E and F, as well as the upper C-levels. The larger number of respondents falls into the Paterson D2 band that is typically of the nature of middle management. It must be noted that not all respondents knew what their Paterson grading is and had to find out before the completion of the questionnaire. The vagueness around Paterson grading also reflects a specific culture where secrecy plays a strong part. The secrecy of grading has a ripple effect to the extent that employees do not really trust their gradings. Service years may have an influence on culture, considering that employees are socialized in a company and also learn to operate and feel comfortable within a specific culture. The organization is known for long service of its employees, whilst practices such as longs service bonuses and pension payment scales enforce long years of service. The long years of service support the reliability of results, because the respondents can reflect with enough experience on the current and expected cultures. Responses returned represent an almost equal distribution of respondents from different business units. The test sample represents a well-educated grouping with 88.5% having higher qualifications than a senior school certificate. These qualifications range from certificates, degrees, and diplomas to post degree qualifications. The scientist is of the opinion that, in the light of the level of qualifications, questions could be interpreted by the respondents and that the results are therefore, in this instance, valid.

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The sample is stratified along the Paterson grading system and not primary along business unit lines. Different business units focus on different activities and may develop different sub cultures. Respondents are equally represented from different units (see Table 1 below).

TABLE 1: Business units of respondents

CATEGORY MEMBER SERVICES/TRANSPORT PRODUCTION DISTRIBUTION COMMERCIAL OTHER

NUMBER 40

PERCENTAGE (%) 19

46 37 26 58

22 18 13 28

TOTAL

207

100%

There are therefore comparable numbers of responses from different units. The category Other , which represent the largest percentage in the above, encloses mainly the functional head offices and does therefore not really form a business unit per se, although it represents view points of middle managers and specialists in these disciplines.

STATISTICAL ANALYSIS With reference to the questionnaire and the processing of the questionnaire, it is clear that all the a -responses next to questions, as well as all the b , c en d -responses separately total in separate sums to give a representation of a specific culture typology. Below are some graphs that reflect the information in the different typologies.

In the figure below (Figure 1) the points of view regarding the current culture (primary y axle) is contrasted with the views on the preferred culture (secondary y axle). The x-axle represents the different culture categories as they are indicated in the Harrison and Handy model. Responses in the above are reflected as percentages of the total. From the research it shows that the most dominant current culture is the power culture followed by the role culture typology, then the task or performance culture and lastly the individual culture. The research also illustrates that the most preferred culture is that of the task or performance culture, followed by the individual culture, then the role culture and lastly the power culture. The preferred, performance culture, is the direct opposite of the

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current dominant power and role cultures. The researchers came to the conclusion that the large gap between the current and preferred culture, creates and spur a lot of stress and frustration. The gap indicates the specific readiness level for change in the company and may also point to a leadership crisis whereas people have certain aspirations, but do not experience any guidance to that extent.

FIGURE 1: CURRENT VERSUS PREFERRED CULTURE

PREFER

CURRENT

35

40

30 30 25

20 20 15

10 10 5

0

0

If the above 2 most representative current cultures are contrasted with the two most preferred cultures, it results to the following condensation:

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TABLE 2: CONDENSATION OF CULTURES TASKS AND ROLES

ASPECT STRUCTURE

TASK/INDIVIDUAL CULTURE POWER/ROLE CULTURE Network structure Fixed hierarchies in Silo structure Strong team focus Strong individuals within the hierarchy Change according to needs Fixed and rigid Small head office Strong and large head offices COMMUNICATION Open in and between networks Up and downwards communication through the hierarchy and silo s REMUNERATION In teams, according to performance Fixed system Primary according to contribution Remuneration primary according to position in hierarchy CONTRIBUTION According to knowledge According to position in hierarchy, age and years service LEADERSHIP Process facilitator Bureaucratic DECISIONS Delegated, within teams / networks One person or a senior management group ( silo facade) AUTHORITY Decentralized Strongly centralized FOCUS Service focused on customer needs Service primarily the needs of the silo s ORGANIZATION Typical within a professional or Typical within a stable production team environment environment or a bureaucracy ENVIRONMENT Dynamic Stable REACTION TO Creative and reconnoiter Reactive and sometimes CHANGE anticipative There are large gaps between the current and preferred cultures. The different cultures represent ideal types in the words of Weber that is based on personal points of view of the different respondents. These differences are not reconcilable because it is in conflict with the aim of culture creation, namely pattern forming and integration (Schein, 2010). The gap between the current and preferred cultures needs to be addressed because these differences stimulate or inhibit specific actions. In the study it was indicated that a motivational climate is grounded with a specific culture and manifest in specific practices or actions. The actions of Weber in his Theory of Verstehen need to fit into the preferred culture to enhance a motivational climate. Based on the demographics of the test sample, there were no significant differences amongst discriminating factors regarding perceptions of culture according to: Sex Racial grouping Age Years of service

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Qualification level Business unit. The test sample in the given company was by and large of a homogene nature. The homogeneity of the group support congruence of findings.

FIGURE 2: CULTURE VIEW ACCORDING TO BUSINESS UNIT OTHER

DISTRIBUTION

COMMERCIAL

MEMBER SERVICES & TRANSPORT

PRODUCTION

3500 3000 2500 2000 1500 1000 500 0

In Figure 2 above the graph was generated from the sum total of individual responses to culture categories. The y-axle reflects the results per business unit against the current and preferred cultures on the x-axle. From the above there is support for the viewpoint that work group may influence work culture. The category Other , mostly representative of functional head offices, strongly prefers a task culture. It is also interesting to view that Production and Member Services and Transport experience a role culture rather than a power culture as the dominant current culture. This difference to the overall picture may be ascribed to specific leadership styles within the mentioned business units. Leaders are of the primary determinators of organizational culture. It also supports the overall view that there is a change potential amongst all the business units from current culture to preferred culture.

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In measuring the perceptions of a specifically contracted managerial group in a large organization, some of the major findings were: that the reigning dominant cultures are firstly the power culture, followed by the role culture; that the most preferred culture, on the other hand, is the task culture or performance culture; that all groups had the same perspective towards the current and preferred cultures; That the gaps between the current and preferred cultures are large. The researchers came to the conclusion that based on the results of the empirical study: the organization shows a remarkable high level of readiness to change and The organization experiences a leadership crisis.

FIGURE 3: CULTURE VIEW ACCORDING TO PATERSON LEVEL

C

D1

D2

D3

D4

D5

E-F

THOUSANDS 5

350 300

4 250 3

2

200 150 100

1 50 0

0

The above figure (Figure 3) indicates on the primary y-axle the responses of the grades D1, D2, D3 and D4, whilst the secondary y-axle reflects the responses of the C, D5 and E to F-groupings. Figure 3, above, also correlates with the overall picture regarding the perception of the current and preferred cultures. It seems that the higher the grading, the more the

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respondents prefer the task culture. See especially the groupings D5 and E to F. Based on their seniority these mentioned groupings must from themselves be initiators of culture, although they experience the largest gap between current and preferred culture. It may be possible that especially the senior groupings experience a lack of leadership or empowerment. This frustration (based on lack of empowerment) of especially the senior groups may also highlight practices with which they do not want to associate them with. 12. RECOMMENDATIONS The following recommendations to the management team are formulated as follows: Management needs to take note of the outcome of this survey. The questionnaire in itself is already a reliable intervention that could heighten expectations. These expectations need to be addressed. The results of the study need to be communicated throughout the organization. A stronger awareness of change needs to be created. Management ought to play an active role in addressing the findings of this survey. Management needs to appoint a project team empowered to initiate and drive the change process. A reliable external consultant ought to facilitate this process. The process of structuring, identifying focus areas, projects, manpower utilization, performance management, remuneration, diversity and career planning, need to be addressed and aligned with the preferred culture and the challenges of postmodernism.

13. CONCLUSION The studied organization operates in an environment that is currently undergoing rapid change. The organization per se, is diverse in amongst others number of managerial levels, culture groupings and divisions or business units. International competition is becoming fiercer which in turn puts a stronger emphasis on productivity. The typical nature of the industry is that production-flow is cyclical of nature and that change is slow against the background of agriculture orientated industry. The market environment is however pushing for faster adaptation, although the nature of the industry is to be more stable. Organizational culture holds the key to productive and highly successful organizations. Managers / leaders have the responsibility to unleash the dynamics of organizational culture in order to create a motivational climate. Only a highly motivated workforce secures growth, stability and profitability. Revisiting Weber s Verstehen also re-opened a world useful for modern-day business. Max Weber lived almost a century ago, at the time of the industrialisation of Germany and the modernistic ideology culminating in bureaucracies. The world is ever changing, even ideologically. The change currently is to a postmodernistic ideology with a new emphasis on understanding different people. Businesses spread their wings and become global players, whilst they are also unbundling to focus

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on core business aspects. In this turbulent management arena, Weber's value still stands namely that: Action (motive and motion) must be verstehen, and To really plan and understand action, construct ideal types.

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REFERENCES Abrahamson, M. (1981). Sociological theory. An introduction to concepts, issues, and research. Englewoord Cliffs, N.J.: Prentice Hall. Coser, L.A. (1971). Masters of sociological thought. Ideas in historical and social context. New York: Harcourt Brace Javanovich. Du Plessis, A.J. (2010), International Human Resource Management: an overview of its effect on managers in global organisations. Interdisciplinary Journal of Contemporary Research in Business, August, 2 (4): 178-192 Du Plessis, A.J. (2000). Labour Law and Dispute Resolution in Agriculture. Unpublished PhD Thesis. Potchefstroom University: Potchefstroom. South Africa Härtel, C. E. J. and Fujimoto, Y. (2010). Human resource management: Transforming theory into practice. New South Wales: Pearson Education, Australia. Nel, P.S., Werner, A., Poisat, P., Sono, T. Du Plessis, A J., Ngalo, O. (2011). Human Resources Management. 8th edition. Cape Town: Oxford University Press Parker, S.R., Brown, R.K. A.O. (1981). The Sociology of industry. Studies in Sociology: 1. London: George Allen & Unwin. Ritzer, G. (1996). Classical Sociological Theory (2nd ed.). Singapore: McGraw-Hill Sahay, A. (Ed.) (1971). Max Weber and modern sociology. London: Routledge & Kegan Paul. Schneider, B. (Ed). (1990). Organizational Climate and Culture. San Francisco: Jossey-Bass Publishers. Schein, E. (2011). Organisational culture and leadership. John Wiley & Sons San Francisco. Stone, R. J. 2008. Human resource management. 6th edition. John Wiley and Sons, Australia Ltd. Stryker, S. (1980. Symbolic Interactionism. A social structural version. Phillippines: Benjamin/Cummings. Van der Walt, B.J. (1997). Afrosentries of Eurosentries? Ons roeping in n multikulturele Suid-Afrika. Potchefstroom: PU vir CHO. (Instituut vir Reformatoriese Studie. Studiestuk Reeks F2, nommer 66.) Whyte, W.F. (1991). Social theory for action: how individuals & organizations learn to change. Newbury Park, Calif.: Sage.

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Customer Satisfaction towards e-Services provided by Municipal Services: A Case Study in Majlis Perbandaran Sungai Petani (MPSPK) Zaherawati Zakaria (Corresponding author) Faculty of Administrative Science & Policy Studies, Universiti Teknologi MARA, P. O Box 187, 08400 Merbok, Kedah Malaysia Kamarudin Ngah Pusat Penyelidikan Dasar dan Kajian Antarabangsa (CenPRIS) Universiti Sains Malaysia (USM), Pulau Pinang Zaliha Hj Hussin Faculty of Administrative Science & Policy Studies, Universiti Teknologi MARA, P. O Box 187, 08400 Merbok, Kedah. Malaysia Nazni Noordin Faculty of Administrative Science & Policy Studies, Universiti Teknologi MARA, P. O Box 187, 08400 Merbok, Kedah Malaysia Mohd Zool Hilmie Mohamed Sawal Faculty of Information Management, Universiti Teknologi MARA, P. O Box 187, 08400 Merbok, Kedah Malaysia Zuriawati Zakaria Faculty of Business & Finance, Department of Finance, Universiti Tunku Abdul Rahman, Kampar Jalan Universiti, Bandar Barat, 31900 Kampar, Perak, Malaysia

Abstract Malaysia has launched the multimedia super corridor (MSC) and one of MSC Flagship Application is e-Government. The e-government initiatives done by Malaysia s government began in 1997, with the launched of MSC s e-Government Flagship Application (Malaysia ICT, 2009). It means that, until now the implementation of the eGovernment is 13 years. According to Malaysia ICT (2009), the main focus of eGovernment is to provide efficient and effective government delivery services to the Malaysians through internet, kiosk, Interactive Voice Response (IVR) or telephone or mobile phone. They can easily access the services and fulfill their requirement smoothly without any disruptions. But there are some customers believe that the e-services do not make their work easier but the obstacles against the use of e-services, largest number of respondents said that they have no internet access or those do not know how to use the internet. Thus, this research is try to investigate to what extent the customer satisfaction towards the implementation of the e-services and to examine the relationship between independent variables and customer satisfaction towards e-services in Majlis Perbandaran Sungai Petani, Kedah (MPSPK). This study was done in Sungai Petani area of Kedah. The total respondents are 230 customers at Sungai Petani where the respondents were selected randomly. The study uses Descriptive Statistic, Pearson Correlation and Cronbach s Alpha in order to analyze the data gathered by using Statistical Package for Social Sciences (SPSS). The result indicates that there is a significant relationship

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between customer satisfaction towards e-services and ease of use, trust, and privacy and security. In recommendation, the research suggests the links and direction to use the eservices in the MPSPK s website must be easy to access in creating the user-friendly website for customer s uses. Furthermore, the research suggests MPSPK should promotes their e-services in wide scale to be a friendly website and feel secure in doing transaction. In future research, more variables should be study in e-services matters such as experience, information literacy, reliability, system availability, responsiveness and empathy by putting more value added of e-services implementation. With that, it hopes can increase the customer satisfaction to MPSPK as well as other government agencies at large. Keywords: E-government, e-services, Government, Customer, Satisfaction, Local Government. 1. Introduction Since the revolution of information and communication technologies (ICTs) widely across the world, 173 out of 190 countries, use ICTs to deliver the government services like Internet in order to increase efficiency and effectively in delivering the electronic Government (e-Government) information and services by reducing the cost and also provide the higher quality of service (Maria and Bo, 2009). The e-Government practices also take place in the countries such as the UK and in the 1980s and 1980s; many of the local governments in countries like Australia also made the changes. Furthermore, government of Malaysia has launched the multimedia super corridor (MSC) and one of MSC Flagship Application is e-Government. The e-government initiatives done by Malaysia s government began in 1997, with the launched of MSC s eGovernment Flagship Application (Malaysia ICT, 2009). It means that, until now the implementation of the e-Government is 13 years. According to Malaysia ICT (2009), the main focus of e-Government is to provide efficient and effective government delivery services to the Malaysians through internet, kiosk, Interactive Voice Response (IVR) or telephone or mobile phone and government can respond to the needs and demand of the citizens. E-services are one of the seven pilot projects of the e-Government Flagship Application. E-services in the public sectors have been generally undertaken in the wider framework of governmental electronic services (e-government) (Alessandro, 2005). The e-services is a term of services that conducted over the electronic networks such as Internet and wireless network as well as electronic environments like ATMs, Kiosk and others (Rust and Kannan, 2003). In addition, e-services also known as internet-based customer service that can improve the service levels and increase the customers loyalty, hence can save the money (Thompson, 2002). For the purpose of this research, the researchers only concentrated on the e-services and want to know to what extend the perception among the public after 13 years of its adoption in Sungai Petani area. Gathering of public perception remains to be one of the most crucial initial undertakings that would dictate for the deployment of egovernment programs (Qurban and Austria, 2008). This research is to investigate the public perception towards the e-services provided in MPSPK. So, the factors are ease of use, trust, and privacy and security can determine whether the publics are satisfy or not with the e-services provided by the service providers. This research conducted in Majlis Perbandaran Sungai Petani, Kedah (MPSPK) and it is located in the middle town of Sungai Petani where is in Kedah area. MPSPK is a local authority that had adapted the e-services which is clearly stated in their website, http://www.mpspk.gov.my/home. The e-services provided by MPSPK for their customers are e-aduan, e-tanah, e-borang and e-bayaran. Their customers are consists of residents at Lembah Bujang, Sungai Petani, Semeling and other areas. Furthermore, this study is to identify whether the public may receive the full information about the eservices provided by MPSPK. The study is also to investigate what extend satisfaction

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towards the implementation of the e-services in MPSPK. On the other hand, this study also wants to examine the relationship between independent variables (factors influencing customer satisfaction towards e-services) and dependent variable (customer satisfaction).

2. PROBLEM STATEMENT The ease of use can be defined as when experience no difficulty or effort (Cambridge Advance Learner s Dictionary, 2003) in using the e-services by the customers. They can easily access the services and fulfill their requirement smoothly without any disruptions. But when, there are some customers believe that the e-services does not make their work easier. Finally, when asked about the obstacles against the use of e-services, largest number of respondents said that they have no internet access or those do not know how to use the internet (Secretariat of the Latvian Minister 2005). The reason of the different educational background had by every customer can be an indicator on how they do not know how to use the internet. The generation who are exposing to the information technology or technology environment will not have any problems in using the internet but those who are unsighted to the technology will face that problem. There are also have respondent mentioned that the website did not work correctly and they could not find the required information. Other than that, they mentioned that the e-services were not really easy to use because the process of downloading and accessing times are slow such as to download any kind of forms and navigation were difficult and took for a long time (Mehdi Asgharkhani, 2005). Trust or also can be known as trustworthiness are customers perceptions of particular attributes of e-vendors including the abilities, integrity and benevolence exhibited by the vendors when they handle the customers transaction. The trust in business to business (B2B) e-commerce is more difficult to establish than in traditional business, since there are even more barriers to overcome (Ming Wang, 2003). The government needs to build trust on the people to make them have the intention and believe in using e-services. The customers will not use the e-services and more likely will not feel satisfied with the services provided by the government through the internet if they don t have the trust on the e-services. When survey made by and asked the respondents what concerns by them about the e-services, most of them said that they cannot be sure that the documents which they file have been received (Secretariat of the Latvian Minister 2005). Besides, there also indicated that they do not really trust the e-services provider has control to protect their financial and personal information, and concern about the act of sending their private information via the internet. Furthermore, they as well as do not trust and confident of the information exchange especially made any payment through internet or online payment (Jasber Kaur and Noor Dalila Noor Rashid, 2008). The issue that usually arose related with the e-services is about security when doing online transaction. In fact, the vital for the customers to use the e-services is only accessing to secure electronic services (Ulf Melin and Karin Axelsson, 2009). According to Croom and Johnston (2003), the technical issues of security often become a problem for both customers and suppliers. For the suppliers, this problem occurred when they are implemented e-procurement which is referring to the process of purchase goods and services for the organization via Internet in their business. The security features in the eprocurement is important to maintain the integrity of the organization s information networks. The problem is this feature was regularly found that firewalls prevented the conduction of electronic payment (Croom and Johnston, 2003). Walker and Harland (2008) mentioned that the main problem or barriers to e-business is due to the lack of network security. It shows that the customers are very concern about the security of the services and privacy of the personal data. The high secure in doing the online transaction will make the customers are confident to use that services.

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As the fast growing of technology in information processing and its complexity had made the privacy become the important issues nowadays. The lack of privacy can increase the customers distrust to the technology as to how personal data is being gathered and processed through online transaction and as the result the privacy is becoming a major barrier to widen e-commerce. Also, the problem like lack of security experienced by the online customers is the obstacle to the development of the e-commerce (Luis, Carlos and Miguel, 2007). The security problems are not only attacked in the overseas but also happened in our country, Malaysia especially on Information Technology (IT) security is became more complex and complicated. The threat is also growing faster as the increasing the number of business operated (PR Web, 2008).

3. LITERATURE REVIEW Normally, the e-services allow the society nowadays to conduct the transactions that related with the government agencies through the various convenient channels such as the e-services kiosk, and internet. Thus, the society is more convenience when conducting the online transaction because there is no more queuing and no need to wait for a long time to made the payment. Also, they also can make the transaction anytime, everywhere since the internet connection is there. According to Qurban and Austria (2008), gathering of public perception remains to be one of the most crucial initial undertakings that would dictate for the deployment of egovernment programs. This would mark those services that should be automated and prioritized by 2010. The crucial goals in this study are to determine the public s perception on the purposed e-health services and to assess the influence of demographic characteristics. The preliminary survey was conducted wherein 100 questionnaires were distributed randomly to the respondents at King Fahd Military Medical Complex (KFMMC), Dhahran, KSA. The finding of this research indicated that the overwhelming optimism of the public to experience e-health services despite the apparent digital divide, suggesting the lack authentic knowledge on the nature of e-health and e-government. This research also had shown that the public perception on these e-government programs remains to be one of the most determinants of the e-government adoption and implementation and can contribute towards customer satisfaction. Moaman and Vishanth (2009) studied about the perception of public sector s employees about the e-government in Oman. The study is to identify the most salient factors that are influencing the development of diffusion of e-government in Oman as perceived by the government employees involved in the e-government service delivery. There are ten (10) factors in order to ensure that online services are met the citizens expectation and needs which are accessibility, security, privacy, efficiency, confidence, trust, availability, private sector partnerships, IT worker skills and information exchange. These factors are using to accessing the level of customer satisfaction towards online services as influencing the development and implementation of e-government. The research methodology is a quantitative which is survey-based study. The data was collected through an administered questionnaire to 105 IT field workers in the middle management and operational level employees. Besides, the researchers also gathered the secondary data through the review of academic literature. The questionnaire consists of closed ended and 5 Likert-scale type questions. As a result, all of the 10 factors indicated that there were a direct relationship that influencing the e-government implementation and diffusion in Oman. It shows that the citizens are satisfied with the e-government based on all of these factors. The privacy, security and trust are the most influencing factors to encourage the citizens to use the online services. The authors suggested that interaction with the citizens to give the information for their better understanding of the online COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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services. According to Akshay Anand (2007), the security and privacy of the website be the major consideration when deciding whether or not to buy items online. This study was conducted by online methodology. The respondent for this research come from 20 provinces of India which is included 73 % males and 27% female. The result show that the coefficient of security is statistically significant with (beta= 0.21). The security and privacy have an impact on consumers trust in using the online services. Croom and Johnston (2003) studied about the impact of e-business developments on internal customer service that focus on the electronic procurement (e-procurement) since it was introduced. In this study, the authors had identified that there are three impacts of the internal customer service on e-procurement performance which are cost efficiency, process conformance and internal customer satisfaction. This is the exploratory studies done by the researchers using several phases of study which are by interview survey, case method and telephone interviews. The surveyed done for the executives, managers and customers of e-business systems. In the other perspective, Mohini (2002) had done the qualitative study by using to the secondary data which is referring to the research projects. They were exploratory study to investigate the importance of e-services in B2C e-commerce from the business and customer points of view. The finding of this study was the customers more preferred and comfortable with the traditional methods of payment due to the security reasons rather than paying online. The online businesses investigated that orders received through online compared received via fax assured accuracy and further improved customer satisfaction when doing the transaction and made the payment online. According to Luis et al. (2007), the ease of use in term of the website is the factor that can convince the customers to use the online banking service. This study was conducted is a web survey by using questionnaires. As a result, the reliability for the usability or ease of use was 0.88. In fact, the management should concentrate on the simple and easy for the customers to use the e-services. Therefore, the management of the organization needs to ensure the design and structure of the website is simple and easy for the user to understand. In other words, the management should priorities the ease of use in develop the website. It is important to assure that the customers are confident to use the e-services provided by the organization because they perceived that the ease of use of the websites. As the consequence, the customers are satisfied because it is easy to use and manage as well as the organization provides the comfortable environment for them to use the eservices. Jasber Kaur and Noor Dalila Noor Rashid (2008) came out with the research regarding on Malaysian e-government adoption barriers. This study aimed to determine factors inhibiting adopting of e-services delivery to the public especially via government websites. The factors were tested using a survey of 171 users of e-services in Malaysia, particularly in Klang Valley region. The survey was carried out using convenience sampling method and via electronic mail (e-mail). In the questionnaire, the respondents were asked to rate their overall satisfaction as a measurement for e-services adoption. There were only 11.7% of the respondents between the aged group of 41-50 and 6.4% were aged 50 years old above. This research finding was the respondents do not believe that they have to be highly literate in IT and require high skills of IT in order to use the services. They also think that a low level of IT knowledge would not result in difficulty of using e-services plus they do not doubt that they could successfully use the e-services applications even if they lack of IT skills. They have an opinion that lack of IT skills would not hinder them from using e-services. The authors proposed a model which is consists that with 9 dimensions like ease of use, website design, reliability, system availability, privacy, responsiveness, empathy, experience and trust. The main objective of the study is to evaluate the e-service quality the perspective of both online companies and customers. This is the qualitative study whereby the researchers was distributed the questionnaire by mail and the respondents are the customers of online travel companies in China. The five-point Likert-scale COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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ranging from strongly disagree (1) to strongly agree (5) was used in the questionnaire and 1500 questionnaires were mailed to the potential customers and only 500 customers replied. From the result, the ease of use is the most important factor in the online service quality with =0.345, p ANALYSES OF DATA The descriptive statistics is shown in table 1 below: Table 1: Descriptive statistics Mean Success index of TQM implementation x1 x2 x3 x4 x5

40.19 17.70 19.24 18.85 17.13 17.19

Std. Deviation 2.190 2.043 3.059 1.607 1.683 2.614

N 54 54 54 54 54 54

The correlation matrix in table 2 below did not indicate any problem of multi-colinearity. The highest value is 0.72 for x3 and x5 and the lowest value of 0.001 for x4 and x5 .

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Table 2: Correlations Matrix

RESULT OF THE MULTIPLE REGRESSION AND CORRELATION ANALYSES The results of the multiple regression and correlation analyses are therefore presented as follows: The regression, relationship or predictors equation from the analysis is deduced from table 5 below and given as follows: y = 18.142+0.381x1+0.162x2+0.168x3+0.215x4+0.423x5 --- 4.1 The coefficients of multiple correlation R and determination R2 are 93.5% and 86.1% respectively. These values of R and R2 (0.935 and 0.861 respectively) indicate that there is a very strong relationship between the dependent variable and independent variables. Also, the proportion of variation in independent variables accounted for by the relationship equation and performance index of TQM implementation is significantly high. Table 3: Model Summaryb Model

R Square

R

1

.935a

.874

Adjusted

St. Error of the Estimate

.861

.818

DurbinWalson

1.434

a.

Predictors: (Constant), x5 , x4 , x2 , x1 , x3 .

b.

Dependent Variable: Success Index of TQM Implementation.

Table 4: ANOVAb Model 1.

Regression Residual Total

Sum of Squares 222.058

df 5

Mean Square 44.412

32.090

48

.669

254.148

53

F

Sig.

66.43

.000a

a.

Predictors: (Constant), x5 , x4 , x2 , x1 , x 3 .

b.

Dependent Variable: Success Index of TQM Implementation.

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Table 4.7: coefficientsa Unstandardized Coefficients B Std. Error 18.142 1.814 .381 .080

Model 1.

(Constant)

a.

Standardized Coefficients Beta .355

t 10.001 4.751

Sig. .000 .000

.162

.041

.086

1.501

.140

.168

.102

.123

1.638

.108

.215

.169

.165

3.107

.003

.423

.072

.505

5.867

.000

Dependent Variable: Success Index of TQM Implementation.

The results of the analyses for both F and t tests as shown in tables 3, 4 and 5 indicate that all the factors x1, x2, x3, x4, x5 made contributions to TQM implementation. The t-test indicates that only x5 = management commitment, x1 = training of employees, and x4 = motivation of employees are significant success factors in the implementation of TQM in construction industries in Nigeria. However x3 = customers satisfaction survey and x2 = competitive benchmarking are not significant success factors. The significant ranking of success factors of TQM implementation is shown in table 6 below. Table 6: Ranking of Success of TQM Implementation Factor x 5 ; Management Commitment x 1 ; Training of Employees x 4 ; Motivation of Employees x 3 ; Customers Satisfaction Survey x 2 ; Benchmarking

t - value 5.867 4.751 3.107 1.638 1.501

P- value 0.00 0.00 0.03 0.108 0.140

Rank 1 st 2 nd 3 rd 4 th 5 th

Source: Data analysis result The variables x5, x1 and x4 are significant factors in the successful implementation of TQM in construction projects. DISCUSSION OF THE RESULT The result of the analysis indicates that management commitment ranks first as a success factor in the implementation of TQM at Julius Berger (JB) PLC. This is consistent and in conformity with the general notion of JB PLC in construction project management. The management of JB PLC, as matter of policy and total commitment uses time, money, people and other resources in order to achieve the objective of project success at an appealing quality level. According to Oberlender (2000), TQM can only be successful under a senior management system that is honestly concerned with the long-term well-being of the company. It is a philosophy of doing business that fosters attitudes for improvements that permeate throughout an organization. It is therefore believe that JB PLC management embraced these attitude and incorporated them into everyday operations of the company in their construction project management. This management commitment must be

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coupled with a thorough understanding of TQM that enables members of the senior management to lead their company in a quality revolution. Supported by this commitment and understanding, JB PLC senior management could be personally establishing new goals and directions for the company and then leading the management teams towards the attainment of those goals and directions. For many companies, TQM is a significant shift away from the standards of management practiced in the past. The task of bringing about that revolutionary change throughout an entire organization is a tremendous undertaking that requires the patient, support and leadership of management. Just deciding where to begin can be the most difficult step in the implementation process. Senior management should first make itself familiar with the concepts, tools and methods of TQM. The full understanding; support and leadership of an organization s top management emerge as crucial factors in almost all the studies of TQM implementation (Slack et al, 2004). For big companies like JB PLC, the necessities of top management support for TQM could be expected to go far beyond allocation of resources to the programme; but it could also as well set priorities for the whole organization. The result of the analysis also indicates that training of the employee (x1) ranks second as a success factor in the implementation of TQM in construction projects. The main implementation issue in TQM initiatives should among others pay much emphasis on appropriate training of the employees. TQM is, partly at least, attitudinal change, so the developmental task is fundamental to it. It is no coincidence that JB PLC might have many training managers as one of their prime movers for many successful programmes such as TQM. The staff of JB PLC are empowered and trained periodically and these initiatives have resulted to optimal job performance, quality output, and higher productivity. The motivation of employees x4 in construction firms indicates a very crucial and significant factor towards enhanced productivity, process improvement and quality outputs. The reason that a company installs a wage incentive plan is to motivate the workforce to increase the production it achieves in its normal working day. No wonder Baridan (1989) observes that commitment to work cannot be enforced, rather it must come as a product of enthusiasm that an individual feels towards his job. He further states that unless individuals are motivated to make sufficient use of their abilities, they might not achieve the level of performance that is expected from them. In this regard, Ubani (2002) took a cursory examination on the principles of Management By Objectives (MBO) which, calls for motivation of all participants because superior and subordinate managers jointly identify common project goals, carefully define them and together monitor progress towards achieving results. In construction project, it could be that JB PLC management sees motivation of workers as powerful tool and mover of action for delivering of quality job and services, as well as efficient management of human, materials and other resources required for project success. It could also be on this premise that Grazier (2006) generally associated motivation with human behaviour, meaning a state of mind that moves us to action. The needs for sustenance, safety, security, belonging, recognition and a sense of growth and achievement become strong drivers (motivators) of behaviour prepared to lead or facilities a long term, highly motivated team experience to quality work output. According to Bhadravati (2003), motivation of team members is a success factor. This could lead to successfully managing cross-

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functional team composed of people from multiple departments on the techniques for developing strong leadership style, creating an effective project team culture, dealing and overcoming communication challenges and inspiring excellent team performance to deliver quality strategies to satisfy clients or customers. However, Grazier (2006) asserts that motivation can rise and fall depending on the myriad of factors such as: purpose, challenge, camaraderie, responsibility, growth and leadership. JB PLC is known for its motivational policies and programmes, which have resulted to quality work performance. It could be that when JB PLC employees are promoted with added monetary or materials incentives, it becomes a big challenge to the employees with added responsibilities. As a result, workers are stimulated with enhanced egotism, dedication and total commitment to scheduled task as well as efficient utilization of resources in project management. Motivation of employees through human resource development programmes and periodic training of workers make them to be more competent, add to their skills, minimize waste and scrap rate in the utilization of materials and other resources. The other two independent variables; customer satisfaction survey x3 and competitive benchmarking x2, are not significant success factors in the implementation of TQM in construction projects. These could however be veritable factors in manufacturing and production industries as they could be used as operations strategies needed for competitive competence. SUMMARY AND CONCLUSION The study focuses of JB PLC as the study background considering the firm s giant stride in the area of quality construction projects. The result of the field survey of JB PLC indicates that many employees responsibilities and training plans are targeted for every level of the company. The analyses of data using multiple regression and correlation tools show that levels of management commitment, training of employees and motivation programme on ground are the salient success and significant success factors in the implementation of TQM programme in construction firms. The study therefore recommends periodic training for capacity building through education, workshop and seminars; as well as adoption of the policy of quality function deployment. A quality strategy in construction firms is necessary in order to provide the goals and guidelines which help to keep TQM programme heading in a direction which is appropriate for the organizations other strategic aims.

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REFERENCES Baridan D.M. (1989) Work Motivation Among Nigeria Workers. An Economic and Business Annual Journal of NUAM, University of Port Harcourt, Branch, Nigeria Vol. No. 12. Bhadravati N. (2003) On Line PM Mentoring in Managing Project Team. www.4pm/classes/200mpteamhtm. Grazier P. (2006) Team Motivation http:/www,hyperthat.com/pm-motiv:htm. Juran J.M. (1989) Juran on Leadership for Quality MacMillian Inc. New York. Maloney W. (1986) Understanding Motivation; Journal of Management in Engineering Vol. 1 No. 4. Metri B.A. (2005) TQM Critical Success Factors for Construction Firms. Indian Management Development Institute. E-mail:[email protected]. Oberlender G.D. (2000) Project Management for Engineering and Construction. Second Edition McGraw Hill Publishers. Onwusonye S.I.J. (2005) Overview of Construction Projects. Project Cycle Journal of the Nigeria Institute of Quantity Surveyors. Vol. 51 No. 2 Slack N. Chambers S., Johnstone R. (2006) Operations Management. Fourth Edition Prentice Hall.www.booksites.net. Stevenson W.J. (2002) Operations Management, Seventh Edition McGraw-Hill, Irwin. Ubani E.C. (2002). The Principles of Management by Objectives in Project Management. Review of Arts and Social Science. A Quarterly Journal of Inter-University Friendship Association, Vol. 111, No. 1.

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Surveying of affecting parameters in human resources productivity and provide appropriate methods for its improvement Case Study: Islamic Azad University of Branches in Region 131 *. Gholam-Reza Rahimi, PhD (Corresponding Author) Islamic Azad University, Kaleybar Branch, Iran Mir Hossein Seyyedi Faculty Member of Islamic Azad University, Kaleybar Branch, Iran Ghader Vazifeh Damirchi Islamic Azad University, Kaleybar Branch, Iran Mohammad-Reza Noruzi, EMBA, PhD Candidate Islamic Azad University, Kaleibar Iran Abstract Productivity is becoming better today than it was yesterday, and that tomorrow will be better than today. The concept of what is better and how to become better is changing. The purpose of this paper is to study the effective indices in manpower productivity using factor analysis and presentation techniques to improve the units of the Islamic Azad University, Region 13.This descriptive and analytical study has been conducted in two phases. 10 experts (productivity experts) were used in the qualitative research stage, and 119 of the faculty members and staff of Islamic Azad University, region13, were investigated in factor analysis. Data collection instrument was a questionnaire reliability of which was confirmed by Crohn Bach s alpha and library studies. Moreover, in order to determine the right size for the sample the sample size table of Bartlett et al was used. Five main components were identified by exploratory analysis in this study. The findings in order of importance are: 1) Organizational culture, 2) Environment conditions, 3) Empowerment, 4) Motivational factors, 5) leadership style. The organizational culture was recognized the most important factor of human resources productivity. Keywords: Productivity, Human Resources, Factor Analysis Introduction The broader concept of productivity is incorporating wider definitions of what the outputs and inputs of the production-distribution process are. The social and ecological impacts are now increasingly considered as outputs of the production process in addition to the traditional physical and value measures of outputs. Similarly, the social and ecological costs are now being recognized as inputs in the productivity equation. With increasing concerns on the social and ecologic impacts of the operations of enterprises, the definitions of inputs and outputs are changing. Social and ecological inputs and outputs are increasingly being factored-in in the efficiency and effectiveness performance of the enterprise. 1

. This paper is based on the final report based on research projects sponsored by Islamic Azad University, Kaleybar branch.

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The structures of the production-distribution systems are also changing. Products and services and hence customer values are increasingly created through enterprise networks, supply-chains and value-chains that extend even beyond national boundaries. In these situations where an enterprise relies on network of suppliers, service providers, extended and disaggregated supply and delivery networks, its effectiveness and efficiency are extremely dependent on the way it manages its value-chain. The notion of value-chain productivity (using a broader notion of productivity referred to as above) is becoming of increasing significance (Bertschek, 2004). New Productivity Improvement Paradigm To be relevant in the dynamic in the changing environment, productivity improvement effort must focus on Doing the right things (know what to produce and distribute) by continuous reviewing and identifying changing customer and societal needs and expectations (economic, social and ecological) and developing and designing products and services to best satisfy the needs and meet the expectations. Create more customer values. Doing things right (know how ) by constantly improving production and distribution processes to produce and deliver the goods and services in the most efficient way while at the same time minimizing their negative social and ecological impacts. "Human resource productivity as a phenomenon has been studied by economists, management scientists, industrial engineers and behavioral psychologists. Economists have attempted to measure productivity and estimate its impact on output and growth. Management scientists have developed various mathematical techniques for optimization of management operation. Industrial engineers evolved various methods for improving the micro level efficiency of work systems and procedures. Behavioral psychologists have tried to identify the nature and conditions of human motivation for productivity and have come up with prescriptions like motion study, ergonomics, method/work study, value analysis engineering, reverse engineering and zero-base design etc. and participative management(Abhijeet, 2004). Creating a work environment in which employees are productive is essential to increased profits for every organization, corporation or small business. Principles of management that dictate how, , to maximize employee productivity exactly center around two major areas of focus: personal motivation and the infrastructure of the work environment. One of the key factors in leveraging human resources to produce the most is found through motivational incentives. While the most obvious incentive for increasing employee productivity is often thought to be based on salary and promotions, this is not always the case. In fact, recent thought on the true nature of optimal human resource management has concluded that in a large number of cases, salary has less to do with motivation than do other important factors. Human resources, as the most expensive and most valuable source of capital and the organization is considered as the most important factor in the operational chain of any

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organization, have long proven a great success, and organizations that have paid attention to this issue miniature the works place. the main goals Understanding factors affecting productivity of human resources is the main goal researchers following. According to Taheri (2007), All researchers believe that human resources increase productivity but can not be offered to improve productivity combined effect of various factors. One of the most important goals in any organization is to promote productivity and given that humans are created productivity central to the demands he puts behind organizations key work. Reports show that HR productivity indicators are much less compared to countries in the region East Asia. So the researchers were to study indicators, quality check and factor analysis, factors affecting labor productivity in units of the Islamic Azad University Region 13 to be considered and determined. HR productivity factors To begin with, it is important to recognize the true human element in workplace relations. Step back and think for a moment what makes people work harder? Is pay the strongest motivating force in the workplace? Many experts have noted that workers do not produce more simply while on the job because they are being paid more. After all, it is not expected that employees constantly calculate the monetary value of every action they perform. Workers, for instance, do not keep a record of how much they earn every time they send out an email, approve a document or complete some other tasks. It s just not human nature (hrVillage, 2007). The essence of employee motivation and effectiveness is the manner in which they are managed. A direct relationship exists between effective management (i.e., providing a work environment that simultaneously achieves company goals and employees' goals) and modern human resource management. Productivity Measurement Definitions of ways to measure productivity vary. A basic way to express productivity is that productivity equals output divided by input i.e. productivity is the ratio of output to input, or simply output over input. The quantity of output is measured in units produced, dollars of sales, or any term that suits your need. The quality of output is measured by workmanship, adherence to standard, and absence of complaints. Input is measured by labor costs, hours worked, and number of employees. To be useful, measures must be as simple and as consistent as possible. A simple and understandable method of productivity measurement is to divide total sales (output in dollars) by total compensation costs (input). Increases and prices are accounted for automatically; however, you must adjust inflation. To compare productivity measures in different years, pick a base year and give it an index of 100. Then figure your ratio of compensation to sales and with that number calculate the index and compare the fluctuation of the indexes.

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Using output over input, you can measure any activity and employee. A typist's productivity can be measured in terms of numbers of pages typed, a salesperson by number of customer calls or amount of sales. When deciding how and what to measure, consider what a person does, how well, how much, and how often. The indexes measure the productivity increases and decreases and indicate changes in your company's performance. You need these measures so that you can set goals and priorities, know where you stand, and motivations by objective reasons - by numbers, not subjective feelings, and have a common basis of communication with employees, bankers and consultants (Damirchi,2010, 138). The first problem in measuring effectiveness is identifying key efficiency and output. Typically, programs efficiency is not transparent; new managers can determine the important efficiency of organization by questions from staff and stakeholders. So, Importance of different efficiency and output is identified according to customer needs. The second issue, sometimes measuring of efficiency is very difficult. In these cases, the common strategy is to focus on measurable efficiencies. (Rao & Miller, 2004, 775-786) Theorists have proposed different methods for productivity measurement. Productivity measurement is summarized shown in Table-1. Table-1: The Comparison of expert opinions in measuring productivity

Theorists Lattner & Larcker (2002) Epstien ( 1992) Baker (1992) Miller (1991) Berman(1998)

productivity measurement methods Measuring effectiveness and efficiency

Measuring the effectiveness, efficiency Equality, work load and cost - benefit Hatry &. Fisk(1992) Measurement of output to data ratio, the efficiency to data ratio, calculated indicators and technical efficiency changes Zammit , Cockfield & Measuring appropriateness, effectiveness, Funnell (2001) efficiency and unwanted return North Carolina State Measurement of cost, work down load, Agency Performance effectiveness and efficiency (2003) Ammons (1996) Measuring the effectiveness, efficiency and work load Poistr (1992) Measuring the effectiveness, efficiency and labor Osborn , Savage , Rayes , Measuring the effectiveness, efficiency and Muradyan (2002) equality

Any productivity measurement system should consider the needs and expectations of customers and their satisfaction. Appropriate productivity measurement system should have the following conditions: Well developed.

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Specifically, Appropriate to the organization and is compatible with the mission it. Is Measurable and oriented. Justice and equality is considered in its formulation. Capable of being updated (Atkinson, 2005, 203) Methodology This Study was applied research method with descriptive and analytical manner, and was conducted in two stages of qualitative and factor analysis. We have used experts and manpower in the human resources productivity to determine the human resources productivity component. The Data collection instrument for the qualitative phase was library studies, interviews and questionnaires. The research components were employees empowering, leadership, organizational support, transparency and documentation of services, willingness and motivation of employees and the decision validity. The Questionnaire included 40 questions that were related to affecting labor productivity variables. The range of questions were Likert based from very high degree (5), large (4), medium (3 ), low (2) and to very low (1). Questionnaire validity was obtained by content validity of using experts and specialists, and its reliability using of Cronbach's alpha test. The reliability was 0.79. We have used exploratory factor analysis and confirmatory factor analysis to determine questionnaire construct validity. (Dixon,2001,303-29) All of the higher diploma personnel of 13 regions of the Islamic Azad University are our population. Their number was 2400 classified in two faculty and staff groups. Grouping was according to their educational degrees. Sample size was established 119, by Bartlett, Higgins and kuterlik table with 05 level errors (Bartlett and others, 2001, p65). Table (2) shows the structure of the population and the samples based on work field. Table (2): Number of population and samples

work Field scholar Diploma Associate Degree Bachelors Masters PhD or higher Total

population Sample size faculty Staff Total faculty Staff Total 0

240

240

0

12

12

0

312

312

0

15

15

0 630 264

720 234 0

720 864 264

0 31 13

36 12 0

36 43 13

894

1506

2400

44

75

119

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Data analysis In this research, data analysis was conducted in three phases including qualitative study, exploratory factor analysis and confirmatory factor. A) Qualitative study stage: the researcher reviewed internal and external research literature and designed initial concept of manpower model according to experts 10 components of employees empowering, leadership style, organizational support, transparency and documentation of how to provide services, desire and motivation employees, decisions validity, organizational structure, environment Conditions, organization culture and creativity and innovation as factors affecting interest labor productivity. Since some experts believed that other factors such as organization culture, environment, organizational structure and innovation and creativity can be effective manpower productivity, so we designed a model with ten components as a reasonable model of manpower productivity were determined. B) Factor analysis stage: extracted logical model in step qualitative study was examined by factor analysis. So that the whole model was a questionnaire containing two parts, first part has two questions about personal and demographic profile and the second part has 40 questions regarding the variables affecting labor productivity. We distributed 135 questionnaire among people and received 119 from samples. At this stage, exploratory factor analysis was used with principal components analysis of varimax rotation to identify the most important and effective components affecting manpower productivity and identifying loading variables levels. Five main components identified in exploratory factor analysis. They had shown in order of importance in Table 3. Table (3): Main components of exploratory factor analysis

Main components Variable number variance Value 17 29.2% 21.6 Organizational culture 7 12.9% 2.6 Environment 4 12.8% 1.5 Empowerment 9 7.4% 1.3 Motivational factors 3 5% 1.2 Leadership style 40 67.3% 28.2 Total C) Confirmatory factor stage: we used Lyzrel software to confirm and fit obtained components in exploratory factor analysis and the loaded variables on each components. To fit the model, fit indices such as the coefficient of error approximation to the mean square root, comparative fit index and the Standardized Root Mean Residual were used. Table 4 shows the results. Table (4): fitted parameters in the fitted model

SRMR 0.05

CFI 0.95

RMSEA 0.09

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If RMSEA Index less than 0.1, CFI2 more than 0.90 and SRMR3 less than 0.8 indicated good fit. Confirmatory factor analysis and indicators of good fit results at this stage, confirm obtained components and variables in exploratory factor analysis Conclusions According to analysis, five factors determining productivity human resources were identified and organization culture was recognized to be the most important components of human resources productivity improvement in units of the Islamic Azad University, Region 13. Comparison of this stage with the stage of qualitative analysis showed that the organizational culture is also considered to be one of the productivity manpower improving component by experts. The second component in the present factor analysis was the environmental conditions. This component as well as the first component, the quality step of it was similar with the factor analysis. The third effective component was empowerment. The fourth effective component of productivity manpower is a motivational factor. this model was compared with Alvani and Ahmadi s (2001) human resources management productivity comprehensive model and this revealed that both models confirmed the role of motivational factors in productivity manpower improvement and was match some variables of our study such as participate members in decision-making and appreciation of employees with the same component variables of human resources management productivity comprehensive model. Leadership style was found the fifth and final component of manpower productivity promoting in factor analysis. The Comparison of this stage with the qualitative phase (logical model) showed that in the logical model, experts agreed leadership style is one component of improving labor productivity, however, this component in logical model is known as the factor analysis as the most important factor of manpower productivity promoting.

1 2

.Comparative Fit Index .Standardized Root Mean Residual

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References Arturo L. Tolentino, 2004, New Concepts of Productivity and its Improvement, Presented at the European Productivity Network Seminar, Budapest, 13-14 May 2004. Atkinson, T, (2005). Atkinson Report on Measuring Government Output and Productivity Published Today, Online page: www.Statistics.Gov.uk/pdfdir/nsrt203pdf. Bertschek, I., Fryges, H., & Kaiser, U. (2004). B2B or Not to Be: Does B2B Ecommerce. Damirchi, V.Q.(2010), An Introduction to Management, Mehrghazal Publisher, Ardabil. Dixon JK. (2001), Factor Analysis. In: Manor BH. Statistical Methods for Health Care Research 4th Ed. New York; Lippincott, 303Human Resource Productivity in the Globalized World/Hassan Rangriz and Abbas Ali Hajikarimi, Delhi, Abhijeet, 2004, xv, 336 p435, tablesISBN 81-88683-40-X. Ilgen, D, R. Klein, H.J, (1988). Individual Motivation and Performance: Cognitive Influences on Effort and Choice, in compbell, J.p, compbell. R.J, Productivity Organization; San Francisco: Jossey Bass.Increase Labour Productivity? Discussion Paper No. 04-45 Prokopenko J., (1987), Productivity Management, Intentioned Polisher. Geneva; International Labor Org. Ramsey JD., (1983), Effect of Work Place Thermal Condition of Safe Work Behavior J Safety Research, 14(3): 105-114. Rao, P .M, Miller, D.M, (2004). Expert systems applications for productivity analysis, Industrial management & Data system, Vol 104, No 9, P: 776-785. Retrieved September 7, 2006, from ftp://ftp.zew.de/pub/zew-docs/dp/dp0445.pdf Taheri, shahnam, 2007, Productivity and its analysis in organizations, Tehran, Hastan Publisher. The Work Environment and Employee Productivity,2007, hrVillage.com

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Role of Firm s level characteristics in determining the capital structure of Banks: Evidence from the Pakistan Banks Fawad Ahmad Scholar of MS-Finance, Faculty of Management Sciences, International Islamic University Islamabad Dr. Zaheer Abbas Corresponding author: Assistant Professor, Faculty of Management Sciences, International Islamic University Islamabad Abstract The main purpose of this study is identifying the determinants of capital structure of banks in Pakistan by using firm s level determinants of capital structure. This study used panel data fixed approach model. The results showed that out of seven variables three (profitability, size, non-debt tax shields) are statistically significantly related to leverage, and four are (growth, tax, tangibility of assets, payout) are statistically insignificantly related with leverage. Four expected relation were accepted while three were rejected. The negative relation of profitability, positive relation of growth and payout with the leverage are in consistent with the pecking order theory. The positive relation of size and tax with leverage are in line with the trade-off theory. This study identifies important determinants that play important role in identifying capital structure of banks in Pakistan. This study is considered to be done for the first time in Pakistan. Keywords: Determinants, Capital structure, Pecking order theory, Trade-off theory. 1. Introduction Most important decision that firms mangers make is relating capital structure. Nonfinancial and financial firms do not have the same capital structure because of differences in the financial condition and nature of operations. Non-financial firms mainly require capital to construct or purchase property, machinery and production related facilities to start operations. Financial firms also require capital to construct, buy or acquire offices on rent and operations related facilities, but there requirement for investment in assets are much lower than the non-financial firms. Banks also requires capital but the use of funds are different from that of non-financial firms. Due to there nature, banks at time manage the opposite and multiple needs of their customers. Banks have to provide liquidity through current account demands and credit to their depositors. In order to meet depositors demand banks are concerned with liquidity. The banks are also concerned with successively managing the market and credit risk by timely identifying, assessing, monitoring and managing these risks. Llewellyn (1992) argued that competitive forces with in the banking sector and regulatory pressures from regulatory authorities play important role in determining overall banking strategy. Following mandatory bank capital standard requirements, banks are involved in both voluntary and involuntary capital structure decisions. The voluntary capital structure decisions of banks are considered same as non-financial settings, same theories and determinants of capital structure are applied to made decisions relating capital structure. Involuntary capital structure decisions are enforced on the banks by regulator authorities after deviating form the prescribed and adequacy capital requirements as directed by the regulators. The scope of this study is confined to voluntary capital structure decisions.

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There are few studies that are conducted by using developing countries non-financial firm s data. For example: Panday, 2001; Ak-Sakran, 2001; Bhaduri, 2002; Chen, 2004; Delcoure, 2007; Teker et al., 2009; and Chakraboraty, 2010. Several studies conducted previously by using data from specific sectors companies working in the economies. For example: wine firms (Viviani, 2008) and service industry (Gill et al., 2009). There are few studies conducted relating the determinants of capital structure of banks by using both developed and non-developed countries data (Amidu, 2007; Gropp and Heider, 2009; Ça layan and Sak, 2010). Therefore this area is under-explored in the literature. Limited research conducted previously in Pakistan relating determinants of capital structure of non-financial firms. The early work in this area was done by Shah and Hijazi in 2004. Later on Shah and Khan (2007) extended the previous work by using six explanatory variables and improved econometric technique by using panel data. Hajazi and Tariq (2006) used cement industry data and Rafiq et al (2008) analyzed the Chemical industry data. Walliulah and Nishat (2008) analyzed the dynamics of capital structure. There is no study conducted previously by using banking sector data in Pakistan. This study tried to fill the literature gap relating the determinants of capital structure of Pakistani banks by using the firm s level characteristics. The results of this study are compared with the capital structure theories to check which theories better explain the capital structure of Pakistan banks. This study also compared the results obtained from the previous researches results relating the banking sector of developing and non-developing countries. The section 1 of this study discusses the introduction of study. Section 2 relates to the literature review, it highlights the different theories of capital structures, determinants used in previous studies conducted relating capital structure (developing economies, Pakistan and banking sector) and firm level variables used as dependent variables in this study. Section 3 provides the methodology and data information used in this study. Section 4 presents the descriptive statistics, correlation matrix and fixed effect model results. Section 5 presents the conclusion, limitations of and future research relating the study. 2. Literature Review 2.1. Theories of capital structure Many researchers have presented different theories to explain capital structure. Irrelevance theory is considered as starting point of modern capital structure theories, presented by Modigliani and Miller (MM) in 1958. MM argued that source of finance of a firm does not have effect on firm market value. MM assumes that there will be no taxes, no brokerage costs, no solvency costs, borrowing on same rates, no taxes and symmetric information between insiders and outsiders. Later on in 1963 MM relaxed the no corporate taxes assumption and assumed that there will be corporate taxes. According to trade off theory (TOT) the target debt to equity ratio is set by firms by balancing between the benefits and costs of equity and debt. Firms assume optimal capital structure that maximizes value and helps in the reducing of external claims. The debt is provided with tax shield and informational costs associated with debt are less than equity, resulting in lowering of the cost of capital and maximizing value of firm (Titman, 1984). According to pecking order theory (POT) there exist asymmetric information between insiders and outsiders, outsiders have less information than insiders. This theory argued that the firms would use its internal funds first than would go for borrowing and there would be no target capital structure or fixed debt to equity ratio (Mayers and Majluf, 1984; Mayers, 1984). Therefore firms use capital according to preferences i.e.

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internal equity, short term borrowing, long term borrowing and equity financing (Donaldson, 1961). The agency cost theory (ACT) argued that agency costs between equity and debt play main role in determining optimal capital structure. The principle agent conflict and asymmetric information are the prime causes of agency costs (Jensen and Meckling, 1976). According to signaling theory (ST) the external borrowing is used to give positive signals to the market that firms have stable cash flows and are able to payback loan and interest. As a result share holders trust increases in the firms. Similarly issuing new equity give negative signals showing that firms have no stable cash flows and are not in position to pay back loan and interest (Ross, 1977). 2.2. Determinants used in previous studies conducted in developing countries Previous studies have identified numerous determinants that play influencing role in determining of capital structure. The most common variables used in most of studies are profitability, firm size, growth, tangibility of assets, operating risk and non-debt tax shields. Ferri and Jones, 1979 identified four determinants i.e. business risk; industry type; operating leverage and firm size. Carleton and Silberman, 1977; and Marsh, 1982 used fixed assets; growth opportunities; operating risk; firm size; and non-debt tax; expenditures of advertisement; research and development; insolvency; volatility of earnings; profitability; and uniqueness of products as determinants of capital structure. In 1981 Aggarwal used growth rate; international risk; profitability and country effect is an important factor in determining of capital structure. Park (1998) also identified national culture as independent variable. Myres and Majluf, 1984 proved that capital structure is positively correlated with firm size, while profitability can either be negative or positively related to leverage. Smith and Warner, 1979 showed that dividend policy also play important role in determining capital structure. Kunt and Maksimovic, 1994 conducted study by using ten developing countries sample and used assets tangibility, average tax rate, size, business risk, profitability as independent variables. In India Booth et al., 2002 used assets structure, uniqueness, firm size, growth and cash flows as main determinants of capital structure. Deesomsak et al., 2004 argued that liquidity and share price performance play influencing role in determining capital structure. Huang and Song, (2005) also used managerial shareholdings as variable in determining capital structure. Shahjahanpour et al., 2010 does not used the traditional or most commonly used variables but used variables that are not often used, these variables are product uniqueness, dividend policy, non-debt tax shields, liquidity, and effective tax rate. 2.3. Determinants used in previous studies conducted in Pakistan Limited research conducted relating determinants of capital structure by using Pakistani firm s data. Shah and Hijazi conducted the initial work in 2004 by using the non-financial firm s data and used four independent variables (growth, tangibility, profitability and size). In 2007 Shah conducted a study by using textile industry data. This study used three independent variables (size, profitability and tangibility). In 2007 Shah and Khan extended the previous research by adding more year s data, explanatory variables and relevant models of panel data. Hajazi and Tariq in 2006 analyzed the determinants of Pakistan cement industry and in 2008 Rafiq et al used the

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Chemical industry data. The variables used in these studies were profitability, tangibility, size, growth, volatility of earning, non-debt tax shields and financial reforms. 2.4. Determinants used in previous studies conducted relating banks There are few studies conducted by using banks data from both developed and non-developed countries (Amidu, 2007; Gropp and Heider, 2009; Ça layan and Sak, 2010). Therefore this area is under-explored in the literature. Amidu (2007) used profitability, growth, tax, assets structure, risk and size as explanatory variables where as Gropp and Heider, 2009 used profitability, assets risk, dividend, market to book ratio, collateral and size as explanatory variables. Ça layan and Sak (2010) used tangibility, size, market to book value of assets and profitability as explanatory variables. 2.5. Firm level determinants of capital structure Number of variables identified at firm level that play important role in capital structure determination. In this study assets tangibility, profitability, size, growth, nondebt tax shield, tax and payout ratio are used as independent variables. 2.5.1. Profitability POT assumes that first firms utilize their internal funds such as retained earnings and then go for leverage. Therefore firms with higher profitability would use internal financing more (Mayers, 1984), resulting in lowering of external financing. As a result negative relation exists between leverage and profitability. Al-Sakran, 2001; Chen, 2004 and Chakraborty, 2010 have empirically proved negative relation between leverage and profitability. Studies conducted by using Pakistan firm s data by Shah and Hijazi, 2004; Shah, 2007; Hajazi and Tariq, 2006; Shah and Khan, 2007; Rafiq et al., 2008; and Walliulah and Nishat, 2008 empirically proved negative relation between leverage and profitability. Amidu, 2007 found that total and short term debts are negatively related, whereas long term debts are positively related to profitability. Gropp and Heider, 2009 also proved the negative relation between leverage and profitability of US and European banks. Ça layan and Sak (2010) found negative relation between book leverage and profitability. TOT assumes that when firms have stable cash flows, are profitable then they prefer to use debt because of having more debt serving capacity and more earnings to benefit from tax shield. Similarly, the profitable firms having free cash flows should acquire debt to meet their requirements and should not waste free cash flow to maintain firm liquidity. Hence, positive relationship exits between profitability and leverage. Ooi, 1999 empirically proved the positive relation between leverage and profitability. Most studies have proved empirically negative relationship in developed countries and non-developing countries therefore this study also expects the negative relationship. 2.5.2. Growth POT assumes that growing firms require high level of funds, internal funds would not be sufficient enough to full fill the needs. Therefore external financing would be used to meet the capital requirements, resulting in high debts for growing firms (Drobez and Fix, 2003). Hence, positive relationship exists between leverage and firm growth. Marsh (1982) argued that the firms having high growth opportunity would have high debt ratio. Marsh, 1982; and Cassar and Holmes, 2003 have proved empirically positive relation between leverage and firm growth. Firm growth results in increasing agency costs. The growing firms have more options to invest between the high risk and neutral projects. If firm invest in risky projects, then creditors are reluctant in lending funds at lower rates because of bearing COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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more risk. Thus creditors charge extra premium to the firms, making debt more expensive for the growing firms and firms start issuing equity. Similarly, when firms are growing, earning profits then shareholders due to the conflict with creditors not want to share profits with them, forcing mangers in reducing the debt level. Hence, agency costs resulting in negative relation between leverage and firm growth. Long and Malitz (1985) proved empirically the negative relation between leverage and firm growth. Studies conducted using Pakistan firms data by Shah and Hijazi, 2004; Shah, 2007; Hajazi and Tariq, 2006; Shah and Khan, 2007; Rafiq et al., 2008; and Walliulah and Nishat, 2008 empirically proved negative relation between leverage and firm growth. Amidu, 2007 found that total and short term debts are positively related, whereas long term debts are negatively related to growth. Most studies have found the negative relationship in developed countries, nondeveloping countries; therefore this study also expects the negative relationship. 2.5.3. Assets Tangibility The nature of assets plays important role in the overall level of firm leverage. The firm having more tangible assets than intangible assets would have greater tendency to borrow because firms can pledge tangible assets as collateral. The firm having fixed assets would keep fixed assets as collateral with the lender. On default, tangible assets would be seized, preventing firm from bankruptcy or from incurring agency costs. Thus, firms having fixed assets would more actively use leverage because of fewer chances of bankruptcy and hence positive relations exist between leverage and fixed assets. Berger and Udell, (1998) argued that lending by the banks depend on the collateral provided by the firms. Similarly, firms having fixed assets can borrow at lower rates because of their ability to provide assets as collateral (Jensen and Meckling 1976). This reduces the risk bearded by the lenders and increased firm level of debt. The firms having high level of fixed assets would prefer to borrow by using tangible assets as collateral because of high equity issuing costs and asymmetry of information makes the issued equity undervalued (Scott, 1977). Feri and Jones, 1979; Titman and Wessels 1988; and Chakraborty, 2010 supported empirically the positive relation between leverage and tangible assets. Studies conducted using Pakistan firms data by Shah and Hijazi, 2004; Shah, 2007; Hajazi and Tariq, 2006; Shah and Khan, 2007; Rafiq et al., 2008; and Walliulah and Nishat, 2008 empirically proved positive relation between leverage and tangibility of assets. Amidu, 2007 found that total and short term debts are negatively related, whereas long term debts are positively related to assets tangibility. Gropp and Heider, 2009 also proved the negative relation between leverage and assets tangibility of US and European banks. Ça layan and Sak (2010) found negative relation between book leverage and assets tangibility. In this study positive relation between leverage and tangibility of assets is expected. 2.5.4. Size POT assumes that there is negative relation between firm size and leverage. The larger size more information will be disclosed by firms to the outsiders as compared to the small sized firms. Larger firms with less asymmetry of information may issue equity more than external financing (Rajan and Zingales, 1995). The small firms with asymmetry of information would not be able to raise equity because of undervaluation of equity, higher issues cost of equity and no collateral for long term debt, as a result short

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term debt can be used by small firms. Mazur (2007) and Chakraborty (2010) proved empirically negative relationship between leverage and firm size. According to TOT larger firms are well diversified, having stable cash flows and there chances of bankruptcy are less as compared to small firms. Therefore large firms will prefer leverage and will be having high level of leverage (Mayers and Majluf, 1984). Due to the large size, high level of fixed assets, economics of scale, stable cash flow and creditworthiness large firms have the bargaining power over lender and can borrow at relatively lower rate (Marsh, 1982). Scott, 1972; Carleton and Silberman, 1977; Marsh, 1982; Mayers and Majluf, 1984; and Wiwattanakantang, 1999 found empirically positive relation between firm leverage and firm size. Studies conducted by using Pakistan firms data by Shah and Hijazi, 2004; Rafiq et al., 2008; Hajazi and Tariq, 2006; Shah and Khan, 2007; and Walliulah and Nishat, 2008 empirically proved positive relation between leverage and firm size, where as Shah, 2007 found negative relation between leverage and firm size. Amidu, 2007 found that total and short term debts are positively related, whereas long term debts are negatively related to size. Gropp and Heider (2009) also proved positive relation between leverage and size of US and European banks. Ça layan and Sak (2010) found positive relation between book leverage and size. In this study positive relation is expected between size and leverage. 2.5.5. Tax Modigliani and Miller (MM) (1963) argued that firms would finance entirely through external financing because of tax deductions of interest payments, however this assumption would not apply if debt is interest free. According to TOT with the increase in effective tax rate external borrowing of firm increases. Therefore, a positive relation exists between leverage and effective tax rate. Huang and Song, 2006; and Shahjahanpour et al., 2010 proved positive relationship between tax and leverage. In this study positive relationship is expected between leverage and tax. 2.5.6. Non debt tax shields The non-debt tax shield reduces the level of earnings, which results in the reduction of expected level of interest tax savings and reduces the advantage of using high debt financing. If the firm has non-debt tax shield advantage then they can rely on them, because of bankruptcy costs of increase in debt or chance of loosing any debt tax advantage (De Angelo and Masulis, 1980). TOT suggests the greater use of debt to take advantage of the interest tax shields hence a positive relation is suggested between tax and debt, but here we assume that if firm has non-debt tax shield then it should be used, which makes the lower interest tax benefit for firms having high debt. Therefore, TOT assumes a negative relationship between leverage and non-debt tax shields. Many researchers have suggested that depreciation deduction and investment tax credits can be used as non-debt tax shields and they can be used as alternative to the interest deduction benefit of the debt financing. Most of studies had found negative relationship between leverage and non-debt tax shields (Huang and Song, 2006). Shahjahanpour et al., 2010 and Chakraborty, 2010 found positive relationship between leverage and non-debt tax shields. 2.4.7. Payout ratio Dividend policy is mainly ignored in empirically studies in determining the capital structure. Beattie et al., 2004; and Frank and Goyal, 2004 found that dividend policy proved to be very important determinant in their analysis. The dividend payment by the

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firms decreases the level of internal funds, resulting in the increase in demand for external financing. This results in positive relationship between leverage. POT also supports the positive relationship, but this theory disagrees when there are sufficient internal funds with the firm. Beattie et al (2004) argued that growth opportunity and profitability are closely associated with the firm dividend policy of firms. When firm pay dividend to shareholders its internal funds decreases, resulting in lowering of funds for investment. When firm is expecting growth then it would adjust its dividend payout in such way that it would have sufficient funds for investment. Shahjahanpour et al, 2010 found positive relationship between payout ratio and leverage. 3.1. Methodology To analyze the variables panel data regression analysis was used. The panel data contain both cross sectional and time series data. Panel data can be defined as when cross sectional units (firms, countries etc) are observed over certain period of time. In this study thirteen banks (cross sectional units) are analyzed over period of five years. For all thirteen banks same five years time series data is collected therefore such type of panel is known as balanced panel. The panel data is more informative, efficient, detect and measure those effects too which are ignored by time series and cross section data. Two types of estimation approach are used in panel data regression model i.e. fixed effect approach and random approach. The fixed effect approach model is given as (1) In the above equation is the intercept and has constant value, and are the slope of coefficient, is error term, is the cross sectional unit and t is the time period. The fixed estimation approach takes certain assumptions relating slope of coefficient and intercept into consideration. Few important assumptions are given as. First, the estimation assumes that error term capture differences over time and unit while slope of co efficient and intercept are constant. Second, slope of co efficient changes over time where as intercept remains constant. Third, slope of co efficient changes over time and units where as intercept remains constant. Fourth, both slope of co efficient changes over time and unit. Fifth, both slope of co efficient and intercept changes over time. The random effect model is also known as error component model because here the error term incorporates the changes in both time and unit. (2) Consider as random variable with mean value , and then the intercept value for individual can be expressed as = + (3) Where represents the random error term, having mean value of zero and constant variance. (4) = (5) (6) Here is the composite error term including is individual unit error component and is combined time and units error component. The main difference between the fixed and random approach is that in fixed approach intercept for all units are fixed where as in random approach intercept is mean

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value with individual intercept devotions from mean value. In this study fixed effect approach is used. 3.2. Data and Sample size In this study panel data was used. For each bank six year data was collected. Only thirteen commercial banks in Pakistan fulfilled the data requirement. The data is collected from the annual reports of commercial banks, downloaded from the respective banks websites. The sample for this study consisted of thirteen banks in Pakistan with in 2004 to 2009. The 2004 data was only used to measure the percentage change of total assets for 2005. 4. Empirical results 4.1. Descriptive statistics The table 2 shows the summary of descriptive statistics of leverage used as independent variable and seven independent variables. The leverage had a mean value of 0.863615, indicating that 86.3615 percent funds of Pakistan banks are financed through debt. This means that capital of the banks mainly come from the deposits of customers (both short term and long term deposits). Profitability had a mean value of 0.024342, indicates that banks in Pakistan earn 2.4342 percent return before tax of their total assets. Growth registered mean of 0.664768, represents that the banks of Pakistan grows (increase in size) at the rate of 66.4768 percent on yearly basis. This means that in each year average 66.4768 percent increase in assets of banks occurs. Tangibility had a mean of 0.029151, indicates that 2.9151 percent of total assets are fixed assets. This shows that the investment of banks in fixed assets are very low relative to current assets, because banks are generally concerned with the liquidity of their assets therefore they prefer to keep high ratio of current assets to total assets than the fixed assets to total assets. The mean of size had a value of 18.72557. Tax had a mean value of 0.353527, represents that banks in Pakistan pays 35.3527 percent of the earnings before tax as tax. The mean of non debt tax shields had a value of 0.0036, represents that 0.36 percent of the depreciation accounts to the total assets. The percentage is lower because banks have lower level of fixed assets as discussed above. This shows that depreciation can not be used as alternative to interest tax shields in banks. Payout ratio had a mean of 1.0635. This shows that banks in Pakistan had paid 106.35 percent of earning before tax as dividend to their shareholder. 4.2. Correlation results The table 3 shows the results of correlation between the variables. The positive sign represents the positive relationship and negative sign represents the negative relationship of correlation between variables. The correlation coefficient between leverage and profitability is -0.67988, indicating that with the increase in leverage level profitability of the bank decreases. POT also assumes the negative relationship between leverage and profitability. The leverage is positively correlated with growth, showing that with the increase in assets of banks leverage also increases. This means that the increases in assets of banks are mainly financed through the leverage. The leverage is negatively correlated with tangibility of assets indicating that with the percentage fall in fixed assets leverage level increases. Size and tax are positively correlated with leverage indicating that with increase in tax payments and size, leverage level rises. Non-debt tax shields and payout ratio are negatively correlated with leverage. All these correlations are confirmed by empirical results except one i.e. according to fixed effect approach payout is positively related with leverage. 4.3. Fixed effect model results To empirically test the relationship between leverage and seven independent variables fixed effect approach of panel data is used. The results in table 4 shows that

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83.0259 percent (R- squared= 0.830259) variance in the value of leverage can be explained by seven variables. The table 4 also shows that three variables are found to be statistically significantly related to leverage. The table indicates that intercept does not change significantly over time as the t-statistics are less than two for D_2006, D_2007, D_2008 and D_2009. The detail discussion of results given in table 4 relating each independent variable is given below 4.3.1. Profitability The relation between leverage and profitability is statistically significant with the tstatistics of -2.47847 and p-value of 0.0164. The coefficient value between leverage and profitability is -1.30489. The statistically significant relation and negative value of coefficient validate the expected relation for this study. The results in table 4 provide negative relationship between leverage and profitability. As most of the previous studies proved negative relation (for example: Chakraborty, 2010), therefore this result is consistent with the previous studies results. This result indicates that banks with higher profits use less debt. Banks accumulate earning and use them for operations or financing new projects. When the banks had more accumulated earning then despite of availability of low cost external funds, banks would not prefer debt to finance new projects. This result is in agreement with the POT, which assumes that firms utilizes first their internal earnings, and then go for the external financing (Mayers, 1984). Previous studies conducted by using the banks data also found the negative relationship between leverage and profitability (Amidu, 2007; Gropp and Heider, 2009; and Ça layan and Sak, 2010). 4.3.2. Growth The results in table 4 show that relationship between leverage and growth is statistically insignificant with the t-statistics value of 1.002004 and p-value of 0.3208. The coefficient value for the relationship between leverage and growth is 0.003221. The statistically insignificant relationship and positive value of coefficient rejects the expected relationship for this study. The positive relationship is in consistent with the POT, showing that growing banks require more funds and internal earnings are not sufficient to full fill the capital requirement (Dorbez and Fix, 2003). Therefore growing banks uses more leverage. Amidu, 2007 by using the data of Ghana banks found that total and short term debts are positively related, whereas long term debts are negatively related to growth. 4.3.3. Tangibility of Assets The results in table 4 show a negative and statistically insignificant relationship between leverage and tangibility of assets with the coefficient of -0.9637 with t-statistics value of -1.18687 and p-value of 0.2405. Based on previous studies this study expected positive relation between leverage and tangibility of assets but found opposite result. This result shows that the leverage level decreases as the tangibility of banks increases. The argument to support negative relation can be given as that the banks have low level of fixed assets. Banks are mainly concerned with the liquidity to meet the requirements of its customers; therefore banks prefer current assets which are easily convertible into cash. With increase in level of current assets, banks can meet timely and on demand needs of their customers, where as in case of fixed assets banks are not able to convert them into cash in quick time. Therefore current assets are more important for banks than the fixed assets. As a result banks prefer to have higher current assets by total assets ratio than the fixed assets by

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total assets ratio. So this argument to supply funds on demand can explain the negative relation. Amidu, 2007; Gropp and Heider, 2009; and Ça layan and Sak, 2010 by using banks data found negative relation between leverage and assets tangibility. 4.3.4. Size The results in table 4 show positive relationship between leverage and size with coefficient value of 0.051854. This relation is highly significant with the t-statistics value of 31.31897 and p-value of 0. This result is consistent with the TOT. Results shows that large size banks uses more leverage than the smaller banks, because larger size banks have diversified operations and have less variance in earnings, making it feasible for them to manage high debts (Marsh, 1982). Because of the large size, perceived image of large bank, less variance in earnings makes the fund providers to do not demand for any risk premium for lending to the larger banks. Whereas in case of smaller banks it is more costly to get funds because of the information asymmetry, variance in earnings, smaller size and funds provider demand risk premium for lending to smaller banks. This result is consistent with the expected relation for this study. Previous studies conducted by using bank data support the positive relationship between leverage and size (Amidu, 2007; Gropp and Heider, 2009; and Ça layan and Sak, 2010) 4.3.5. Tax The results show positive relation between leverage and tax with coefficient of 0.012857, t-statistics value of 0.963162 and p-value of 0.3398. The result is consistent with previous studies (for example: Shahjahanpour et al., 2010) The result shows that with the increase in tax rate level, leverage also increases. This result is in consistent with the TOT. The argument for the positive relation is that as interest is tax deductable, therefore banks use higher level of leverage to get benefit of the tax shield. Therefore if the tax rate rises, level of leverage use by banks increases. 4.3.6. Non-debt tax shields The result in table 4 shows that non-debt tax shield has statistically significant relationship with leverage having coefficient value of -11.1838, t-statistics value of 3.45871, and p-value of 0.0011. This result is similar to the expected relationship between leverage and non-debt tax shields. This result is also consistent with previous studies (Huang and Song, 2006). TOT also assumes the negative relationship, because with use of non-debt tax shield the benefit of interest tax shield reduces. This result suggests that the bank leverage will decrease with the increase in the use of non-debt tax shield. 4.3.7. Payout ratio The results in table 4 show positive relation between leverage and payout ratio with coefficient of 0.004928, t-statistics value of 0.196568 and p-value of 0.8449. The result is consistent with the expected sign of this study and previously conducted studies (for example: Shahjahanpour et al., 2010). This result favors the POT, which assumes that with the increase in payout ratio internal funds with firm s decreases, resulting in more external financing for investments in new projects. As a result firms should adjust their payout ratio with the future investments in new projects. When firms are expecting to start new projects, they should reduce or not pay dividend to its share holders. This helps in accumulation of funds and less requirement of external financing. 5.1. Conclusion

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This study aim to find the determinants of capital structure for Pakistan banks by using the book leverage value and set of seven variables. This study used panel data for thirteen banks over the time period of 2005-2009. This study also explores the facts that theories of capital structure to what extent explains the Pakistan banks capital structure determinants. The results showed that out of seven variables three (profitability, size and non-debt tax shields) are statistically significantly related to leverage, indicating that that these three variables play important role in determining the capital structure of Pakistan banks. The remaining four are statistically insignificantly related with leverage. Four expected relation are accepted while three are rejected after empirical analysis. The results showed that negative relation of profitability, positive relation of growth and positive relation of payout with the leverage are in consistent with the POT. Similarly the positive relation of size and tax, negative relation of payout with leverage are in consistent with the TOT. This indicates that POT and TOT both explains the capital structure of Pakistan banks. 5.2. Limitations and Future research This research is done by using the Pakistani banks data, so the results of this study could not be generalized in any other sector of Pakistan economy or in any other country banking system. Future studies can be conducted by using the data from other sectors of Pakistan economy or other developing country banking data. This study uses thirteen banks five years data due to the qualification of these banks of having six years of previous data. Remaining banks are having less than five years of operations and hence were not selected for this study. Similarly, this study uses the book leverage as dependent variable and six independent variables. Future research can include the market leverage and other independent variables. Future studies can be conducted to investigate the influence of risk, bank credit, and liquidity on banks capital structure.

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References Aggarwal, R. (1981). International differences in capital structure norms: An empirical study of large European companies. The Journal of Management International Review, 21, 75-88. Al-Sakran, S. (2001). Leverage determinants in the absence of corporate tax system: The case of non-financial publicly traded corporation in Saudi Arabia. The Journal of Managerial Finance, 27(10), 58-86. Amidu, Mohammad. (2007). Determinants of capital structure of banks in Ghana: an empirical approach. Balttic Journal of Management, 2(1), 67-79 Berger, A.N., Udell, G.F. (1998). The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle. Journal of Banking and Finance, 22, 613-74. Bhaduri, Saumitra. (2002). Determinants of Corporate Borrowing: Some Evidence from the Indian Corporate Structure. Journal of Economics and Finance, 26, 200-215. Booth, L., Aivazian, V., Demirguc-Kunt, A. and Maksimovic, V. (2001). Capital structure in developing countries. The Journal of Finance, 56, 87-130. Ça layan. Ebru, and Sak, Nazan. (2010). The determinants of capital structure: Evidence from the Turkish Banks. Journal of Money, Investment and Banking, 15, 57-65. Carleton, Willard, T and Silberman, I.H. (1977). Joint determination of rate of return and capital structure: An econometric analysis. The Journal of Finance, 32, 811-821. Cassar, G. & Holmes, S. (2003). Capital Structure and Financing of SMEs: Australian evidence. Journal of Accounting and Finance, 43, 123-147. Chakraborty, I. (2010). Capital structure in an emerging stock market: The case of India. Journal of Research in International business and Finance, 24, 295-314. Chen, J.J. (2004). Determinants of capital structure of Chinese-listed companies. Journal of Business Research, 57, 1341 1351. De Angelo, H., & Masulis R. W. (1980). Optimal capital structure under corporate and personal taxation. Journal of Financial Economics, 8, 3-29. Deesomsak, R., Paudyal, K. and Pescetto, G. (2004). The determinants of capital structure: evidence from the Asia Paci c region. Journal of Multinational Financial Management, 144(5), 387-405. Delcoure, N. (2007). The determinants of capital structure in transitional economies. Journal of International Review of Economics and Finance, 16, 400-415. Dorbetz, W., Fix, R. (2003). What are the determinats of the capital structure? Some evidence for Switzerland. working paper ,4/03, WWZ/Department of Finance. Donaldson, G. (1961). Corporate debt capacity: a study of corporate debt policy and the determinants of corporate debt capacity. Working paper, Division of Research, Harvard Business School, Harvard University, Cambridge, MA. Ferri, M.G. and Jones, W.H. (1979). Determinants of financial structures: A new methodological approach. The Journal of Finance, 34(3), 631-644. Gill, Amarjit. Biger. Nahum, Pai. Chenping, and Bhutani, Smitha. (2009). The determinants of capital structure in the service industry: Evidence form United States. The Open Business Journal, 2, 48-53. Gropp, R. and Heider, F. (2009). The determinants of bank capital structure. European Central bank working paper series, 1096, 1-50. Hijazi, S,T. and Tariq, Y,B. (2006). Determinants of capital structure: A case for Pakistani Cement Industry. The Lahore Journal of Economics, 11(1), 63-80.

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Huang, S. G. & Song, F. M. (2005). The Determinants of Capital Structure: Evidence from China. Journal of China Economic Review,1-23. Jensen, M. and Meckling,W. (1976). Theory of the firm: managerial behavior, agency costs and capital structure. Journal of Financial Economics, 3, 305-60. Kunt, A. & Maksimovice, V. (1994). Capital Structure in Developing Countries: Evidence From Ten Countries. Working Paper, The World Bank, Policy Research Paper, 1320. Llewellyn, D. (1992). Bank capital: the strategic issues of 1990s. The Journal of Banking World, 5-20. Long, M. and Malitz, L. (1985). The investment financing nexus: some empirical evidence. Midland Corporate Finance Journal, 3, 53-59. Marsh, P. (1982). The choice between equity and debt: an empirical study. Journal of Finance, 37, 121-144. Mazur, K. (2007). The Determinants of capital structure choice: Evidence from Polish companies. Journal of International Atlantic Economic Research, 13, 495-514. Modigliani, F.,Miller,M.H. (1958). The cost of capital, corporate nance and the theory of investment. Journal of American Economic Review, 48, 261 275. Modigliani, F. and Miller, M. (1963). Corporate income taxes and the cost of capital: a correction. Journal of American Economic Review, 53, 433-43. Myers, S.C. (1984). The capital structure puzzle. Journal of Finance, 39(3), 575-92. Myers, S.C. and Majluf, N.S. (1984). Corporate nancing and investment decisions when rms have information that investors do not have. Journal of Financial Economics, 13(2), 187-221. Ooi, J. (1999). The determinant of capital structure: Evidence on UK property companies. Journal of Property Investment and Finance, 17(5), 464 80. Pandey, I.M. (2001). Capital Structure and Firm Characteristics: Evidence from an Emerging Market. Indian Institute of Management Ahmedabad, Working Paper. Park, H. (1998). The Effect of National Culture on the Capital Structure of Firms. International Journal of Management, 15, 204 11. Rafiq, M., Iqbal, A. and Atiq, M. (2008). The Determinants of capital structure of the Chemical Industry in Pakistan. The Lahore Journal of Economics, 13(1), 139-158. Rajan, R.G. and Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. The Journal of Finance, 50(5), 1421-60. Ross, S.A. (1977).The Determination of financial structure: the incentive signaling approach. Bell Journal of Economics, 23-40. Shah, A. and S. Khan. (2007). Determinats of Capital Structure: Evidence from Pakistani Panel Data. International Review of Business Research Papers, 3(4), 265-282. Shah, A. and T. Hijazi. (2004). The determinants of capital structure of stock exchangelisted non-financial firms in Pakistan. Pakistan Development Review, 43, 605618. Shahjanhanpour, A. Ghalambor, and Aflatooni,A. (2010). The determinants of capital structure choice in the Iranian companies. International Research Journal of Finance and Economics, 56,167-178. Smith, C. W., and Warner, J. B. (1979). On financial contracting: an analysis of bond covenants. Journal of Financial Economics, 7, 16-117.

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Tekar, Dilek. Ozlem, Tasseven and Ayca, Tukel. (2009). Determinants of Capital Structure for Turkish Firms: A Panel Data Analysis. International Research Journal of Finance and Economics, 29, 179-187 Titman, S. (1984). The effect of capital structure on the firm s liquidation decision. Journal of Financial Economics, 13, 137-52. Titman, S. & Wessels, R. (1988). The Determinants of Capital Structure Choice. Journal of Finance, 43, 1-19. Viviani, J-L.(2008). Capital structure determinants: an empirical study of French companies in the wine industry. International Journal of Wine Business Research, 20 (2), 171-194. Waliullah and M. Nishat. (2008). Capital Structure Choice in an Emerging Market: Evidence from Listed Firms in Pakistan. Paper presented in 21st Australasian Finance and Banking Conference. Wiwattanakantang, Y. (1999). An empirical study on the determinants of capital structure of Thai rm. Journal of Paci c-Basin Finance, 7, 371 403.

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Annexure Determinants

Measures

Expected Sign

Leverage

total debt/ total assets

Profitability

profit before tax / total assets

-

Growth

percentage change in total assets

-

Assets tangibility

fixed assets or tangible assets / total assets

+

Size

logarithm of total assets

+

Tax

total tax / earning before tax

-

Non-debt tax shields

depreciation + amortization/ total assets

-

Payout ratio

dividend / profit after tax

+

Table 1: Dependent and independent variables, their measures and expected signs Mean

Median

Maximum

Minimum

Std. Dev.

Leverage

0.863615

0.917878

0.969941

-0.13247

0.166078

Profitability

0.024342

0.022913

0.188078

-0.06147

0.029748

Growth

0.664768

0.147893

22.53679

-0.92146

3.014735

Tangibility of assets

0.029151

0.022949

0.174353

0.004366

0.028432

Size

18.72557

19.15362

20.66588

15.47869

1.572078

Tax

0.353527

0.331538

4.378451

-3.03767

0.744388

Non-debt tax shields

0.003264

0.002087

0.043973

4.59E-05

0.005772

Payout

1.063548

1.000018

6.162483

0.001

0.71901

Table 2: Descriptive statistics of dependent and independent variables

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Leverag e

Profitabilit y

Growth

Tangibili ty of assets

Size

Tax

Nondebt tax shields

Leverage

1

Profitabilit y

0.67988

1

Growth

0.11512 9

-0.1117

1

Tangibilit y of assets

0.59524

0.467557

-0.02992

1

Size

0.54627 6

-0.17014

0.008399

-0.09721

1

Tax

0.12430 9

0.038957

0.016533

-0.14172

0.044633

1

Non-debt tax shields

0.86243

0.722969

-0.08201

0.640014

-0.3443

-0.04778

1

Payout ratio

0.05198

-0.11211

0.081476

0.628919

0.044333

-0.20508

0.0198

Payout ratio

1

Table 3: Correlation matrix Coefficient

Std. Error

t-Statistic

p-value

Profitability

-1.30489

0.526491

-2.47847

0.0164

Growth

0.003221

0.003214

1.002004

0.3208

Tangibility of assets

-0.9637

0.811963

-1.18687

0.2405

Size

0.051854

0.001656

31.31897

0

Tax

0.012857

0.013348

0.963162

0.3398

Non-debt tax shields

-11.1838

3.233516

-3.45871

0.0011

Payout ratio

0.004928

0.025069

0.196568

0.8449

D_2006

-0.01585

0.029315

-0.54069

0.5909

D_2007

-0.02387

0.030922

-0.77194

0.4435

D_2008

-0.04105

0.032994

-1.24423

0.2188

D_2009

-0.0425

0.032166

-1.32139

0.1919

R-squared

0.830259

Adjusted R-squared

0.798826

Table 4: Fixed effect approach results

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Impact of Corporate governance on Financial performance of banks in Pakistan Iqbal Mahmood Faculty of Management Sciences International Islamic University, Islamabad, Pakistan. Zaheer Abbas Assistant Professor, Faculty of Management Sciences International Islamic University, Islamabad, Pakistan. Abstract Primary objective of this paper is to empirically explore the impact of corporate governance on financial performance of banking companies in Pakistan. Sample of this study is 21 leading banks of Pakistan and the sample period covers 2006-2009. Through application of regression approach, it has been observed that large size of board of directors results in increased performance of banking firms which indicate that independence of board of director is effective governance measure for banks. Size of the bank has also significant impact on performance of bank as large sized banks are in a position to avail economies of scale. Impact of leverage on financial performance of banks is also evident. Negative relationship has been found between number of board meetings and ROE. Lot of work is already done on corporate governance with reference to corporate sector, but very few studies have been done with respect to corporate governance and its effects on financial performance of banking firm in Pakistan. Thus, it is an attempt to bridge the gap in the existing literature. Key words: Corporate governance; Leverage; EO-Chairman duality; Financial performance 1- Introduction: Financial sector of any country is of great importance due to its overall role in the prosperity and growth of other sectors of the economy. It is particularly true in the developing economies. It is evident from the studies that reforms in the financial sector of the economy have caused the various macroeconomic variables of the economy to change substantially ( Johnston and Pazarbasioglu,1995). In order to extend the level of financial services to all sectors of economy, Pakistan has also liberalized its banking sector in the last two decades. Issuing of license for opening of new banks, permission to foreign banks to enter into the market and privatization of the state owned banks are some examples of these reforms. Study of corporate governance in the banking sector has been a topic of recent research and there is need of doing more work in this area ( Macey and O Hara 2003). Although, corporate governance in the corporate sector is rich in research studies of the past as lot of work is done in this area but few studies have also been conducted previously in the banking sector as by Prowse in 1997 and by Wallace in 2006. We used the data of 21 banks of Pakistan including state owned, privatized, foreign owned private and domestically owned private banks in order to analyze the influence of governance reforms on the financial performance of these banks. Nature of banking

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business places importance on the element of risk and safety in its transactions which demands that an effective mechanism of monitoring should be developed. This mechanism is developed through regulatory system. Pattern of this regulatory system is enforced in Pakistan by the central bank through its agencies. These regulatory bodies ensure that banks have maintained a capital ratio corresponding to the risk factor involved in its transactions. Rating of banks is done by the supervisory bodies with reference to their risk management. Same regulations are issued by the regulatory bodies to all the banks irrespective of their nature of ownership. Studies have proved that there is difference in the effectiveness of power between the large publicly held and privately managed firms. Thus, the executives of small privately held institutions possess more power to influence the results of their firms as compared to the executives of large and publicly held firms(Eisenhardet and Schoonhovenm,1990). It can be generalized for the banking firms as well. As the information asymmetry is great in large and publicly held banks as compared to the private banks, so agency problems in the private banks are not as strong as in publicly held banks. Managers in the public firms work for their own gains but managers in the private firms are also the executives or owners, so they work for their own welfare. Literature proves that governance of banking institutions is different from the governance of non banking institutions due to lack of interest of fixed claimants in the activities of the banks because of insurance of their deposits (Mullineaux, 2006). Elizbeth Webb Cooper, 2009 state that there is no effect of regulatory rating on governance in private banking institutions and presence of insiders on the board structure is beneficial for both CEO and directors in terms of their remuneration. They also proved that rating of banks by regulatory bodies is not important regarding to structure of governance. It means that banks where the management and ownership is same can not be substantially benefited with the presence of strong supervision. The main objective of this paper is to investigate the effects of corporate governance on the financial performance of the banking sector of Pakistan as this area was lagging behind previously in the literature as a research topic. Thus we have tried to fill the gap in the research studies. We have taken the size of board of directors of various Pakistani banks, meetings held by these boards in a year and CEO-Chairman duality as variables of corporate governance. Whereas ROE and ROA has been taken as variables of financial performance of the banking sector. Thus, impact of corporate governance on the financial performance of the banking sector has been tested. 2-Literature Review Although banking sector performs key role in the development and growth of other sectors of economy, but there is limited research regarding the governance issues in the banking industry. Corporate governance in the banking institutions differs from the governance issues of other corporate sector of the economy. Firstly, check of regulatory bodies on the banking firms is closely supervised in order to ensure the safety and security of the depositors. Banks which do not adhere to the regulations are brought into the frame work of the regulatory bodies. Secondly, the claimants in the banking sector do not show great interest in the affairs of the bank due to insurance of their deposits mostly by the government. Several studies on the governance issues of the banks conducted previously show the mixed results. Study conducted by Griffin,Fobelberg and Weeks in 2002 states that CEO-Chairman duality significantly affects the performance of banks.

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While the study of Core,Holtausen and Larcker (1999) depicts the different situation by explaining that independence of the non bank board is largely influenced by separation of CEO and chairman position. An other study by Griffith et al. in 2002 reveal that there is non linear relationship between bank performance and ownership by CEO. Some other studies have also shown significant effect of corporate governance reforms on performance of banking institutions. Private Banks better manage their organizational structure which assists them to perform at their level best as compared to foreign and state-owned banks. State-owned banks have worse performances due to inefficiencies in their management structure. Moreover, privatized banks face difficulties in the immediate next year of their restructuring and face losses at the start till their adjustment. But once they adjust, their performance starts getting better. It is also evident that small and financially weak banks also start to exploit new profit making opportunities after Merger & Acquisition (M & A). Burki, A.A., Ahmed,S., (2009). State-owned banks are normally less profitable and least efficient as compared to other type of banks due to poor corporate governance. The banks which undergo structural changes through being acquired partially by the foreign firms or by public outperform after this change. Moreover, the banks which are acquired by foreigners or which go for public listing do not improve their performance after such change in their ownership structure. In order to attract foreign and private investors, the government should sell the better banks first so that effects of governance reforms may advance properly (Lin, X., Zhang, Y., 2007). According to study of Limi, A., (2004) regarding Pakistani banks, although scale economics for large commercial banks are decreasing, but scale and scope economies are yet evident in banking industry of Pakistan. Increase in operational size of each financial service provided by the banks except demand deposits will result in significantly saving of cost effects. Scale and scope benefits can be achieved by targeting the objectives and increasing the use of technology in which private banks and stateowned banks differ. The banking governance reforms introduced in Pakistan in 1990 including selling of major assets of stat-owned banks to private investors, issuance of licenses for opening new banks, close supervision of banks, mandatory requirement of large amount of capital and other changes in prudential regulations have varying degree effects on various banks. The first period of reforms in 1990 resulted in moderate increase in banks profit in the next two years, because productivity of profit was greater in these years as against the effects of adverse change in economic conditions. In 19982002, the adverse effect of changed business environment was greater than the productivity of profit which resulted in decline of banks profit (Patti, E. B.d., Hardy, D.D., 2005). It is also evident from the study that number of inside persons on the board structure also has positive impact on compensation of directors and executives of commercial banks. The rating scales-CAMELS are assigned in this study (Cooper, E.W., 2008). Studies have also confirmed that foreign banks are the most efficient users of their Labour force in Pakistan & India due to application of better governance techniques. Public domestic banks are the least efficient in the sense of their labour efficiency, while private domestic banks fall in between these two (Jaffery, S., Ghulam, Y., Cox., 2008). In a study conducted by Anderson, C.W., Campbell II, T.L., 2004, a significantly negative relationship is found between banks performance and non routine turnover of banks presidents in the crisis year 1991-1996. Return on stocks of more than 100 banks which are listed on Tokyo Stock Exchange are used as measure of bank performance. However,

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no relationship is found between these two variables in the pre-crisis period 1985-1990. it is also proved from the research that after Asian financial crisis of 1997, the banking governance reforms are introduced in Thailand s banking sector. As a result of these reforms, stock returns of the banking sector have become more causal to stock market returns of Thailand. (Wickramanayake,J., Skully, M., Pathan, S., 2006). Another study by Zahang, Z., Yao, S., jiang, C., (2009) embodied the effects of governance reforms on banking sector of China by explaining that joint stock commercial banks and state-owned commercial banks of China are the best performers with respect to income and earning based model respectively. While the city commercial banks group is identified as the least efficient banking group. It is also found that foreign banks in China being more efficient technically are relatively more efficient in generating income than in earning assets. The relationship between bank valuation and regulatory policies, ownership structure and legal protection laws of minority shareholder is also found in a study of Caprio, G., Leaven, L.,Levine, R. (2007). Protection laws of weaker shareholders lower the valuation of bank and greater cash flow rights mitigate this effect. Evidence was also found that larger cash flow rights by controlling stockholders increases the bank valuation. 3-Data In this paper we have collected data relating to corporate governance issue in commercial banks working in Pakistan. Data about 21 leading commercial banks working in Pakistan has been collected from various published sources like SBP and from individual banks. In this study, return on assets (ROA) and return on equity (ROE) have been taken as dependent variables. Size of board of director, number of board meetings, CEO-Chairman duality, ratio of owner equity to total assets taken as measures of leverage, total assets have been taken as independent variables. Three dummy variables of D2007, D2008 and D2009 have also been incorporated in the model.

Table -1 shows the result of descriptive statistics. It is the summary statistics of the variables during sample period 2006-2009. It is evident from the table that mean value of ROE is 0.026 and ROA is 0.0018. We have also used board meeting board size and log of assets of the sample banks as variables during the sample period. Average number of meetings held during the sample period is 6 with maximum value 15 and minimum of 4 whereas board size depicts that average size is 8 with maximum value of 18 and minimum value of 6. Average of log of assets is 18.37 with a maximum value of 20.66 and minimum of 15.20. Average ratio of equity to total assets of the sample banks shows value of 0.136 with maximum of 0.497 and minimum of 0.025. This ratio is used a measure of leverage in the sample period.

In the table 2, correlation among the variables is calculated. It is evident that CEOChairman Duality is positively related to leverage and board size while negatively related

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to assets, board meeting, return on equity and return on assets. Negative correlation between leverage and assets, return on equity and return on assts is also found. It is logical that increase in leverage will have adverse effect on return on equity and return on assets. Positive relation is also observed between assets and size of board which indicate as the size of board increases, it has positive impact on size of assets. Positive impact of board size on return on equity and return on assets is also logical. Number of meeting by board is having negative impact on return on equity but positive impact on return on assets. Positive relationships found between return on equity and return on assets is also logical.

4- Econometric Model & Hypotheses Testing Corporate governance studies suggest that in order to understand the effect, all the variables should be incorporated collectively into analysis instead of isolation. In this study, we have used two variables as measure of financial performance of banking sector. These variables are return on assets (ROA) and return on equity (ROE). Board of directors, board size (lnbs), number of board meetings (LNMEET), CEO-Chairman duality (DUA) are used as measure of corporate governance. But all the banks in our sample except one have separate chairman & CEO. So this variable has been excluded from the analysis. Measure of leverage (LEVR) is calculated by dividing equity of banks by their total assets. Whereas, total assets (LNASSETS) have been used as proxy of size of banks. We have used natural log of board of size, board meetings and assets of the banks. Board of directors size is used as measure of independence of board. Large board size will reflect measure of board independence. Apart from these variables, three dummy variables in the name of D2007, D2008 and D2009 are used in this study. Our hypotheses are that board size, number of board meetings, total assets of banks and leverage measure should have its effect on bank performance i.e, return on assets and return on equity. The following two OLS equations have been derived to test the effects of independent variables on the dependent variables: ROA = o + 1 (LNBS)t + 2 (LNMEET)t + 3 (LNASSETS)t + 4 (LEVR)t + 5 (D 2007)t + 6 (D2008)t + 7 (2009)t ROE =

(1)

0 + 1 (LNBS)t + 2 (LNMEET)t + 3 (LNASSET)t + 4 (LEVR)t + 5 (D2007) t+ 6 (D2008)t + 7 (2009)t

(2)

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Table 3 exhibits the effect of regressors on the regressend i.e., return on equity (ROA). Results indicate that Positive correlation exists between independent variables and dependant variable. It is evident from positive coefficients of independent variables. As the board size and number of board meetings increases return on equity also increases but are insignificant because their values of 1.49 & 0.70 are less than 2. Moreover, increase in leverage also increases return on assets. T-Statistic value indicates that there is significant relation ship between total assets and returns on assets because its value is 4.11 which is greater than 2. Surprisingly, the leverage is found to be insignificant which is not consistent with Static trade theory of capital structure. Significant relationship of bank size supports the arguments of technological theory of firms which states that large size banks are more profitable due to economies of scale. National bank of Pakistan which is the largest bank with respect to the size of assets have been awarded being the largest bank. This achievement of the bank is also supported by our study. Intercept of 2007 is not significantly different from intercept of 2006 because its t-statistic of 1.12 is less than 2. However, intercept has changed significantly over the year 2008 and 2009 because in these years t-statistic values are 2.41 and 2.40 which are higher than 2. Table 4 explains that board size, bank size measured by its total assets and leverage have positive impact on ROE. Variable of corporate governance i.e., board size (LNBS) having positive correction with ROE. It indicates that increase in board size results in increase of ROE. But negative correlation is observed between number of board meetings and ROE. Although, there is positive correlation between board size and ROE, but their relationship is insignificant because t-statistic value of board size is 1.20 which is less than 2. Likewise, relationship of number of meetings (LNMEET) with ROE is also insignificant because of t-statistic value of 1.53 being less than 2. Relationship of bank assets (LNASSETS) and leverage ratio (LEVR) with ROE is however found to be significant because their t-statistic values of 4.11 and 2.23 respectively both are greater than 2. Positive and statistically significant relationship of bank size and ROE is according to firm theory that large size firms can increase their profitability due to economies of scale and positive relationship of leverage and ROE is also according to capital structure theory which states that increase in leverage increases the profitability of companies. Intercept of 2007 and 2008 is significantly by different from intercept of 2006 because in these years t-statistic of 1.22 and 1.36 are less than 2, but intercept of 2009 is not significantly different from intercept of 2006 because its t-statistic of 2.65 is greater than 2. It can be implied that large board size indicates the independence of board. Greater the independence of board of directors, higher will be the financial performance of banks. Similarly, larger the size of bank, higher will be the Profitability. It is also evident in this study that leverage also results in enhancing the efficiency and profitability of banks. Lastly, an inconsistent result is found in this study regarding number of board meetings which is positively correlated with ROA, but negatively correlated with ROE.

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5-Conclusion Banking sector provides base for the development and growth of other sectors of economy. Sufficient research has been done on governance issue of private firms working in the corporate sector, but governance literature on the banking sector is very rare particularly with reference to Pakistan. In this paper, we have made an attempt to address the governance issues in the banking sector of Pakistan and tried to bridge the gap in the existing literature. Mechanism of corporate governance in banks is different from other private firms because of strict monitoring of banks operations by the regulatory bodies. Banks have to adhere to regulations issued by the monitoring agencies and have to face the adversities due to non compliance of various prudential and other regulations. Moreover, deposits of the depositor are insured and backed by government. It cause back of interest in operational activities of the banks by the depositors. Monitoring agencies have very less control over size of board of director of banks and their meetings held during a year. We have focused corporate governance issue of banks in Pakistan by incorporating the structure of corporate governance through the variables of number of board meetings and size of board of director in this paper. Using sample of 21 leading commercial banks of Pakistan over the period 2006-2009, it is found that size of bank and board of director size are having their effect on financial performance of banks. It is evident that financial performance which is measured by ROA & ROE is positively correlated with bank size, board size and leverage. Only one variable of corporate governance i.e., number of meetings of board of directors is having negative correlation with financial performance measures of ROE. Durban-Watson state also shows the non existence of auto-correlation. F-Statistic proves the overall significance of the model. The result is according to our hypothesis that mechanism of corporate governance impacts the financial performance of banks. Monitoring bodies should establish a mechanism to extend the board size by including external directors in the board because research literature has indicated that number of insides on the board and CEO-Chairman duality for their own welfare and have control and influence on the board decisions. Imposition of increased capital limit by the regulatory bodies and increase in limit of number of branches of the banks will also be helpful in order to increase the size of bank.

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References Andersen, T., & Tarp, F. (2003). Financial liberalization, financial development and economic growth in LDCs. Journal of international Development, 15, 189-209. Anderson, C., Makhija, A., (1999). Deregulation, disintermediatian, and agency costs of debt: evidence from Japan.Journal of Financial Economics 51. 309- 339 Beiner, S., Drobetz, W., Schmid, M., & Zimmermann, H. (2006). An integrated framework of corporate governanceand firm valuation. European Financial Management 12, 249-283. Berger, A.N. (1993). Distribution-free estimates of efficiency in the US banking industry and tests of the standard distributional assumptions. Journal of Productivity Analysis 4. 261-292. Berger, A.N., Mester. L.J. (2003). Explaining the dramatic change in performance of US banks: Technological change, deregulation, and dynamic changes in competition. Journal of Financial Intermediation 12, 57-95. Carter, D. A., Simkins, B .J., & Simpson, W. G. (2003). Corporate governance, board diversity, and firm value. Financial Review, 38, 33-53. Core, J. E., Holthausen, R.. & Larckcr, D. F. (1999). Corporate governance, chief executive officer compensation, and firm performance. Journal of Financial Economics, 51, 37 1-406. Anderson,C.W., Campbell II,T.L.(2004). Corporate governance of Japanese banks. Journal of Corporate Finance. 10,327-354. Eisenhardt. K., & Schoonhovenm. C. (1990). Organizational growth: Linking founding team strategy, environment, and growth among US semiconductor ventures. Administrative Science Quarterly, 35, 504-529. Cooper, E. W. (2009). Monitoring and governance of private banks. The Quarterly Review of Economics and Finance 49 (2009) 253-264. Patti, E.B.d.,Hardy,D.C. (2005). Financial sector liberalization, bank privatization, and efficiency: Evidence from Pakistan.Journal of Banking and Finance, 29,2381-2406. Fiegener, M., Brown, B., Dreux. D., & Dennis. W (2000a). The adoption of outside boards by small private US firms.Entrepreneurship and Regional Development, 12,291309. Griffith, J., Fogelberg, L., & Weeks, H. S. (2002). CEO ownership, corporate control, and bank performance. Journal of Economics and Finance, 26, 170-83.

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Hardy, D., & Patti, E. (2001). Bank reform and bank efficiency in Pakistan (IMF Working Paper No. WP/Ol/ 38).Iimi, A.(2004). Banking sector reforms in Pakistan: economies of scale and scope, and cost complementarities. Journal of Asian economic, 15,507-528. Jensen, M. (1993). The modern industrial revolution and the failure of internal control systems. Journal of Finance, 48,831-880. Jensen, M. (1993). The modem industrial revolution, exit, and the failure of internal control systems. Journal of Finance 48,831- 880. Lin, X., Zhang,Y.(2006). Bank ownership reforms and bank performance in China. Journal of Banking and Finance , 33,20-29. Macey,j., & O Hara, M. (2003), The corporate governance of banks. FRBNY Economic Policy Review. 91-107. Mullineaux, A. (2006). The corporate governance of banks. Journal of Financial Regulation and Compliance, 14,375-382. Prowse, S. (1997). Corporate control in commercial banks. The Journal of Financiol Research, 20,509-527. Rizvi,S. (2001) Post-Liberalization efficiency and productivity of the banking sector in Paktsian. The Pakistan Development Review, 40, 605-632.

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Annexure Table 1:

Descriptive Statistics: Log of assets, board of directors size, CEO-Chairman duality, measure of leverage, number of board meetings, return on assets and return on equity LN ASSETS BS DUA LEVR MEET ROA ROE 18.3725 8.72619 0.952381 0.136733 5.964286 0.0018 0.025613 Mean 18.75522 8 1 0.107753 6 0.008161 0.085118 Median 20.66765 18 1 0.497652 15 0.037189 0.317052 Maximum 15.20795 6 0 0.025677 4 -0.07449 -1.64649 Minimum 1.415483 1.83901 0.214238 0.089303 2.038464 0.024627 0.304389 Std. Dev. -0.33166 1.881193 -4.24853 1.599361 1.67983 -1.61965 -3.55013 Skewness 2.069923 9.306281 19.05 5.886626 6.885232 5.139879 17.95899 Kurtosis

Jarque-Bera Probability

4.567656 0.101893

188.7366 0

1154.309 0

64.9755 0

92.3382 0

52.75262 0

959.6471 0

84 84 84 84 84 84 84 Observations In this table, summary statistics of the sample banks data regarding the above mentioned variables is presented during the sample period 2006-2009.

Table 2: Correlation matrix of variables DUA LEVR LNASSETS LNBS LNMEET ROE ROA 1 DUA 0.005987 1 LEVR 1 LNASSETS -0.33467 -0.60695 0.245697 -0.28756 0.206478 1 LNBS -0.44878 0.029312 0.127442 -0.15529 1 LNMEET -0.10495 -0.06337 0.332331 0.203222 -0.08604 1 ROE -0.18915 -0.27211 0.478234 0.237355 0.121766 0.76585 1 ROA A correlation matrix among the CEO-Chairman duality, leverage, assets, board size, number of board meetings, return on equity and return on assets is presented in this table. DUA is CEO-Chairman duality. LEVR is measure of banks leverage which is calculated by dividing equity by total assets. LNASSETS is natural log of total assets. LNBS is board of director size. LNMEET is natural log of number of meetings by board of director. ROE is return on equity and ROA is return on assets.

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Table 3: Simultaneous relationship between performance measure ROA and independent variables. Dependent Variable: ROA Method: Least Squares Date: 12/24/10 Time: 18:56 Sample: 1 84 Included observations: 84 Variable Coefficient Std. Error t-Statistic Prob. LNBS LNMEET LNASSETS LEVR D2007 D2008 D2009 C

0.019543 0.00572 0.008706 0.018775 -0.007415 -0.015762 -0.015883 -0.202867

0.013097 0.00811 0.002116 0.033732 0.006613 0.006535 0.006612 0.050256

1.492173 0.705337 4.113713 0.556585 -1.121256 -2.41206 -2.40205 -4.036708

0.1398 0.4828 0.0001 0.5794 0.2657 0.0183 0.0187 0.0001

R-squared 0.330368 0.0018 Mean dependent var Adjusted R-squared 0.268691 0.024627 S.D. dependent var S.E. of regression 0.02106 -4.792449 Akaike info criterion Sum squared resid 0.033709 -4.560942 Schwarz criterion Log likelihood 209.2828 5.356454 F-statistic Durbin-Watson stat 1.907316 0.000052 Prob(F-statistic) DUA is CEO-Chairman duality. LEVR is measure of banks leverage which is calculated by dividing equity by total assets. LNASSETS is natural log of total assets. LNBS is board of director size. LNMEET is natural log of number of meetings by board of director. ROE is return on equity and ROA is return on assets.

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Table 4: Simultaneous relationship between performance measure ROE and independent variables. Dependent Variable: ROE Method: Least Squares Date: 12/24/10 Time: 19:06 Sample: 1 84 Included observations: 84 Variable Coefficient Std. Error t-Statistic Prob. LNBS LNMEET LNASSETS LEVR D2007 D2008 D2009 C

0.205817 -0.162481 0.113363 0.980205 -0.105488 -0.116244 -0.228548 -2.238244

0.170449 0.105542 0.027544 0.438997 0.086067 0.085043 0.086052 0.654047

1.207499 -1.539493 4.115733 2.232827 -1.225647 -1.366884 -2.655918 -3.422143

0.231 0.1278 0.0001 0.0285 0.2241 0.1757 0.0096 0.001

0.25756 Mean dependent var 0.025613 R-squared 0.189178 S.D. dependent var 0.304389 Adjusted R-squared 0.274089 Akaike info criterion 0.339667 S.E. of regression 5.709494 0.571173 Sum squared resid Schwarz criterion -6.266006 F-statistic 3.766463 Log likelihood 2.258519 Prob(F-statistic) 0.001479 Durbin-Watson stat DUA is CEO-Chairman duality. LEVR is measure of banks leverage which is calculated by dividing equity by total assets. LNASSETS is natural log of total assets. LNBS is board of director size. LNMEET is natural log of number of meetings by board of director. ROE is return on equity and ROE is return on equity.

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Performance measurement by Data Envelopment Analysis (DEA): A study of banking sector in Pakistan

Jahanzaib Sultan Lecture Dept. Banking & Finance GCUF Student of MS-FIN IIU Islamabad, Pakistan Muhammad Bilal Research Fellow, Faculty of Business administration, IIU Islamabad, Pakistan Dr. Zaheer Abbas Assistant Professor Faculty of Management Sciences International Islamic University Islamabad, Pakistan. Abstract Most of the studies, in the past have solely focused on efficiency of the firms / banks. Those were intended to find out either the DMUs are efficient or not. In Pakistan, studies were conducted on the basis of stage-1 analysis and those were only for the present data. As a result, this research, using the enhanced and innovative idea of 2-stage DEA frontier approach that differentiate among the efficiency and effectiveness, evaluates the performance of 10 listed banks of Pakistan for the past 5 years. After empirically testing the idea above, we found the results, as expected, that the bank having efficiency does not always bear effectiveness. No evidence of such correlation was found. Key words: Data Envelopment Analysis, Bank performance, Decision making unit, Financial ratio analysis, efficiency, effectiveness. 1. Introduction The competitive environment in financial sector, specially banking sector, has arisen the need to introduce new methods to appraise the bank performance in context of risk and return which are part and parcel for this particular sector. Previously, the regulatory authority was using simple financial ratios in order to evaluate the bank performance. Financial statement analysis seems to be a good measure, though, it has a disadvantage. In this approach, there is a comparison of each single ratio with some benchmark ratio, while assuming that other factors are kept constant and the benchmark selected is the best suitable choice. As a remedy to the above problem a variety of financial ratio are calculated and their combination is used to form an overall picture of the firm. It is proven easy to calculate the financial ratios from the financial statements but it is a complex rather difficult task to aggregate the result and process of these ratios. A very learned imagination as well as the experienced judgment is also needed. This has become COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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even more difficult with the rapid change in economic conditions. In this situation, the need for more flexible approach, to evaluate the firm s financial position and performance, has got its significance enriched. A number of studies have been conducted in the past to use the statistical methods (such as logit, probit analysis) with these financial ratios that help in generating early-warnings or wake-up call for the inefficient banking institutions (e.g. Jordan and Henderson, Espahbodi, Abrams and Huang). Data envelopment analysis (DEA), computes the efficiency of the firm by transforming its inputs into outputs relative to its peers, has provided a new and fine mechanism for this purpose as proposed by Charnes et. al (1978). Since the DEA model was proposed, it has been used widely and extensively by different researchers, in non-profit organizations such as in universities by (Sarrico, C.S and Dyson, R.G 2000), health organizations by (Harris, Ozgen and Ozcan 2000) and law enforcement forces (Thanssoulis, 1995). Afterwards, its application is expanded to appraise profit organizations, such as banking industry (Chen and Yeh, 1998, Sherman and Gold, 1985 and Oral and Yolalan, 1990), securities (Lin, Chi-Huang 1998), insurance (Meric, G. and Meric, I. 2001). But most of these above mentioned studies have done one-stage efficiency analysis. DEA was further expanded for two-stage efficiency as well as effectiveness of the firm by Chein-Ta Ho and Dauw-Song Zhu in 2004. This research paper focuses on the two-stage DEA model in order to evaluate the efficiency of the Pakistani Banks. Earlier, this approach was been used by Abdul Qayyum. The variable used in above said studies were technical efficiency (TE), pure technical efficiency (PTE) and scale efficiency (SE), but it was a one stage analysis. The data set was up-to 2005. 1.1 Banking in Pakistan When independence of Pakistan occurred, Pakistan got Habib Bank Limited in inheritance, which was established in 1941 Bombay (Mumbai). After the creation of Pakistan the bank was shifted to Karachi. Next year of creation, the Pakistan government established a to regulate, i.e; central bank, named as State Bank of Pakistan (SBP). The banks in Pakistan were nationalized by the government of Pakistan in 1974. The aim was to make the credit available for the high priority sectors of economy (Haque and Kardar, 1993). This step from government left no room for the private sector in banking business. The act of nationalization was not proven to be a good one for the particular sector as it affected the performance negatively. After continuous efforts and evaluation of the nationalized banks government withdrew its decision. In order to improve the efficiency of the sector and to promote the competition the first step was taken and twenty (20) banks were allowed to commence their business which includes ten (10) domestic banks. The process for denationalization / privatization of Nationalized Commercial Banks (NCBs) was also initiated. Now, most of the banks are privatized, including three big names of HBL, MCB and ABL. In Pakistan, the banking industry has shown a brisk growth in past decade. This intense competitive environment leads to the change in the sector s behavior towards innovations, the product offered, product development and the services offered to the customers.

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Banking industry is the back bone of the whole financial system of any country and serving as a bridge between the outer world and financial resources. Thus, the evaluation and appraisal of its efficiency, as well as effectiveness, both are very vital for this competitive environment. The rest of the paper is organized as follows. The next section describes the relationship between DEA approach, traditional ratio analysis, one-stage and two-stage DEA model. Following section defines the evaluation process and its corresponding factors / variables (input and outputs). Next section is for DEA methodology followed by empirical analysis of 10 Pakistani banks for last 5 years, i.e 2005-2009. The final section explains our conclusions. 2. The Literature Review The titanic literature on measurement of financial performance of banks has provided two ways to calculate the banks performance in terms of their efficiency and effectiveness. First method is to show a comparison between financial ratios, balance sheet and income statement items of different banks or different time periods of same bank. Avkiran, (1995) argued that, mostly the measurement of financial performance of financial institutions and all categories of banks are done by using a blend of financial ratios, making a point of reference and measuring performance against budget or any combination of these techniques. Charles Okeahalam and Victor Murinde (2004) evaluated the financial performance by using balance sheet and income statements items of the African Development Bank in his paper. There are three measurements which are used to draw the picture of financial situation of a bank. The profits of a bank or net income of a bank is the first method for analyzing the performance and this technique is used by (Eastlack and McDonald, 1970; Thune and House, 1970; Ansoff, 1971; Herold, 1972; Karger and Malik, 1975). The second method is return on equity which is calculated through dividing net income by shareholders equity and this technique is used by (Earle and Mendelson, 1991). They argued that the ultimate measure for the performance of any bank is not the number of branches it has or the total worth of all of its assets but the actual measure is its return on shareholder equity. Some other related articles agree that ROE should be used to calculate the financial performance of any bank. (Heskett, 1986) & (Channon, 1978) both supported to use ROE for the measurement of financial performance of service organizations and banks are typically service organizations. The third method to measure financial performance is Deposit growth used by (Willie and Shirly, 1997; Lenzner and Mao, 1995; Gup and Whitehead, 1989). Deposit growth means the percent change in consumer deposits for each bank. (Johnson and Johnson, 1989) argued that 70 to almost 90 percent of the funds are generated by the consumer deposits of the banks and thus a substantial amount of designed actions are committed to sustaining this purpose. Stock market return and return on assets both measures are used by (Lambert, Larcker, and Janakiraman, 1992; Barro and Barro, 1991; Keats, 1990; Sloan, 1993; Shrieves and Lubatkin, 1986) to evaluate bank financial performance. Statistical methods (like discriminant, logit, and probit analyses) are attempted to use by a number of studies with financial ratios to make early-warning signals for concerned banking institutions (Henderson and Jordan, Huang and Abrams, Espahbodi).

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Financial ratio analysis, however, has one disadvantage. That is, each single ratio have to be weighed against some benchmark ratios one at a time whereas one believes that other factors are fixed and the benchmarks chosen are suitable for comparison. To conquer this problem different financial ratios are usually required to be computed and combined to form a meaningful picture of a firms financial position. Although the calculation of a set of financial ratios is a comparatively easy job, the aggregation of those ratios can be a quite complicated process involving imagination and experienced judgment. Changing economic conditions have made such aggregations even more difficult, increasing the need for a more flexible way to express a banks financial position. The second one is advanced and improved way to evaluate the effectiveness and efficiency of the banks by Data Envelopment Analysis DEA model. Data envelopment analysis (DEA) was proposed by (Charnes, 1978) and it is a linear programming technique made particularly for the evaluation, and comparing the performance of comparable organizations. Free disposal hull (FDH) analysis proposed by (Deprins, 1984) is a close mixed technique by integers, developed for the same objective. Both the methods can evaluate and compare the performance of organizations that consumes many resources to provide several services; this makes them very useful in calculating the financial performance of commercial banks. (DEA) is a mathematical approach for synchronizing the relationships among several inputs and several outputs and is a sure method to measure performance of bank (Charnes 1990; Seiford and Zhu, 1999). There is much work on basic and applied research in DEA. People have taken its use in many non-profit organizations like education (Sarrico and Dyson, 2000), hospitals (Harris et al., 2000), police forces (Thanassoulis, 1995). Later, uses are seen in profit organizations, like mutual fund industry (Tarim & Karan, 2001; McMullen & Strong in 1998), security (Lin: 1998), insurance (Mahjan: 1991), medicine (Valdmenis & Grosskopf: 1987), stocks (M and M, 2001), and airport industry (Huang & Huang, 2000; Schefczyk, 1993), banks(Oral and Yolalan, 1990; Gold & Shermen, 1985; Chien and Dauw, 2004; Golany and Storbeck,, 1999). So, the attention of this paper is altered from attempts to describe performance on the basis of simple ratios, return on investment or return on asset to a multidimensional outlook. The paper uses a recently developed type of DEA presented by (Cuper et al, 2000). 2.1 Financial statement analysis (FSA) and DEA approach People rely on FSA believing that it will reflect the results of firm s activities shown in their financial statements. So, one could get a picture of firm s performance from its financial statements and the reasons behind this. Financial statements of firm are the source to get information about the firm s management performance and its future prospects. The given information can be helpful for the stakeholders subject to accuracy and completeness of the expressed accounts. Criticism on this approach expresses that there is no standard criterion available to select the best ratio among the others. Say, if there are two firms A and B, it might be possible that for one ratio X firm A is efficient, while, for the other ratio Y firm B is better than firm A. So, there is instability in the above said approach. DEA one-stage is another option for the researchers but again it only measures the efficiency of the firm. Necessarily, the firm should be efficient as well as effective for COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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better performance. Thus, an extension to this one-stage DEA is needed that separates the efficiency and effectiveness. The later, two-stage DEA evaluation process is composed of the level of assets required to generate sales (loans and advances) in first stage and generate profit (effectiveness) in the second one. The selection of inputs and output variables is prejudiced by literature on DEA application in the banking industry. The variables used in the previous literature and evaluations are listed in TABLE 1. The evaluation process consists of two levels or stages. In stage-1 evaluation, efficiency is being measured, i.e the ability of the bank to generate advance and deposits with respect to its capital stock, assets, number of branches and number of employees. The stage-2 focuses on the evaluation of effectiveness i.e net-income, interest-income and non-interest income. 2.2 The DEA Model The data envelopment analysis (DEA) is basically a mathematical programming approach used for the evaluation of firms performance. With the help of pragmatic values (inputs and outputs), it tries to determine the envelopment surface for the firms in the sample. The firm, that lye on the surface, is deemed to be efficient having a value of unity (1). The deviation from the estimated frontier is inefficient. Banks in the sample for DEA approach are referred to Decision Making Units (DMUs). We have used the static approach of DEA model built in DEAFrontier analyst software developed by Joe Zhu and below is the mathematical approach given to evaluate the efficiencies of all DMUs. Methodologically, the characteristics of DEA can be described through the original model developed by Charnes, Cooper and Rhodes7. Consider N units (each is called a Decision Making Unit, DMU) that convert X inputs into Y outputs, where X can be larger, equal or smaller than Y. To measure the efficiency of this converting process for a DMU, Charnes et al. propose the use of the maximum of a ratio of weighted outputs to weighted inputs for that unit, subject to the condition that the similar ratios for all other DMUs be less than or equal to one. That is, Max = ..(1) Subject to 1; 0;

i = 1,..., I;

n = 1,

, N,

..(2)

j = 1,

,J

..(3)

Where, w = weights of all outputs from j = 1, ,J u = weights of all inputs from i = 1,..., I y = output variables x = Input variables

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3. Methodology and Analysis 3.1 Data and sample We have selected 10 commercial banks of Pakistan including nine private sector banks (Allied Bank, Askari Bank, Atlas Bank, Bank Alfalah, Faysal Bank, Habib Bank, KASB Bank, Muslim commercial Bank, United Bank Limited) and one public sector bank (National Bank of Pakistan). All the banks are listed in Karachi stock exchange (KSE); the vital stock exchange market of Pakistan. Data for the empirical study is collected from annual reports issued by all commercial banks from 2005-2009 which provided all sufficient information for the study. 3.2 Software used for DEA efficiency In order to calculate the DEA efficiency values for the data of all DMUs in the sample, the DEA Frontier Analyst software is used for both stages. The above said software was developed by Joe Zhu, consisting of a series of DEA models and is an Add-In for Microsoft Excel. To use this software with MS-Excel, it has to be embedded in the later software. The Frontier analyst software is based on the revised CCR model. According to this, if the calculation for a DMU is unity (1), it is said to be highly efficient. Any value less than unity will represent less efficiency. 3.3 The correlation among input and output variables Prerequisite for this approach is the selection of the inputs and outputs must be reasonably heedful. For this purpose, we found the correlation coefficient for the selected variables, both for stage-1 and stage-2. The results, shown in TABLE-2 and TABLE-3, clearly identifies that the variables are highly correlated. As the study enveloped the data for five years, we use the average correlation coefficient for the whole data set. The average correlation coefficients, between input variable (capital) and output variables (advances and deposits), are below 0.80. But that value does not mean that they are less correlated. This is just because of the value of 2009. For all other years, the findings were above 0.80 (i.e. 0.82, 0.84, 0.93, 0.90 and 0.84, 0.83, 0.80, 0.91). 3.4 The evaluation of DEA model We have calculated bank performance as a multiple of efficiency and effectiveness and ranked all the DMUs (banks) according to their performance for the past five years (2005-2009). TABLE-4 shows the result for DEA frontier analyst software, for the year 2009, of both stages (stage-1 and stage-2). If we look at the values, extracted from analysis, they reflect that for stage-1 (efficiency), seven out of ten banks are working efficiently, i.e. ACB, ATB, BAF, FBL, HBL, UBL and NBP (securing the value of unity). The other three banks (MCB, ABL and KASB) were appeared to be less efficient as compared to peers. But in stage-2 analysis, only three DMUs are effective out of ten. By combining the found results for both stages, we left with only two banks; those are efficient as well as effective. In past, for year 2008, only two banks were found effective and efficient, i.e. MCB and NBP (see TABLE-5). In year 2007, four banks were found to be efficient for both stage1&2. In years, 2006 and 2005, DEA efficient banks were only three (see TABLE-7 & 8).

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Shortening the results, the only consistent bank for the period of study (5-years) was NBP, placed at rank 1 (see TABLE-4, 5, 6, 7 & 8). The second more consistently performing bank than other DMUs, but less than NBP, was MCB. TABLE-9 shows the result for the evaluation of performance for all DMUs among themselves. 3.5 The relation between efficiency and effectiveness We can make a matrix between efficiency and effectiveness just like BCG matrix developed by Boston Consulting Group to illustrate the high performance banks and low performance banks. From figure-1 it has been observed that nine of ten banks are in the high performance group which is characterized by high effectiveness (50%) and high efficiency (50%). On the other hand, only one of the ten companies is characterized by low efficiency and low effectiveness and placed in the Low Performance group. 4. Suggestions to improve performance The DEA efficiencies of all DMUs indicated which banks were inefficient and which were efficient. Most of the banks appear to be efficient for the stage-1 of DEA approach but only some of them sustain their position in stage-2. DEA Frontier analysis, for the selected DMUs, shows that a bank may be efficient but that does not ensure its effectiveness as well. It is fairly possible that it is ineffective and may harm the overall performance of the bank (stage-2). The DMUs, failing to qualify in stage-2 analysis should work on their effectiveness, i.e. by improving the quality of advances and reducing the cost of deposit. The other one is to increase their net income, non interest income and interest income. But both solutions are closely related. 5. Conclusion and Remarks In this paper we used a lately developed DEA model planned by Cooper in 2000 to evaluate the performance of ten banks listed in Karachi stock exchange (KSE), Pakistan. The results illustrate that for the past five years all banks showed high efficiency in the stage1 and only few of them showed high effectiveness in the stage 2 by the DEA efficiency analysis model. As we know that our output variables (advances and deposits) in stage1 were the inputs of second stage. If we decrease them to show better effectiveness in second stage then it will affect the results in stage1 by lowering the efficiency score. So we can conclude that it is a perfect model to calculate the performance of a bank by splitting up the performance as a multiple of efficiency and effectiveness. For the practical aspect, this paper may help the decision makers of banks, focusing on different activities of banks, to enhance financial performance position. The empirical results may be helpful for management of commercial banks to make smart financial strategies to achieve required financial performance. This study also examines that all the variable are highly correlated that means that they have a positive influence on each other. That is if Assets, Capital, Employees, and Branches of a bank is increasing this will cause a boost in Advances and Deposits and second stage shows that due to increase in Advances and Deposits non-interest income, Interest income and Net Income will enlarge.

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References A. Charnes, W. Cooper and E. Rhodes (1978). Measuring efficiency of decision making units. European journal of operational research, 2 , 429-444. B. A. Abrams and C. J. Huang (1987). Predicting bank failures: the role of structure in affecting recent failure experiences in the USA. Applied Economics, 19, 12911302. Bhattacharya, A., Lovell, C.A.K. and Sahay, P. (1997). The impact of liberalization on the productive efficiency of Indian commercial banks. European Journal of Operational Research, 98 No. 2, 332-45. C. Jordan and J. R. Henderson (1990). Evaluating the financial health of midwestern banks. Ohio CPA Journal, 49, 42-46. Charnes, A., Cooper, W.W. and Rhodes, E. (1978). Measuring the efficiency of decision making units. European Journal of Operational Research, 2, 429-44. Cooper, W.W., Seiford, L.M. and Tone, K. (2000). Data Envelopment Analysis: A Comprehensive Text with Models, Applications. References and DEA-Solver Software, Kluwer Academic Publishers, Boston, MA. Chen, Tser-Yieth and Yeh, Tsai-Lien (1998). A study of efficiency evaluation in Taiwan s banks. International Journal of Service Industry Management, 9, 1-8. Chien-Ta Ho and Dauw-Song Zhu (2004). Performance measurement of Taiwan s commercial banks. International Journal of productivity and performance Management. 53, 425-434. Harris, J., Ozgen, H. and Ozcan, Y. (2000). Do mergers enhance the performance of hospital efficiency. Journal of the Operation Research Society, 51, 801-11. Haque, Nadeem Ul and Shahid Kardar (1993). Constraints to the Development of Financial Markets in Pakistan. IMF Mimeo Meric.G. & Meric. I. (2001). Risk and return in the world s major stock markets. Journal of Investing, 10, 62-67. Mukherjee, A., Nath, P. and Pal, M.N. (2002). Performance benchmarking and strategic homogeneity of Indian banks. International Journal of Banking, 20, 122-39. Oral, M. and Yolalan, R. (1990). An empirical study on measuring operating efficiency and profitability of bank branches. European Journal of Operational Research, 46, 282-94. P. Espahbodi (1991). Identification of problem banks and binary choice models. Journal Banking and Finance, 15, 53-71. Parkan, C. (1987). Measuring the efficiency of service operations: an application to bank branches. Engineering Costs and Production Economics, 12, 237-42. Seiford, L.M. and Zhu, J. (1999). Profitability and marketability of the top 55 US commercial banks. Management Science, 45, 1270-88. Sarrico, C.S. and Dyson, R.G. (2000). Using DEA for planning in UK universities: an institutional perspective. The Journal of the Operational Research Society, 51, 789-800. Sherman, H.D. and Gold, F.(1985). Bank branch operating efficiency: evaluation with data envelopment analysis. Journal of Banking and Finance, 9, 297-315. Thanassoulis, E. (1995). Assessing police force in England and Wales using data envelopment analysis. European Journal of Operational Research, 87, 641-58.

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Abdul Qayyum (2008). Financial Sector Reforms and the Efficiency of Banking in Pakistan. [online] Available: http://www.saneinetwork.net/research/sanei8/abstract8.asp#11 http://www.sbp.org.pk/stats/stat-bal-sheet.htm

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Annexure Author

Country of study

Chen and Yeh (1998)

Taiwan

Seiford and Zhu (1999)

USA

Sherman and Gold (1985)

USA

Input variable Assets, branches, operating cost, deposits, interest expenses

Interest income, non interest income

Employees, assets, capital stock

Revenues, profits

Employees, expenses, space Rent

No. of transactions No. of transactions, customer response, corrections

Parkan (1987)

Canada

Employees, expenses, space, rent, terminals

Giokas (1991)

Greece

Employees, expenses, rent

Bhattacharya et al. (1997)

India

Interest expenses, operating expenses

Mukherjee et al. (2002)

India

Oral and Yolalan (1990)

Turkey

Chien and Dauw (2004)

Taiwan

Output variable

No. of transactions Advances, deposits, investment

Net worth, borrowings, operating expenses, employees, branches

Deposit, net income, advance, non-interest income, interest spread

Employees, terminals, no. of accounts, credit applications

No. of transactions

Assets, Capital, Employees, Branches, Advances, Deposits

Advances, Deposits, noninterest income, Interest income, Net Income.

Table 1: Birds eye view of the variables used in previous literature.

INPUTS

CAPITAL

ASSETS

EMPLOYEES

BRANCHES

0.79

0.990*

0.97*

0.95*

0.995* 0.95* DEPOSITES 0.78 Note: *significant at 1% level of significance

0.91*

OUT PUTS ADVANCES

Table 2: Correlation coefficient of stage -1 (input and out put variables).

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INPUTS

ADVANCES

DEPOSITS

NET INCOME

0.89*

0.87*

INTEREST INCOME

0.97*

0.95*

NON INTEREST INCOME

0.94*

0.94*

OUTPUTS

Note: *significant at 1% level of significance Table 3: Correlation coefficient of stage -2 (input and out put variables).

BANKS(DMUs)

NBP UBL MCB FBL HBL ABL B AF ACBL KASB

STAGE1 (EFFICIENCEY)

STAGE2 (EFFECTIVENESS)

PERFORMANCE

RANK

1.00 1.00 0.96 1.00 1.00 0.98 1.00 1.00 0.88

1.00 1.00 1.00 0.86 0.85 0.80 0.70 0.66 0.48

1.00 1.00 0.96 0.86 0.85 0.79 0.70 0.66 0.42

1 1 2 3 4 5 6 7 8

0.09

9

ATB 1.00 0.09 Table-4: Cumulative performance appraisal, 2009

BANKS(DMUs)

STAGE1 (EFFICIENCEY)

STAGE 2 (EFFECTIVENESS)

PERFORMANCE

RANK

MCB NBP UBL HBL FBL ACBL ABL KASB B AF

1.00 1.00 1.00 1.00 1.00 1.00 1.00 0.97 1.00

1.00 1.00 0.90 0.85 0.84 0.68 0.67 0.66 0.62

1.00 1.00 0.90 0.85 0.84 0.68 0.67 0.64 0.62

1 1 2 3 4 5 6 7 8

ATB

1.00

0.50

0.50

9

Table-5: Cumulative performance appraisal, 2008

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BANKS(DMUs)

STAGE1 (EFFICIENCEY)

STAGE 2 (EFFECTIVENESS)

PERFORMANCE

RANK

ACBL FBL MCB NBP UBL HBL KASB B AF ABL

1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

1.00 1.00 1.00 1.00 0.90 0.84 0.75 0.73 0.64

1.00 1.00 1.00 1.00 0.90 0.84 0.75 0.73 0.64

1 1 1 1 2 3 4 5 6

0.61

7

ATB 0.80 0.76 Table-6: Cumulative performance appraisal, 2007

BANKS(DMUs)

STAGE1 (EFFICIENCEY)

STAGE 2 (EFFECTIVENESS)

PERFORMANCE

RANK

FBL MCB NBP KASB HBL UBL ABL ACBL B AF

1.00 1.00 1.00 0.95 1.00 1.00 1.00 1.00 1.00

1.00 1.00 1.00 1.00 0.92 0.91 0.71 0.69 0.54

1.00 1.00 1.00 0.95 0.92 0.91 0.71 0.69 0.54

1 1 1 2 3 4 5 6 7

ATB

0.76

0.33

0.25

8

Table-7: Cumulative performance appraisal, 2006

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BANKS(DMUs)

STAGE1 (EFFICIENCEY )

STAGE 2 (EFFECTIVENESS )

PERFORMANCE

RANK

FBL MCB NBP HBL UBL ABL ACBL B AF KASB

1.00 1.00 1.00 1.00 0.97 0.97 1.00 1.00 0.96

1.00 1.00 1.00 0.89 0.80 0.75 0.64 0.50 0.50

1.00 1.00 1.00 0.89 0.77 0.73 0.64 0.50 0.48

1 1 1 2 3 4 5 6 7

0.29

8

ATB 0.29 1.00 Table-8: Cumulative performance appraisal, 2005

DMUs

2009

2008

2007

2006

2005

AVE

RANK

NBP MCB FBL UBL HBL ACBL ABL KASB B AF

1 0.96 0.86 1 0.85 0.66 0.79 0.42 0.7

1 1 0.84 0.9 0.85 0.68 0.67 0.64 0.62

1 1 1 0.9 0.84 1 0.64 0.75 0.73

1 1 1 0.91 0.92 0.69 0.71 0.95 0.54

1 1 1 0.77 .89 0.64 0.73 0.48 0.5

1.00 0.99 0.94 0.90 0.87 0.73 0.71 0.65 0.62

1 2 3 4 5 6 7 8 9

ATB

0.09

0.5

0.61

0.25

0.29

0.35

10

Table-9: Average performance appraisal and ranking, 2005-2009

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E

1

F F

High

I

Performance

C I

0.5

E

Low

N

Performance

C Y 0

0.5

1

E F F E C T I V E N E S S Figure 1: BCG Matrix for efficiency and effectiveness.

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Appendix A 1) Financial data of all commercial banks 2005-2009 1

ALLIED BANK LIMITED

Assets

Deposits

Net Income

Interest Income

N-I income

Capital

Advances

Employees

Branches

2009

418,374,000

328,875,000

7,122,000

18,700,000

5,958,000

7,110,000

237,344,038

8,713

779

2008

366,680,000

297,475,000

4,157,000

14,011,000

4,152,000

6,464,000

212,972,008

8,325

766

2007

320,110,000

263,972,000

4,076,000

11,108,000

3,920,000

5,386,000

170,743,654

8,181

757

2006

252,027,000

206,031,000

4,397,000

10,423,000

2,449,000

4,489,000

143,383,499

7,139

742

2005

192,574,000

161,410,000

3,090,000

7,867,000

1,940,000

4,489,000

113,630,400

6,909

741

year

2

ASKARI COMMERCIAL BANK LIMITED

Assets

Deposits

Net Income

Interest Income

N-I income

Capital

Advances

Employees

Branches

2009

254,330,000

205,934,260

1,416,773

9,033,000

2,555,000

5,073,000

128,101,357

7,270

226

2008

206,191,138

167,676,572

386,225

7,742,594

2,707,000

4,058,774

123,023,379

7,560

200

2007

182,171,885

143,036,707

2,681,012

6,457,617

4,565,496

3,006,499

92,653,899

6,808

150

2006

166,033,588

131,839,283

2,249,974

5,619,608

2,139,254

2,004,333

84,162,090

5,226

122

2005

145,099,907

188,794,690

2,021,996

4,502,324

1,552,566

1,507,018

73,272,718

4,533

99

3

HABIB BANK LIMITED

Assets

Deposits

Net Income

Interest Income

N-I income

Capital

Advances

Employees

Branches

2009

863,778,621

682,750,079

13,400,741

42,670,534

11,159,612

9,108,000

452,970,663

13,211

1,494

2008

757,928,389

597,090,545

15,614,020

36,779,477

11,282,695

7,590,000

440,936,152

14,123

1,508

2007

691,991,521

531,298,127

10,084,037

31,327,064

10,023,164

6,900,000

365,872,335

14,552

1,489

2006

590,291,468

459,140,198

12,700,315

30,481,703

8,489,496

6,900,000

329,277,981

14,572

1,437

2005

528,893,905

432,545,165

9,646,549

25,015,603

7,854,300

6,900,000

313,395,901

16,314

1,425

4

UNITED BANK LIMITED

Assets

Deposits

Net Income

Interest Income

N-I income

Capital

Advances

Employees

Branches

2009

620,707,389

503,831,672

9,487,952

33,172,200

12,320,490

11,128,907

371,008,406

14,254

1,120

2008

620,240,530

492,267,898

8,445,251

28,794,188

10,920,935

10,117,188

367,139,346

15,233

1,119

2007

546,636,506

411,475,128

9,237,015

24,799,314

9,607,667

8,093,750

310,927,791

15,054

1,078

2006

435,889,697

343,804,830

9,666,878

21,367,293

7,285,741

6,475,000

253,549,063

15,502

1,044

2005

358,056,146

296,499,113

6,168,262

14,531,307

5,359,097

5,180,000

211,675,344

13,570

1,043

Employees

Branches

5

MUSLIM COMMERCIAL BANK LIMITED

Assets

Deposits

Net Income

Interest Income

N-I income

Capital

Advances

2009

509,224,000

367,605,000

15,495,000

35,774,544

5,643,000

6,911,000

269,722,000

9,397

1,081

2008

443,615,904

330,181,624

15,374,600

28,483,084

5,791,440

6,282,768

272,847,000

10,160

1,060

2007

410,486,000

292,098,000

15,266,000

23,921,000

6,448,000

6,282,768

229,733,000

9,721

1,026

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2006

342,108,000

257,462,000

12,142,000

21,253,000

4,991,000

5,463,000

206,848,000

9,011

994

2005

298,777,000

229,342,000

8,922,000

14,975,000

5,754,000

4,265,000

188,140,000

9,377

952

6

ATLASBANK

Assets

Deposits

Net Income

Interest Income

N-I income

Capital

Advances

Employees

Branches

2009

30,869,506

26,173,680

-1,703,109

198,602

49,168

5,001,466

19,219,928

1,085

40

2008

28,967,027

18,646,412

-1,010,559

554,614

245,152

5,001,466

20,549,869

1,471

40

2007

22,984,261

15,322,671

-309,044

44,031

346,786

5,001,466

9,242,511

781

25

2006

17,020,586

8,842,946

8,682

129,500

96,588

3,125,916

7,833,786

247

20

2005

7,951,719

2,186,005

3,788

137,849

10,802

1,537,000

799,411

152

11

7

NATIONAL BANK OF PAKISTAN

Assets

Deposits

Net Income

Interest Income

N-I income

Capital

Advances

Employees

Branches

2009

944,232,762

726,513,013

18,099,042

38,676,505

19,109,333

10,763,702

475,338,439

17,296

1,287

2008

820,077,201

625,349,269

15,681,084

37,274,014

16,683,476

8,969,751

413,076,390

16,015

1,276

2007

764,608,790

591,817,052

19,405,165

33,815,295

13,940,996

8,154,319

340,369,649

16,572

1,261

2006

635,132,711

501,872,243

17,022,346

30,153,716

12,162,892

7,090,712

316,110,406

14,176

1,242

2005

577,719,114

463,426,602

12,709,444

23,311,967

9,424,625

5,908,927

268,838,779

13,824

1,226

8

BANK ALFALAH LIMITED

Assets

Deposits

Net Income

Interest Income

N-I income

Capital

Advances

Employees

Branches

2009

389,070,055

324,759,752

897,035

10,907,132

5,182,253

13,491,563

188,042,000

7,462

253

2008

348,991,000

300,733,000

1,301,000

10,472,283

4,822,924

7,995,000

191,790,000

7,584

226

2007

328,895,000

273,174,000

3,130,000

9,162,908

6,038,466

6,500,000

171,199,000

7,371

191

2006

275,685,000

239,509,000

1,763,000

5,958,584

3,224,639

5,000,000

149,999,000

6,543

166

2005

248,314,000

222,345,000

1,702,000

5,041,819

2,268,533

3,000,000

118,864,000

5,218

128

9

FAYSAL BANK LIMITED

Assets

Deposits

Net Income

Interest Income

N-I income

Capital

Advances

Employees

Branches

2009

180,865,000

123,655,000

1,200,159

4,989,990

2,813,065

6,090,911

91,346,000

2,042

133

2008

138,241,000

102,777,000

1,114,952

4,949,377

2,310,593

5,296,445

83,512,000

1,929

129

2007

141,277,000

102,067,000

2,272,000

4,151,389

3,441,145

5,296,445

87,346,000

1,759

105

2006

115,470,000

74,414,000

2,817,000

3,638,791

2,752,597

4,237,157

74,469,000

1,463

75

2005

110,281,000

74,737,000

3,069,000

3,425,428

2,914,351

4,237,157

62,324,000

1,068

56

10

KASB BANK Ltd

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Assets

Deposits

Net Income

Interest Income

N-I income

Capital

Advances

Employees

Branches

2009

59,223,058

43,899,695

-4,227,748

-428,764

555,032

9,508,617

29,498,752

1,656

100

2008

51,799,098

35,087,477

-972,969

412,960

615,591

4,014,890

32,240,196

1,802

73

2007

40,890,572

33,131,773

197,693

631,963

821,479

3,106,978

25,143,153

1,320

51

2006

26,538,735

21,275,570

137,347

361,302

592,947

2,292,707

14,112,718

1,064

35

2005

19,102,987

14,828,110

-273,034

409,280

205,624

2,014,707

10,739,337

815

35

2) Efficiency score of DEA model at stage-1 2009 Inputs Capital(X1) Assets(X2) Employees(X3) Branches(X4)

Outputs Advances(Y1) Deposits(Y2)

Input-Oriented CRS DMU No.

Sum of

DMU Name

lambdas RTS Efficiency 1 B AF 1.00000 1.000 Constant 2 UBL 1.00000 1.000 Constant 3 NBP 1.00000 1.000 Constant 4 KASB 0.88202 0.966 Increasing 5 HBL 1.00000 1.000 Constant 6 ABL 0.98138 0.688 Increasing 7 MCB 0.95530 0.654 Increasing 8 FBL 1.00000 1.000 Constant 9 ACBL 1.00000 1.000 Constant 10 ATB 1.00000 1.000 Constant 3) Efficiency score of DEA model at stage-1 2008

Inputs Capital(X1) Assets(X2) Employees(X3) Branches(X4)

Optimal Lambdas with Benchmarks 1.000 1.000 1.000 0.054 1.000 0.491 0.321 1.000 1.000 1.000

B AF UBL NBP B AF HBL UBL UBL FBL ACBL ATB

Optimal Lambdas with Benchmarks 1.000 1.000 1.000 1.000 1.000 1.000

UBL NBP B AF HBL ABL MCB

Outputs Advances(Y1) Deposits(Y2)

Input-Oriented CRS DMU No.

DMU Name

1 2 3 4 5 6

UBL NBP B AF HBL ABL MCB

Efficiency

1.00000 1.00000 1.00000 1.00000 1.00000 1.00000

Sum of lambdas 1.000 1.000 1.000 1.000 1.000 1.000

RTS Constant Constant Constant Constant Constant Constant

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7 FBL 1.00000 1.000 Constant 8 ATB 1.00000 1.000 Constant 9 ACBL 1.00000 1.000 Constant 10 KASB 0.96823 0.779 Increasing 4) Efficiency score of DEA model at stage-1 2007 Inputs Capital(X1) Assets(X2) Employees(X3) Branches(X4)

1.000 1.000 1.000 0.024

FBL ATB ACBL MCB

Outputs Advances(Y1) Deposits(Y2)

Input-Oriented CRS DMU No.

Sum of

DMU Name

lambdas RTS Efficiency 1 NBP 1.00000 1.000 Constant 2 UBL 1.00000 1.000 Constant 3 HBL 1.00000 1.000 Constant 4 B AF 1.00000 1.000 Constant 5 MCB 1.00000 1.000 Constant 6 ABL 1.00000 1.000 Constant 7 FBL 1.00000 1.000 Constant 8 ATB 0.80264 0.056 Increasing 9 KASB 1.00000 1.000 Constant 10 ACBL 1.00000 1.000 Constant 5) Efficiency score of DEA model at stage-1 2006

Inputs Capital(X1) Assets(X2) Employees(X3) Branches(X4)

Optimal Lambdas with Benchmarks 1.000 1.000 1.000 1.000 1.000 1.000 1.000 0.056 1.000 1.000

NBP UBL HBL B AF MCB ABL FBL B AF KASB ACBL

Outputs Advances(Y1) Deposits(Y2)

Input-Oriented CRS DMU No.

1 2 3 4 5 6 7 8 9 10

DMU Name

NBP HBL UBL MCB B AF ABL FBL ATB KASB ACBL

Efficiency

1.00000 1.00000 1.00000 1.00000 1.00000 0.99811 1.00000 0.76203 0.95257 1.00000

Sum of lambdas 1.000 1.000 1.000 1.000 1.000 0.837 1.000 0.101 0.088 1.000

RTS Constant Constant Constant Constant Constant Increasing Constant Increasing Increasing Constant

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Optimal Lambdas with Benchmarks 1.000 1.000 1.000 1.000 1.000 0.315 1.000 0.008 0.017 1.000

NBP HBL UBL MCB B AF MCB FBL B AF MCB ACBL

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6) Efficiency score of DEA model at stage-1 2005 Inputs Capital(X1) Assets(X2) Employees(X3) Branches(X4)

Outputs Advances(Y1) Deposits(Y2)

Input-Oriented CRS DMU No.

DMU Name

Sum of

lambdas RTS 1 HBL 1.00000 1.000 Constant 2 NBP 1.00000 1.000 Constant 3 UBL 0.96986 1.361 Decreasing 4 ABL 0.97140 0.744 Increasing 5 MCB 1.00000 1.000 Constant 6 FBL 1.00000 1.000 Constant 7 B AF 1.00000 1.000 Constant 8 KASB 0.95650 0.109 Increasing 9 ATB 0.28924 0.019 Increasing 10 ACBL 1.00000 1.000 Constant 7) Efficiency score of DEA model at stage-2 2009

Inputs Advances(X1) Deposits(X2)

Efficiency

Optimal Lambdas with Benchmarks 1.000 1.000 0.974 0.514 1.000 1.000 1.000 0.030 0.012 1.000

HBL NBP MCB MCB MCB FBL B AF MCB FBL ACBL

Outputs Net Income(Y1) Interest Income(Y2) Non-Int income(Y3) InputOriented CRS

DMU No.

1 2 3 4 5 6 7 8 9 10

DMU Name

NBP HBL UBL MCB ABL B AF ACBL FBL KASB ATB

Efficiency

1.00000 0.84833 1.00000 1.00000 0.80427 0.69734 0.65625 0.86490 0.48068 0.09368

Sum of lambdas 1.000 1.165 1.000 1.000 0.531 0.283 0.245 0.147 0.029 0.006

RTS Constant Decreasing Constant Constant Increasing Increasing Increasing Increasing Increasing Increasing

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Optimal Lambdas with Benchmarks 1.000 0.340 1.000 1.000 0.106 0.266 0.087 0.147 0.029 0.000

NBP NBP UBL MCB NBP NBP NBP NBP NBP NBP

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8) Efficiency score of DEA model at stage-2 2008 Inputs Advances(X1) Deposits(X2)

Outputs Net Income(Y1) Interest Income(Y2) Non-Int income(Y3) InputOriented CRS

DMU No.

Sum of

DMU Name

lambdas RTS Efficiency 1 HBL 0.85211 1.162 Decreasing 2 NBP 1.00000 1.000 Constant 3 UBL 0.89652 0.839 Increasing 4 MCB 1.00000 1.000 Constant 5 ABL 0.66785 0.448 Increasing 6 B AF 0.62263 0.289 Increasing 7 ACBL 0.67867 0.233 Increasing 8 FBL 0.84268 0.138 Increasing 9 KASB 0.65762 0.037 Increasing 10 ATB 0.49550 0.015 Increasing 9) Efficiency score of DEA model at stage-2 2007

Inputs Advances(X1) Deposits(X2)

Optimal Lambdas with Benchmarks 0.418 1.000 0.556 1.000 0.143 0.289 0.124 0.138 0.037 0.015

NBP NBP NBP MCB NBP NBP NBP NBP NBP NBP

Optimal Lambdas with Benchmarks 0.327 1.000 0.776 1.000 0.044 0.189 1.000 1.000 0.081 0.076

NBP NBP MCB MCB NBP NBP ACBL FBL ACBL ACBL

Outputs Net Income(Y1) Interest Income(Y2) Non-Int income(Y3) InputOriented CRS

DMU No.

1 2 3 4 5 6 7 8 9 10

DMU Name

HBL NBP UBL MCB B AF ABL ACBL FBL KASB ATB

Efficiency

0.83627 1.00000 0.89602 1.00000 0.73062 0.64302 1.00000 1.00000 0.75413 0.76146

Sum of lambdas 1.174 1.000 1.881 1.000 1.232 0.390 1.000 1.000 0.212 0.076

RTS Decreasing Constant Decreasing Constant Decreasing Increasing Constant Constant Increasing Increasing

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10) Efficiency score of DEA model at stage-2 2006 Inputs Advances(X1) Deposits(X2)

Outputs Net Income(Y1) Interest Income(Y2) Non-Int income(Y3) InputOriented CRS

DMU No.

Sum of

DMU Name

lambdas RTS Efficiency 1 HBL 0.91897 1.325 Decreasing 2 NBP 1.00000 1.000 Constant 3 UBL 0.90685 1.201 Decreasing 4 MCB 1.00000 1.000 Constant 5 B AF 0.54283 2.012 Decreasing 6 ABL 0.70754 0.490 Increasing 7 ACBL 0.69324 0.197 Increasing 8 FBL 1.00000 1.000 Constant 9 KASB 1.00000 1.000 Constant 10 ATB 0.32623 0.051 Increasing 11) Efficiency score of DEA model at stage-2 2005

Inputs Advances(X1) Deposits(X2)

Optimal Lambdas with Benchmarks 0.262 1.000 0.301 1.000 0.176 0.000 0.161 1.000 1.000 0.001

NBP NBP NBP MCB NBP NBP NBP FBL KASB NBP

Optimal Lambdas with Benchmarks 1.328 1.000 0.608 1.000 0.708 0.394 0.156 1.000 0.009 1.000

MCB NBP MCB MCB FBL MCB NBP FBL MCB ATB

Outputs Net Income(Y1) Interest Income(Y2) Non-Int income(Y3) InputOriented CRS

DMU No.

1 2 3 4 5 6 7 8 9 10

DMU Name

HBL NBP UBL MCB B AF ABL ACBL FBL KASB ATB

Efficiency

0.89216 1.00000 0.79788 1.00000 0.49890 0.75304 0.64402 1.00000 0.50269 1.00000

Sum of lambdas 38.528 1.000 27.038 1.000 19.689 14.625 6.327 1.000 0.832 1.000

RTS Decreasing Constant Decreasing Constant Decreasing Decreasing Decreasing Constant Increasing Constant

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Early Warning Signs to Forecast Financial crisis in Pakistan Hameeda Akhtar Faculty of Management Sciences International Islamic University, Islamabad Dr Zaheer Abbas Faculty of Management Sciences International Islamic University, Islamabad Ikramullah Toor Faculty of Management Sciences International Islamic University, Islamabad Abstract This paper aims to study the indicators of financial crisis with special reference to Pakistan. The independent variables are M2/reserves, industrial production, inflation, unemployment, domestic credit, exports growth, CA/GDP, overvaluation of exchange rate, bank deposits, claims on private sector/GDP, foreign liabilities/GDP, bank reserves/assets, portfolio investment liabilities/GDP, capital flows, FDI/GDP, interest rate differential and US Interest Rate. The variables found significant are unemployment, domestic credit, exports growth, bank deposits, claims on private sector/GDP, bank reserves/assets, portfolio investment liabilities/GDP, FDI/GDP and interest rate differential. An increase in unemployment, bank deposits, claims on private sector/GDP, bank reserves/assets and FDI/GDP raises the probability of financial crisis while domestic credit, exports growth, portfolio investment liabilities/GDP and interest rate differential seems to reduce the probability of a financial crisis. The sample used in this study comprises of quarterly observations from 2002 to 2009 from the Pakistani market. The probit model is used to test the data. Keywords: Financial crisis, Pakistan, Early warning signs 1.

Introduction After 1997 Asian crisis emerging economies are subject to increase frequency of financial crisis. This scenario lead to ponder on the early warning indicators of financial crisis so that the crisis is anticipated in advance and remedial measures to avoid the crisis could be used well in advance. It has been empirically proved that crisis is transmitted from one country to another in case of emerging economies so the likelihood of crisis can be predicted in emerging economies like Pakistan. Studies have been conducted to formulate early warning systems of the crisis for example Apoteker and Barthelemy (2005), Berg, Candelon and Urbain (2008), BlundellWignall and Atkinson (2009), Bussiere and Fratzscher (2006), Niemiraa and Saaty (2004), Ozlale and Metin-Ozcan (2007). Early warning systems can become very significant from the policy making point of view as it may helps to find out hidden economic weaknesses and causes of crisis. Ozlale and Metin-Ozcan (2007) have proposed an alternate system to measure the probability of crisis in Turkey. There is no study till date which has forecasted the financial crisis in Pakistan. This study tries to use and compare the earlier systems of crisis warning from in Pakistani economy.

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2. Literature Review The literature on the possibility of financial crisis was initiated after realizing the contagious nature of currency crisis of 1990s. Out of these studies, Kaminsky et al (1998) s leading indicators method, Sachs et al (1996) s weak fundamental approach and Frankel and Rose (1995) s Probit regression model are the most important. The financial crisis analysis and forecasting literature can be categorized into four streams. First steam of literature is the structural models used to analyze the financial crisis. These include analysis of crisis using case study method, an in depth analysis of a particular event s internal variables. The case study examples comprise Blanco and Garber (1986), Cole and Kehoe (1996), Cumby and van Wijnbergen (1989), Jeanne and Masson (2000) and Sachs et al. (1996). The second stream of financial crisis literature is the signaling approach. The studies based on signaling theory are Alvarez-Plata and Schrooten (2004), Berg and Pattillo (1999), Goldstein et al. (2000), Kaminsky et al. (1998), Kaminsky and Reinhart (1999), and Peng and Bajona (2008). Crisis indicators for instance real effective exchange rate or debt to GDP levels are used as signals in signal approach models. When these variables cross a specified limit or threshold, it is an indication of the crisis potential in that country. Signal models show the impact of an individual variable on the crisis not showing the impact of a set of variables on the crisis as a whole. Kaminsky (1999), proposed a method of combining individual variables to figure out the combined variance due to all indicators, but this method also bear some weaknesses. For instance, it does not address the muticolinearity problem in case the variables are correlated to each other. There may be a very high noise to signal ratio explained by each independent variable but in a multiple regression analysis it can be found as insignificant. The third stream in the analysis of financial crisis employ pooled panel data, using macroeconomic and financial data to explain discrete crisis measures in an array of countries. For instance, Eichengreen et al. (1996) implemented a Probit model for the analysis and forecast of financial crises for industrialized countries employing 19591993 quarterly data. Similarly, Berg and Pattillo (1999) adopted a Probit model for the forecast of currency crisis. Beckmann et al. (2006), Bussiere and Fratzscher (2006), Kalotychou and Staikouras (2006), and Kumar et al. (2003) applied Logit and multinomial Logit models for the prediction of currency crash of emerging markets and financial crises. Moreover, Cipollini and Kapetanios (2008) and Mouratidis (2008) used Bayesian Markov switching approach and the dynamic analysis model for the identification of crisis forewarning signs. These statistical models are less robust because of the underlying assumptions in these models. It is not easy to predict all potential crises at all times with the help of these statistical models (Goldfajn & Valde s, 1998). The fourth stream of forecasting of financial crisis literature utilizes some rising computational techniques for example machine learning and artificial intelligence procedures to forecast financial crises on the basis of some volatility or technical variables. For instance, an analytic network process model for financial crisis forecasting was proposed by Niemira and Satty (2004). A computable general equilibrium model to figure out the association between the foreign exchange crisis and the Korean industrial structure was adopted by Kim and Moon (2001). A back-propagation neural network model for the forecasting of economic crisis in South Korea was used by Kim et al.

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(2004, 2004) using the Korean stock market index. A general regression neural network was applied by Yu et al. (2006) to anticipate the currency crisis of South East Asia economies. This model used some currency volatility indicators. Finally, a feed forward neural network model was employed by Celik and Karapete (2007) for the prediction of banking crisis. 3. Methodology Methodology of this paper consists of two sections: In first section we have documented measurement of dependent and independent variables, while second section discusses econometric techniques used to predict early warning system. 3.1. Dependent variable Dependent variable is Exchange Market pressure index (EMP) for Pakistan. This index is measured through the following formula which includes exchange rate depreciation and loss of reserves, which equally influence the index. The exchange market pressure index formula is as follows: ------------------------------------------------------------Eq1 Where is the change in exchange rate and is the change in international reserves, and is the standard deviation of exchange rate alteration and reserves, respectively. Crisis is considered when the value of EMP index is more than 1 standard deviation above the mean. Crisis is defined as not only the crisis month but also the eleven months before the crisis. By this we mean that we are using 1 year event window for the crisis. 3.2 Independent variables Following independent variables are used to predict the crisis in Pakistan. We also employ variables that specify exposure to a sudden stop of capital inflows. These variables are short-term capital inflows, M2 to reserves and private sector liabilities. To study foreign influences on crises, we include the US interest rate. Our study thus incorporates a total of 16 macroeconomic and financial variables. Since all these variables effect is going to be studied simultaneously, we hope to distinguish those indicators that reflect actual causes of the crises in Pakistan and can also predict the crisis in Pakistan. 3.3. Sample and data The model is estimated for a panel of quarterly observations for Pakistan and covers the period 2002:1 2009:4. Most data are gathered from country reports on the IMF website. The comprehensive explanation of the data is given in Table A1 in the Appendix. Reasons of financial crises occurring all over the sample period, i.e. 2002:1 2009:4 are found by using probit model.

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Results

This part reports the causes for financial crises found with the used method. The major findings for the whole sample 2002:1 2009:4 are briefly given in Table 1. The directions of relationship are generally as expected. In case of the individual variables, we find that the likelihood of financial crises increases with the increase in unemployment, bank deposits, claims on private sector/GDP, bank reserves/assets and FDI/GDP while increase in domestic credit, exports growth, portfolio investment liabilities/GDP and interest rate differential decreases the chances of financial crises. The exact results are presented in Table A2 in the Appendix. Unexpectedly, the results indicate that bank reserves/assets and bank deposits have the greatest impact on crisis likelihood. The high significance of bank reserves/assets and bank deposits is particularly interesting and contradicts the arguments that banking sector soundness, helps to diminish the crises. Claims on private sectors i.e. lending boom also leads to crisis. Moreover, a high interest rate differential seems to reduce the probability of crises, indicating that higher domestic interest rates attract capital inflows and helps in avoiding crises. Surprisingly, domestic credit also found to reduce the chances of occurrence of crisis. Indicators Expected Sign Observed Sign Government Sector M2/reserves + + Real Sector + Traditional Industrial production unadjusted. Inflation CPI all cities + + Unemployment + +* Domestic credit + -* Exports growth -* CA/GDP Market Rate, End of Period (Er) (Overvaluation of Exchange rate) Financial Sector Bank deposits +* Claims on private sector/GDP + +* Foreign liabilities/GDP + + Bank reserves/assets +* Portfolio investment liabilities/ GDP -* Capital Flows FDI/GDP + +* Interest rate differential -* Foreign US Interest Rate + Table 1: Probit model, 2002:1 2009:4, financial crises

Comparing our results to earlier studies of Frankel and Rose (1996) and Berg and Pattillo (1999), we see that they are quite comparable. The macroeconomic and financial sector variables found significant in both the earlier studies and this study are unemployment, bank deposits, claims on private sector/GDP, bank reserves/assets,

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FDI/GDP, domestic credit, exports growth, portfolio investment liabilities/GDP and interest rate differential. The findings about bank reserves/assets and bank deposits and domestic credit differ from previous studies. Variables found important in previous studies, but not in this study are M2/Reserves, industrial production, inflation, CA/GDP, overvaluation of exchange rate, foreign liabilities/GDP and US interest rate. US interest rate had a different sign. The reason of their insignificance in our study may be due to the fact that several variables are employed all together. There were five crisis periods and twenty seven tranquil periods in the entire sample. The crisis period started in the 3rd quarter of 2007 and lasted in 3rd quarter of 2008. Generally, Pakistan faced less exposure to the financial crisis due to less integrated financial system. The interconnectedness with foreign financial markets is low in Pakistani market. 5.

Conclusion

The study examined the antecedents of financial crises in Pakistan during 1980:1 2001:12. It estimated a probit model using 16 macroeconomic and financial sector variables. An increase in unemployment, bank deposits, claims on private sector/GDP, bank reserves/assets and FDI/GDP raises the likelihood of financial crisis while domestic credit, exports growth, portfolio investment liabilities/GDP and interest rate differential reduces the chances of occurrence of a financial crisis. The probability of occurrence of a financial crisis in Pakistani sample is low because of less dependency on other foreign financial markets. Finally, the findings suggest the need for a vigilant observation of various indicators of economic and financial sector.

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References Alvarez-Plata, P. & Schrooten, M. (2004). Misleading indicators? The Argentinean currency crisis, Journal of Policy Modeling, 26(5), 587 603. Apoteker, T. & Barthelemy, S. (2005). Predicting financial crises in emerging markets using a composite non-parametric model. Emerging Markets Review, 6, 363 375. Beckmann, D., Menkhoff, L. & Sawischlewski, K. (2006). Robust lessons about practical early warning systems, Journal of Policy Modeling, 28(2), 163 193. Berg, A. & Pattillo, C. (1999). Predicting currency crises: the indicators approach and an alternative, Journal of Money and Finance, 18, 561 586. Berg, J.V.D., Candelon, B. & Urbain, J. (2008). A cautious note on the use of panel models to predict financial crises, Economics Letters 101, 80 83. Blanco, H. & Garber, P.M. (1986). Recurrent devaluations and speculative attacks on the Mexican Peso, Journal of Political Economy 94, 148 166. Blundell-Wignall, A. & Atkinson, P. (2009). Origins of the financial crisis and requirements for reform. Journal of Asian Economics, 20, 536 548. Bussiere, M. & Fratzscher, M. (2006). Towards a new early warning system of financial crises. Journal of International Money and Finance, 25, 953-973. Celik, A.E. & Karatepe, Y. (2007). Evaluating and forecasting banking crises through neural network models: an application for Turkish banking sector, Expert Systems with Applications, 33(4), 809 815. Cipollini, A. & Kapetanios, G. (2008). Forecasting financial crises and contagion in Asia using dynamic factor analysis, Journal of Empirical Finance, doi:10.1016/ j.jempfin.2008.10.004, 2008. Cole, H.L. & Kehoe, T.J. (1996). A self-fulfilling model of Mexico s 1994 1995 debt crisis, Journal of International Economics, 41, 309 330. Cumby, R.. & van Wijnbergen, S. (1989). Financial policy and speculative runs with a crawling peg Argentina 1979 1981, Journal of International Economics17, 111 127. Eichengreen, B., Rose, A.K. & Wyplosz, C. (1996). Exchange market mayhem: the antecedents and aftermath of speculative attacks, Economic Policy, 21, 249 312. Frankel, J.A. & Rose, A.K. (1995). Currency crashes in emerging markets: an empirical treatment. Journal of International Economics, 41, 351 366. Goldfajn, I. & Valde´ s, R.O. (1998). Are currency crises predictable?, European Economic Review, 42(3 5), 873 885. Goldstein, M., Kaminsky, G.L. & Reinhart, C.M. (2000). Assessing financial vulnerability: an early warning system for emerging markets, Technical Report, Institute for International Economics, Washington, DC. Jeanne, O. & Masson, P. (2000). Currency crises, sunspots, and Markov-switching regimes, Journal of International Economics, 50(2), 327 350. Kalotychou, E. & Staikouras, S.K. (2006). An empirical investmentestigation of the loan concentration risk in Latin America. Journal of Multinational Financial Management, 16(4), 363 384. Kaminsky, G., Lizondo, S., & Reinhart, C. (1998). Leading indicators of currency crises, IMF Staff Papers, 45, 1 48.

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Kaminsky, G.L. & Reinhart, C.M. (1999). The twin crises: the causes of banking and balance-of-payments problems, American Economic Review, 89(3), 473 500. Kaminsky, G.L. (1999). Currency and banking crises: the early warnings of distress, IMF Working Paper 99-178, International Monetary Fund, Washington, DC, Kim, K. & Moon, S.W. (2001). Foreign reserve crisis and the Korean industrial structure a CGE approach, Mathematical and Computer Modeling, 33(6 7), 577 596. Kim, T.Y., Hwang, C. & Lee, J. (2004). Korean economic condition indicator using a neural network trained on the 1997 crisis, Journal of Data Science, 2, 371 381. Kim, T.Y., Oh, K.J., Sohn, I., & Hwang, C. (2004). Usefulness of artificial neural networks for early warning systems of economic crisis, Expert Systems with Applications, 26 583 590. Kumar, M., Moorthy, U. & Perraudin, W. (2003). Predicting emerging market currency crashes, Journal of Empirical Finance, 10, 427 454. Mouratidis, K. (2008) Evaluating currency crises: a Bayesian Markov switching approach, Journal of Macroeconomics, 30(4), 1688 1711. Niemiraa, M. P., & Saaty, T. L. (2004). An Analytic Network Process model for financial-crisis forecasting. International Journal of Forecasting, 20, 573 587. Ozlale, U. & Metin-O zcan, K. (2007). An alternative method to measure the likelihood of a financial crisis in an emerging market, Physica A, 381, 329 337. Peng, D. & Bajona, C. (2008). China s vulnerability to currency crisis: a KLR signals approach, China Economic Review,19(2), 138 151. Sachs, J., Tornell, A., & Velasco, A. (1996). Financial crises in emerging markets: the lessons from 1995. Brookings Pap. Econ. Activity, 1, 147 215. Tennant, D. (2010). Factors impacting on whether and how businesses respond to early warning signs of financial and economic turmoil: Jamaican firms in the global crisis. Journal of Economics and Business, in press.

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Appendix

M2/international reserves: IFS line 34 plus 35 converted to dollars divided by line 1L.d. Growth of industrial production: IFS line 66. If unavailable, then line 66aa. Unemployment: IFS line 67r. Inflation (CPI): IFS line 64. Domestic credit growth: IFS line 32. Growth of exports: IFS line 70d. Current account balance/GDP: IFS line 78ald divided by IFS line 99b. Overvaluation of exchange rate: IFS line ae deflated by consumer prices. Deviations from the trend were computed by HP filter. Growth in bank deposits: IFS line 24 plus line 25. Claims on private sector/GDP: IFS line 32d divided by IFS line 99b. Banks foreign liabilities/GDP: IFS line 26c. Banks reserves/assets: IFS line 20 divided by the sum of lines 21 and 22a 22g. Portfolio investmentestment liabilities/GDP: IFS line 78bgd divided by IFS line 99b. Foreign direct investmentestments/GDP: IFS line 78bed divided by IFS line 99b. Interest rate differential: IFS line 60b for the country minus line 60b for USA. US interest rate: IFS line 60b for USA. Table A1:Measures of variables

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Dependent Variable: FC Method: ML - Binary Probit Date: 12/30/10 Time: 15:50 Sample: 1 32 Included observations: 32 Convergence achieved after 17 iterations Covariance matrix computed using second derivatives Variable C BANKDEPOSITS CATOGDP CLAIMSONPRIVATES DOMESTICCREDITGR OVERVALUATIONOFE EXPORTGROWTH FDITOGDP INDPRODUCTION INFLATION INTRATEDIFFER M2RESERVES PORTFOLIOINVESTMENT LIAB UNEMPLOYMENT USINTRATE FORIEGNLIABTOGDP BANKRESRTOASSETS Mean dependent var S.E. of regression Sum squared resid Log likelihood Restr. log likelihood LR statistic (16 df) Probability(LR stat) Obs with Dep=0 Obs with Dep=1

Coefficient -51.34851 6.283614 -1.325086 1.34E-05 -16.71394 -4.089097 -11.91047 5.054496 -16.54266 0.007448 -0.939484 0.103985 -4.126710 0.027115 -3.869856 0.130324 62.55872 0.156250 5.54E-09 4.60E-16 -6.40E-08 -13.86876 27.73753 0.033978 27 5

Std. 1615700. 127871.3 90008.20 498.3456 604468.7 13314.38 181725.1 139872.9 109431.0 7112.834 18756.50 408.2332 109041.5 596.8592 28318.96 7896.537 1599756.

z-Statistic -3.18E-05 4.91E-05 -1.47E-05 2.69E-08 -2.77E-05 -0.000307 -6.55E-05 3.61E-05 -0.000151 1.05E-06 -5.01E-05 0.000255 -3.78E-05 4.54E-05 -0.000137 1.65E-05 3.91E-05

Prob. 1.0000 1.0000 1.0000 1.0000 1.0000 0.9998 0.9999 1.0000 0.9999 1.0000 1.0000 0.9998 1.0000 1.0000 0.9999 1.0000 1.0000

S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Avg. log likelihood McFadden R-squared

0.368902 1.062500 1.841172 1.320608 -2.00E-09 1.000000

Total obs

32

Table A2: Probit model, 2002:1 2009:4, financial crises

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EXCHANGE RATE AND MONETARY POLICY: A COMPARATIVE STUDY OF PAKISTAN AND 25 DEVELOPED-EMERGING ECONOMIES Nousheen Tariq Bhutta (Corresponding Author) PhD Scholar, Faculty of Management Sciences, International Islamic University, Islamabad, Pakistan.

Dr. Zaheer Abbas, Assistant Professor, Faculty of Management Sciences International Islamic University, Islamabad, Pakistan. Dr. Safiullah Khan Assistant Professor, Institute of Management Sciences Kohat University of Science and Technology, Kohat.

Abstract This study explores the potential linkages between exchange rate and monetary policy among 26 developed-developing economies. The design of the study comprises of monetary policy, exchange rate, four country-specific variables and 25 dummies for different economies. Data was extracted on annual basis from International Monetary Fund, for the period of 1985-2009. Augmented dickey fuller test, correlation and multiple regressions were applied to validate the outcomes. The findings confirm that exchange rate and monetary policy do not significantly impact each other. Moreover, country specific variable impact significantly exchange rate, however none of these variable affect monetary policy. Keywords: Monetary Policy, Exchange Rate, Developed and Developing Economies 1. Introduction Exchange rate movements play a vital role in monetary policy determination (Taylor, 2001). Exchange rate movements impact stock market though affecting its returns. When stock market return has been affected, ultimately it affects the monetary policy determination. In contrast, monetary policy also impacts on exchange rate movements. Although, many researchers examined the monetary policy and exchange rate relationship in different countries (e.g. Wilkinson, et.al, 2001; Furlani, et.al,2010), but there is no study till date that compares this relationship among different economies. So the sphere of this study is to bridge this gap in literature. Three research questions has been addressed which are: 1.1. What are the possible relationship between exchange rate and monetary policy? 1.2. Does the impact of exchange rate on monetary policy more significant? 1.3. Does the relationship between exchange rate and monetary policy different among Pakistan and developed-emerging economies?

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This study confirms that the monetary policy and exchange rate do not significantly impact each other. Furthermore, price level, gross domestic product, unemployment rate and terms of trade have insignificant impact on monetary policy that transpires that monetary policy is independent of these factors. However, price level, gross domestic product, unemployment rate and terms of trade have significant impact on nominal exchange rate that depicts that exchange rates can be adjusted by changing theses above variables. This paper is organized in a way that the first section describes the introduction of the study followed by literature review to build theoretical framework. The next one explains the methodology, followed by discussion of the results and conclusion; the last section discusses the managerial implications and future research direction

2.

Literature Review

Monetary policy impacts stock market through change in future cash flows of company and its discount rate. An expansionary monetary policy enhances the firm performance and its future cash flows (return) by reducing the market interest rate as well as firm s discount rate. However, a contracting monetary policy increased market interest rate as well as firm s discount rate that dampens the firm profitability and its return On the other hand, stock market influences monetary policy through wealth effect and credit channel effect. Advances in stock market enhance consumer wealth, consumption and cost of financing. The Fed resists the inflationary spending trend and easier borrowing through adopting restrictive monetary policy and raising the interest rate. (Laopodis, 2006). Exchange rate movements are an important component for influencing the productivity growth like Aghion et al, (2009) depicted that real exchange rate fluctuations affect the productivity growth for long horizon. They examined the low level of financial development diminishes the growth; however, high level of financial development yields no significant results. Gagnon and Ihrig (2001) demonstrated that changes in exchange rate pass-through to inflation has significantly increased however, prior literature was observed a decline in above mentioned outcome. Due to worst behavior of policy variables, their analysis of pass-through exchange rate to monetary policy was unconvincing. Moreover, Devereux (2001) examined the different monetary rule in open economy through developing a dynamic general-equilibrium model that focuses on flexibility of exchange rate. They also analyzed the nature of trade off between floating and fixed exchange rate among mature industrialized countries and emerging ones. They depicted that all monetary rules with high pass-through exchange rate demonstrate significant tradeoff between inflation volatility and output volatility. However, monetary rules having low trade off were less enunciated. They proved that which rule stabilizes price inflation for non-traded goods is the best one. Some research studies demonstrated the role of exchange rate in monetary policy rules like Malikane and Semmler (n.d) examined it through developing dynamic Keynesian model for small economies. This model consists of four elements i.e. Okun s law, a dynamic IS curve, separate Phillips curves for nominal prices and wages and interest parity relation. The found that macro variables are greatly congregated in response to these shocks, if central bank responded to exchange rate movements. Kim (2003)

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examined the impact of monetary policy and foreign intervention on exchange rate. They suggested that foreign exchange intervention should be considered while studying the behavior of monetary policy and exchange rate. Sek (2009) identified that whenever inflation targeting regime was adopted there would be change in monetary policy reaction to exchange rate. They confirmed that reaction of monetary policy to CPI, exchange rate shocks and output were decreased in inflation targeting regime. Eichenbaum and Evans (1995) depicted the monetary policy shocks influence the exchange rate. They found that a contractionary monetary policy shock appreciates the persistent nominal and real exchange rate. Similarly, Zettelmeyer (2004) proved that effect of monetary shock on exchange rate appreciation. He confirmed the findings of Eichenbaum and Evans (1995) that a contractionary monetary policy shock appreciates exchange rate. Furthermore, Mussa (1986) confirmed that variability of real exchange rate in response to high volatility of monetary policy and slow price adjustment. However, Stockman (1988) highlighted that high volatility of monetary policy in response to floating exchange rate period. Glick and Hutchison (1989) highlighted that exchange rate plays a vital role in determination and conduct of monetary policy. They confirmed that fixed exchange rate serves as chief shocks to monetary policy. Shambaugh (2003) scrutinized the impact of fixed exchange rate on the monetary policy among pegged and non-pegged countries. They also examined that changes in interest rate in base country was tracked by pegged country. From the above discussion it can be inferred that monetary policy and exchange rate impact each other. However, a comparison of the above relationship was not yet investigated. Therefore, in this study this issue was considered. An stated hypothesis can be inferred from the above discussions 2.1.

H1: Monetary policy and exchange rate has significant impact on each other.

3.

Methodology

The methodology section comprises of two parts. First part discusses the details of variables and their measurement .However, the second one highlights the analysis tools which were applied on the data. 3.1.

Variables

In current study monetary policy (MP), nominal exchange rate (NER) and country specific variables i.e. Gross Domestic Product (GDP), price level (CPI), unemployment rate (UER) and terms of trade (TOT) were adopted. Voss & Willard, 2009 used nominal exchange rate (NER), Gross Domestic Product (GDP), price level (CPI) and terms of trade (TOT) in Bayesian method for assessing the exchange rate movements in the execution of monetary policy. The expected parameterization between monetary policy and exchange rate was quite mixed, as some researchers explained different outcomes that reflect contradiction regarding above-mentioned relationship. Therefore, the effects of monetary policy and exchange rate on each other was tested while interchangeably their positions. In equation 1, monetary policy was taken as dependent variable and

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exchange rate as independent variable however, in equation 2 exchange rate was taken as dependent variable and monetary policy as independent variable. 3.1. MPt

3.2. NERt

1

.NER t

2

D1 (GDPt )

3

MPt

2

D1 (GDPt )

3

1

D2 (CPI t )

D2 (CPIt )

4

D3 (UERt )

4

D3 (UERt )

5

D4 (TOTt )

5

D4 (TOTt )

D 5 (C t )

6

8

D5 (Ct )

Where = Overall intercept term, = Sensitivity of risk regarding to specific variable, D = Dummy variable, MP= Monetary Policy, NER = Nominal exchange rate, GDP= Gross Domestic Product, CPI = Price Level, UER =Unemployment rate, TOT = Terms of Trade, C= Countries, = Error term. Monetary policy was measured through DR (Discount rate), used by Chen (2007). However, the proxy for exchange rate was taken as natural log of nominal exchange rate (NER), measured on US base. Similarly, Gross domestic product was taken as natural log. Terms of trade (TOT) was measured as exports divided imports. As this research possess time-series nature. Thus data was taken on annually basis for the period of 19852010. Mostly data was extracted from International Monetary Fund. 26 developedemerging economies were adopted from FTSE list (shown in Table 10) and from which Pakistan was taken as base country. 3.3.

Methodological Tests 1. Augmentated Dickey Fuller test was applied to check the stationarity of data. 2. Correlation test was applied to find the inter-relationship among monetary policy, nominal exchange rate and country-specific variables. 3. Multiple regressions were applied to find the casual relationship among monetary policy, nominal exchange rate and country specific variables.

4.

Discussion of Results

Augmentated Dickey Fuller test was applied the check the stationarity of monetary policy(MP), nominal exchange rate (NER), price level (CPI), Gross domestic product (GDP), unemployment rate (UER) and terms of trade (TOT).The results show that all

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variable are stationary at level that confirms the assumption of OLS multiple regression. The results of ADF are shown in Table 1, 2, 3,4,5,6 4.1.

Correlation

Correlation test was used to find out inter-relationship among monetary policy (MP), nominal exchange rate (NER) and country-specific variables. The findings highlight that monetary policy (MP) is negatively related to nominal exchange rate (NER), price level (CPI), Gross domestic product(GDP), unemployment rate (UER) and terms of trade (TOT).However, nominal exchange rate (NER) is positively related to price level (CPI), Gross domestic product(GDP), unemployment rate (UER) and terms of trade (TOT). Furthermore, price level (CPI) is positively related to Gross domestic product (GDP) and terms of trade (TOT), however, it is negatively related to unemployment rate (UER). Gross domestic product (GDP) is positively related to unemployment rate (UER) and terms of trade (TOT). Unemployment rate (UER) is negatively related to terms of trade (TOT).Table 7 depicts the correlation analysis. 4.2.

Multiple Regressions 4.2.1. MPt

1

.NER t

2

D1 (GDPt )

3

D2 (CPI t )

4

D3 (UERt )

5

D4 (TOTt )

6

OLS regression was used the casual relationship among monetary policy (MP), nominal exchange rate (NER) and country specific variables, which was explained in Table 8 and Table 9 respectively. When monetary policy (MP) was regressed with nominal exchange rate (NER), it was seen that nominal exchange rate (NER), price level (CPI), Gross domestic product (GDP), unemployment rate (UER) and terms of trade (TOT) have insignificant impact on monetary policy. The results show that Colombia, Morocco and Peru have significance difference from Pakistan however; other 22 economies are similar to Pakistan. The value of R-square is 18.47 % which means that this model explains only 18% of independent factors that affect monetary policy (MP) while 82% are other factors that influence monetary policy (MP). F-statistics is significant at 0.000. 4.2.2. NERt

MPt

1

D (GDPt )

2 1

3

D2 (CPIt )

4

D3 (UERt )

5

D4 (TOTt )

8

D5 (Ct )

When nominal exchange rate (NER) was regressed with the monetary policy (MP), it was seen that monetary policy (MP) has insignificant impact on nominal exchange rate (NER) whereas, price level (CPI), Gross domestic product (GDP), unemployment rate (UER) and terms of trade (TOT) have significant impact on nominal exchange rate (NER). All economies show significant difference from Pakistan except Czech Republic, Philippines and Sweden. The value of R-square is 98.77 % which means that this model explains only 99% of independent factors that affect nominal exchange rate (NER) while 1% is other factors that influence nominal exchange rate (NER). F-statistics is significant at 0.000. The above outcomes highlight that nominal exchange rate (NER) can be adjusted by changing in Price level (CPI), Gross domestic product (GDP), unemployment rate (UER) and terms of trade (TOT), while monetary policy are independent of the these factors.

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D 5 (C t )

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Monetary policy (MP) can impact nominal exchange rate (NER) through reducing the Gross domestic product and domestic interest rate. 5.

Conclusion

This study clarifies the contradiction between monetary policy and exchange rate that they influence each other. It investigates the above mentioned link in 26 different economies. When monetary policy (MP) was regressed with nominal exchange rate (NER), only Colombia, Morocco and Peru show significantly difference from Pakistani perspective. However, when nominal exchange rate (NER) was regressed with monetary policy (MP), all economies show significantly different outcomes from Pakistan except Czech Republic, Philippines and Sweden. The correlation analysis show there is negative relationship between nominal exchange rate (NER) and monetary policy (MP). 6.

Research Implications and Limitations

Previously, monetary policy (MP) can be used in adjusting the nominal exchange rate (NER). This study eliminates this contradiction, which depicts that monetary policy (MP) has insignificant impact on nominal exchange rate (NER). However, Price level (CPI) , Gross domestic product (GDP), unemployment rate (UER) and terms of trade (TOT) has significant impact on nominal exchange rate (NER), that reflects that these factors can be applied in adjustment of nominal exchange rate irrespective of monetary policy. In case of monetary policy(MP), nominal exchange rate (NER), Price level (CPI), Gross domestic product (GDP), unemployment rate (UER) and terms of trade (TOT) has significant impact on monetary policy (MP), that transpires that these factors influence it to small extent. Due to data constraints, mostly countries are skipped to find the relationship between nominal exchange rate (NER) and monetary policy (MP). In future studies, this issue would be overcome.

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References Aghion, Philippe., Bacchetta, Philippe. & Ranciere, Romain. (2009). Exchange Rate Volatility and Productivity Growth: The Role of Financial Development. Journal of Monetary Economics, Vol. 56, pp.494 513. Chen, Shiu-Sheng. (2007). Does monetary policy have asymmetric effects on stock returns? Journal of Money, Credit & Banking. Vol. 39, No. 2-3, pp. 667 688. Devereux, Michael B.(2001). Monetary Policy, Exchange Rate Flexibility, and Exchange Rate Pass-Through. In Revisiting the Case for Flexible Exchange Rates (Bank of Canada) pp.47-82. Eichenbaum, Martin & Evans, Charles L. (1995). Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates. The Quarterly Journal of Economics, Vol. 110, No. 4 , pp. 975-1009. Furlani, Luiz Gustavo Cassilatti. (2010). Exchange Rate Movements and Monetary Policy in Brazil: Econometric and simulation evidence. Economic Modeling, Vol. 27, pp.284-295. Gagnon, Joseph E. & Ihrig, Jane.(2006). Monetary Policy and Exchange Rate PassThrough. Board of Governors of the Federal Reserve System, International Finance Discussion Papers # 704, pp. 1-35. Glick, Reuven. & Hutchison, Michael.(1989). Exchange Rates and Monetary Policy. Economic Review, Federal Reserve Bank of San Francisco, Spring 1989, No.2, pp.16-29 Kim, Soyoung. (2003). Monetary policy, foreign exchange intervention, and the exchange rate in a unifying framework. Journal of International Economics 60, pp.355 386 Laopodis, Nikiforos T.(2006). Dynamic Linkages Between Monetary Policy And The Stock Market. Journal of Business & Economics Research, Vol.4, No.12,pp.31-36. Malikane, Christopher. & Semmler, Willi. (n.d). The Role of the Exchange Rate in Monetary Policy Rules: Evidence from a Dynamic Keynesian Model, pp.1-18. www.wiwi.uni-bielefeld.de/fileadmin/cemm/templates/.../Exchange.pdf Mussa, M.(1986). Nominal Exchange Rate regimes and behavior of real exchange rates: Evidence and implications. Carnegie-Rochester Conference Series on Public Policy, Vol. 25, pp. 117-214 Sek, Siok Kun. (2009). Interactions between Monetary Policy and Exchange Rate in Inflation Targeting Emerging Countries: The Case of Three East Asian Countries. International Journal of Economics and Finance, Vol. 1, No.2, pp.27-44 Shambaugh, Jay C. (2003). The Effect of Fixed Exchange Rates on Monetary Policy. Quarterly Journal of Economics, pp.1-46 Stockman. (1986). A theory of Exchange Rate Determination. Journal of Political economy 88, pp.673-698

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Taylor, John B.(2001). The Role of the Exchange Rate in Monetary-Policy Rules. Policy Implications of Macroeconomic Research, Vol. 91, No. 2, pp.263-267 Wilkinson, Katherine J., Young, Martin R. & Young, Shirley. (2001). The effects of monetary policy shocks on exchange rates: Evidence from New Zealand and Australia. Pacific-Basin Finance Journal, Vol.9, pp. 427-455. Voss, G.M. & Willard, L.B. (2009). Monetary Policy and the Exchange Rate : Evidence from a Two-Country Model, Journal of Macroeconomics, Vol. 31, pp.708-720 Zettelmeyer, Jeromin.(2004). The impact of monetary policy on the exchange rate: evidence from three small open economies. Journal of Monetary Economics, Vol. 51, pp. 635 652

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Annexure ADF Test Statistic

-5.309016

1% Critical Value* 5% Critical Value 10% Critical Value

-3.4429 -2.8664 -2.5693

*MacKinnon critical values for rejection of hypothesis of a unit root.

Augmented Dickey-Fuller Test Equation Dependent Variable: D(NOMINALEXCHANGE) Method: Least Squares Date: 12/28/10 Time: 07:37 Sample(adjusted): 4 650 Included observations: 647 after adjusting endpoints Variable

Coefficient

Std. Error

t-Statistic

Prob.

NOMINALEXCHANG -0.079133 E(-1) D(NOMINALEXCHA 0.087603 NGE(-1)) D(NOMINALEXCHA 0.048956 NGE(-2)) C 0.166074

0.014905

-5.309016

0.0000

0.039237

2.232639

0.0259

0.039393

1.242776

0.2144

0.047309

3.510412

0.0005

R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat

0.044488 0.040030 0.903244 524.5910 -850.2064 1.998957

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

0.000115 0.921884 2.640514 2.668164 9.979248 0.000002

Table 1: Augmented Dickey-Fuller Test Equation for Nominal Exchange Rate

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ADF Test Statistic

-9.853763

1% Critical Value* 5% Critical Value 10% Critical Value

-3.4429 -2.8664 -2.5693

*MacKinnon critical values for rejection of hypothesis of a unit root.

Augmented Dickey-Fuller Test Equation Dependent Variable: D(MONETARYPOLICY) Method: Least Squares Date: 12/28/10 Time: 07:40 Sample(adjusted): 4 650 Included observations: 647 after adjusting endpoints Variable

Coefficient

Std. Error

t-Statistic

Prob.

MONETARYPOLICY( -0.329204 -1) D(MONETARYPOLIC 0.379757 Y(-1)) D(MONETARYPOLIC -0.305188 Y(-2)) C 5.541861

0.033409

-9.853763

0.0000

0.034498

11.00799

0.0000

0.037556

-8.126262

0.0000

1.782501

3.109037

0.0020

R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat

0.368025 0.365076 43.02748 1190427. -3349.957 1.871109

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

7.73E-05 53.99892 10.36772 10.39537 124.8149 0.000000

Table 2: Augmented Dickey-Fuller Test Equation for Monetary Policy

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ADF Test Statistic

-7.454273

1% Critical Value* 5% Critical Value 10% Critical Value

-3.4429 -2.8664 -2.5693

*MacKinnon critical values for rejection of hypothesis of a unit root.

Augmented Dickey-Fuller Test Equation Dependent Variable: D(CPI) Method: Least Squares Date: 12/28/10 Time: 07:42 Sample(adjusted): 4 650 Included observations: 647 after adjusting endpoints Variable

Coefficient

Std. Error

t-Statistic

Prob.

CPI(-1) D(CPI(-1)) D(CPI(-2)) C

-0.173259 0.078720 0.030168 13.30714

0.023243 0.039607 0.039527 1.884584

-7.454273 1.987508 0.763229 7.061047

0.0000 0.0473 0.4456 0.0000

R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat

0.082521 0.078241 16.70026 179331.9 -2737.627 2.003010

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

0.131530 17.39460 8.474889 8.502539 19.27792 0.000000

Table 3: Augmented Dickey-Fuller Test Equation for Price level (CPI) ADF Test Statistic

-4.350293

1% Critical Value* 5% Critical Value 10% Critical Value

-3.4429 -2.8664 -2.5693

*MacKinnon critical values for rejection of hypothesis of a unit root.

Augmented Dickey-Fuller Test Equation Dependent Variable: D(GDP) Method: Least Squares Date: 12/28/10 Time: 07:39 Sample(adjusted): 4 650 Included observations: 647 after adjusting endpoints Variable

Coefficient

Std. Error

t-Statistic

Prob.

GDP(-1) D(GDP(-1)) D(GDP(-2)) C

-0.053545 0.081261 0.046130 0.512652

0.012308 0.039299 0.039413 0.120126

-4.350293 2.067770 1.170415 4.267624

0.0000 0.0391 0.2423 0.0000

R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat

0.032027 0.027510 0.865806 482.0052 -822.8176 2.000372

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

0.012420 0.877966 2.555850 2.583500 7.091507 0.000108

Table 4: Augmented Dickey-Fuller Test Equation for Gross Domestic Product

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ADF Test Statistic

-3.704869

1% Critical Value* 5% Critical Value 10% Critical Value

-3.4429 -2.8664 -2.5693

*MacKinnon critical values for rejection of hypothesis of a unit root.

Augmented Dickey-Fuller Test Equation Dependent Variable: D(UNEMPLOYMENTRATE) Method: Least Squares Date: 12/28/10 Time: 07:43 Sample(adjusted): 4 650 Included observations: 647 after adjusting endpoints Variable

Coefficient

Std. Error

t-Statistic

Prob.

UNEMPLOYMENTRA TE(-1) D(UNEMPLOYMENT RATE(-1)) D(UNEMPLOYMENT RATE(-2)) C

-0.038961

0.010516

-3.704869

0.0002

0.050167

0.039325

1.275686

0.2025

0.056744

0.039373

1.441194

0.1500

64.45414

77.11290

0.835841

0.4036

R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat

0.023248 0.018691 1910.904 2.35E+09 -5804.347 2.005832

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

0.009440 1929.016 17.95470 17.98235 5.101360 0.001704

Table 5: Augmented Dickey-Fuller Test Equation for Unemployment Rate

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ADF Test Statistic

-5.813333

1% Critical Value* 5% Critical Value 10% Critical Value

-3.4429 -2.8664 -2.5693

*MacKinnon critical values for rejection of hypothesis of a unit root.

Augmented Dickey-Fuller Test Equation Dependent Variable: D(TERMOFTRADE) Method: Least Squares Date: 12/28/10 Time: 07:44 Sample(adjusted): 4 650 Included observations: 647 after adjusting endpoints Variable

Coefficient

Std. Error

t-Statistic

Prob.

TERMOFTRADE(-1) D(TERMOFTRADE(1)) D(TERMOFTRADE(2)) C

-0.127465 -0.076298

0.021926 0.040105

-5.813333 -1.902463

0.0000 0.0576

-0.063218

0.039397

-1.604624

0.1091

0.120823

0.021583

5.597973

0.0000

R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat

0.079932 0.075640 0.142063 12.97693 346.5644 2.004453

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

-0.000281 0.147761 -1.058932 -1.031282 18.62052 0.000000

Table 5: Augmented Dickey-Fuller Test Equation for Terms of Trade

Table 7 MP MP

1.000000

NER CPI GDP UER TOT

-0.172760 -0.240110 -0.153555 -0.026303 -0.087442

NER

CPI

GDP

UER

TOT

1.000000 0.189691 0.381845 0.189806 0.204882

1.000000 0.235454 -0.023348 0.139986

1.000000 0.068303 0.036960

1.000000 -0.087538

1.000000

Table 7: Correlation Test

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Dependent Variable: MONETARYPOLICY Method: Least Squares Date: 12/27/10 Time: 18:38 Sample: 1 650 Included observations: 650 Variable

Coefficient

Std. Error

t-Statistic

Prob.

NOMINALEXCHANG E CPI GDP UNEMPLOYMENTRA TE TERMOFTRADE AUSTRALLIA CANADA COULOMBIA DCHINA CZECHREPUBLIC DDERMACK DEGYPT HONGKONG DINDIA INDONESIA ISRAEL JAPAN MALAYSIA MEXICO MOROCCO NEWZEALAND NORWAY PERU PHILPINES SINGAPORE SOUTHAFRICA SWEDEN SWIZERLAND THAILAND TURKEY C

5.558661

8.697192

0.639133

0.5230

0.025943 -16.73693 0.002589

0.197792 8.920081 0.002215

0.131162 -1.876320 1.168792

0.8957 0.0611 0.2429

0.499524 -8.498037 -3.362933 56.39098 50.49429 -4.726055 -9.934967 91.31517 -13.69500 -67.91664 58.11515 95.82024 71.24478 84.87453 27.77803 47.68268 78.10330 -6.774455 137.9982 -1.884337 72.54659 106.5140 -1.495026 -20.01493 4.621833 101.9201 118.9151

15.95875 23.85801 27.19601 21.70017 40.11620 17.59736 19.95890 63.91981 18.51226 87.77815 32.52168 65.28561 39.63960 64.00174 25.85227 19.82763 60.97092 22.14246 60.74477 17.23046 60.91795 71.23474 21.58188 18.07261 18.14553 76.23597 35.33027

0.031301 -0.356192 -0.123655 2.598642 1.258701 -0.268566 -0.497771 1.428589 -0.739780 -0.773731 1.786966 1.467708 1.797313 1.326128 1.074491 2.404860 1.280993 -0.305949 2.271771 -0.109361 1.190890 1.495254 -0.069272 -1.107473 0.254709 1.336902 3.365813

0.9750 0.7218 0.9016 0.0096 0.2086 0.7884 0.6188 0.1536 0.4597 0.4394 0.0744 0.1427 0.0728 0.1853 0.2830 0.0165 0.2007 0.7597 0.0234 0.9130 0.2342 0.1354 0.9448 0.2685 0.7990 0.1817 0.0008

R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat

0.184704 0.145190 60.58099 2271765. -3574.016 0.832431

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

16.83136 65.52420 11.09236 11.30587 4.674448 0.000000

Table 8: Multiple Regression Test (Monetary Policy)

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Dependent Variable: NOMINALEXCHANGE Method: Least Squares Date: 12/27/10 Time: 18:42 Sample: 1 650 Included observations: 650 Variable

Coefficient Std. Error

t-Statistic

Prob.

MONETARYPOLICY CPI GDP TERMOFTRADE UNEMPLOYMENTRA TE AUSTRALLIA CANADA CHINA COULOMBIA CZECHREPUBLIC DERMACK EGYPT DHONGKONG DINDIA INDONESIA ISRAEL JAPAN MALAYSIA MEXICO MOROCCO NEWZEALAND NORWAY PERU PHILPINES SINGAPORE SOUTHAFRICA SWEDEN SWIZERLAND THAILAND TURKEY C

0.000119 -0.015854 0.976313 0.224264 2.67E-05

0.000186 0.000655 0.012963 0.073175 1.02E-05

0.639133 -24.20540 75.31748 3.064772 2.624679

0.5230 0.0000 0.0000 0.0023 0.0089

-1.792409 -2.288662 -4.094964 -0.443525 -0.063064 -0.878709 -6.932276 -0.439766 -2.939335 -1.386543 -7.096510 -3.683362 -6.904145 -2.196848 0.716627 -6.626222 -0.924181 -6.665026 -0.132720 -6.623347 -7.704902 -1.258248 -0.022016 -0.545971 -8.487661 -3.005355

0.083433 0.085583 0.085709 0.099209 0.081263 0.085196 0.099276 0.083717 0.388140 0.139946 0.099645 0.108601 0.103291 0.080589 0.087405 0.092853 0.095322 0.087449 0.079425 0.092286 0.113096 0.085929 0.083572 0.080912 0.089570 0.111971

-21.48318 -26.74191 -47.77727 -4.470608 -0.776049 -10.31398 -69.82823 -5.253010 -7.572867 -9.907730 -71.21795 -33.91659 -66.84137 -27.25985 8.198936 -71.36216 -9.695397 -76.21599 -1.671014 -71.77010 -68.12727 -14.64296 -0.263433 -6.747728 -94.76002 -26.84044

0.0000 0.0000 0.0000 0.0000 0.4380 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0952 0.0000 0.0000 0.0000 0.7923 0.0000 0.0000 0.0000

R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood Durbin-Watson stat

0.987787 0.987196 0.279878 48.48731 -78.71722 0.560595

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion F-statistic Prob(F-statistic)

2.089164 2.473361 0.337591 0.551109 1668.877 0.000000

7. Table 9: Multiple Regression Test (Nominal Exchange Rate)

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1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Developed Countries Australia Canada Denmark Hong Kong Israel Japan New Zealand Norway Singapore Sweden Switzerland

Developing Countries Mexico South Africa China Colombia Czech Republic Egypt India Indonesia Malaysia Morocco Pakistan Peru Philippines Thailand Turkey

Table 10:No. of Countries of Developed and Developing Countries.

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Financial Integration among SAARC Members: Time Series Analysis of Interest Rates

Shazia Iqbal Khalid PhD Scholar of International Islamic University Islamabad, Department of Management Sciences, Pakistan Nishwa Iqbal PhD Scholar of International Islamic University Islamabad, Department of Management Sciences, Pakistan Mohammad Umer MS Scholar Faculty of Management Sciences, International Islamic university Islamabad Dr. Zaheer Abbas Assistant Professor of International Islamic University Islamabad, Department of Management Sciences, Pakistan

Abstract

The purpose of this study is to investigate the financial integration of SAARC. The South Asian Association for Regional Cooperation (SARRC) was created in 1985, to develop an economical relationship among seven countries. These seven countries were South Asian countries such as Pakistan, India, Sri Lanka, Maldives, Bangladesh, Nepal and Bhutan. In the result of this cooperation, a trade link was developed among these countries. Through Cointegration test we imperially test that a long run relationship exists among these countries and in short run different countries significantly affect other countries that are evaluated through interest rates impacts. Short run relationship is evaluated through Granger Causality. only Sri Lanka is only country who has no significant effect on any other country, Maldives interest rate has significant impact on Bhutan inters rate, Pakistan interest rate has a significant impact on Maldives interest rate, Nepal interest rate has significant impact on Bhutan and Maldives interest rats, Bhutan interest rate has significant impact on Maldives and Sri Lanka interest rates, Bangladesh interest rate has significant impact on Nepal, Sri Lanka and Maldives, India interest rates has significant impact on Bangladesh, Bhutan, Nepal and Pakistan interest rates. Almost among all members of SAARC has significant integration. Key words: SAARC, Integration, Interest Rate

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1. Introduction The South Asian Association for Regional Cooperation (SARRC) was created in 1985, to develop an economical relationship among seven countries. These seven countries were South Asian countries such as, Pakistan, India, Sri Lanka, Maldives, Bangladesh, Nepal and Bhutan. In the result of this cooperation, a trade link was developed among these countries after 1985. There were some restrictions for trading due to some vicinity issues in last few years but now there are significant improvements in the trade relations among SAARC members. Due to this association, there are many benefits for their economies; many factors are there to integrate these economies and these factors are very helpful for development of any economy. European Union and ASEAN (Association of South East Asian Nations) are also working for developing of trade relationships among member countries. SAARC is a medium to facilitate a smooth way of integration among these south Asian members to promote investment opportunities and trade relationships. All trade policies and globalization activities like investment and foreign funding held due to collaboration of these countries through SAARC. Globalization is also an example of economical and social relationships among different countries across the global through investments, mobility of workforce, movement of goods and services, which play an impotent role in growth of the economies. SAARC countries are linked with each other for trading some important things such as minerals, cotton, food items, fabrication and raw material for further processing and get final finish goods. The demand and supply of these goods are transfer from one country to other country in these regions with out any barriers which is a big factor of integrations. To evaluate long run and in short run relationship among SAARC countries, interest rates of these countries are best factor for this study. 2. Literature Review Earlier studies explain relationships among economic markets of different countries, one of the study was in transmission if inters rate in which it explained that in money market, US dollar is dominate with respect to domestic money market of a country (Hendershott 1967). Integration, segmentation and weekly segmentation are three basic theories of capital structure of financial markets, these theories explains that international market is a beneficiary place of investment and it create significant integration among countries (Agmon 1972). Some basic theories in investment dimension is providing a link of foreign investment in diversified portfolios and through this link many countries are linked with each other. Financial markets profitability and international investment in diversified portfolio, co movement can predict the interrelation between the countries (Markowitz 1952; Lessard 1974; Makridakis and Wheelwright 1974) Many researchers explain that there is a relationship between interest rates of the countries; it was evaluated through Granger Causality, results shoes two way effect

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between two countries (Giddy, Dufey, and Min 1979; Kaen and Hachey 1983; Swanson 1987). Many researchers proved that change in exchange rates can affect the financial market of a country and may be a permanent effect which is directly related with foreign trade of that country (Baldwin, 1988; Dixit, 1989; Baldwin and Krugman, 1989). In 1993, five currencies ware evaluated through error correction model, such as German deutsche mark, Swiss franc, British pound, Japanese and US dollar; to evaluate the relationship among these currencies. Results were insignificant for euro market, because the euro dollar was not integrated with the above mentioned, domestic currencies. Singapore market was also not integrated with these five domestic currencies (Lin and Swanson 1993). Some researchers explain the intrest rate and exchange rate movements, that explain the significant relationship between them (Karfakis and Moschos 1990; Katsimbris and Miller 1993). In 1996 a study explains about liberalization which is also sport integration among countries, study explains Regionalism to promote free trade and globalization (Moreover, Frankel 1996). In 1999, there was very positive observation in a study that Asian countries are financially integrated and this relationship will be a long term relationship in this world (De Brouwer 1999). In each geographic region, the currency returns always exist in equilibrium and long run relationship, it was studded in 1999 to find out the relationship of five currencies in three different regions, three main markets were Euro market of Singapore, Euro market of London and domestic market was US market (Hsieh et al. 1999). SAARC countries are linked with each other for trading some important things such as minerals, cotton, food items, fabrication and raw material for further processing and get final finish goods. The demand and supply of these goods are transfer from one country to other country in these regions with out any barriers which is a big factor of integrations (Eichengreen and Irwin 1996; Hassan 2000). Many researcher explain in their study that money market integration or capital market integration is exist (Swanson 1987; Lin and Swanson 1993; Hsieh, Lin, and Swanson 1999; Phylaktis 1999; Bremnes, Gjerde, and Sattem 2001). A study held in 1988 that explains the cointegration theory with respect to interest rate. This study evaluates relationship among United State, Norway and Germany through impulse response and decomposition analysis. SAARC is a medium to facilitate a smooth way of integration among these south Asian members to promote investment opportunities and trade relationships. All trade policies and globalization activities like investment and foreign funding held due to collaboration of these countries through SAARC. Globalization is also an example of economical and social relationships among different countries across the global through investments, mobility of workforce, movement of goods and services, which play an impotent role in growth of the economies (Johansen s 1988; Bremnes et al. 2001). Modern theory suggest that countries have same economical scale can batter integrate with each other and make a profitable trade even they have no comparative advantage is exist. The demand and supply patterns are also same among these countries, which are a good sign for trade link. In these days globalization trend is also promoting trade linkages

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that I a good sign for economical growth of any country. These trade linkages overcome some political and cultural issues between countries (Hassan 2001). 3. Methodology 3.1. Data This aim of this study is to evaluate the financial relationship or integration among SAARC countries, for this paper interest rate of these seven countries is downloaded from official web site of international monetary fund . The comovement of these rats of these countries explains the financial relationship of these countries. This comovement is analysis through different statistical techniques such as Cointegration test, it explains the long run relationship among these seven countries and for short run relationship evaluation Granger Causality test is helpful in this study. Data is downloaded on monthly basis for ten years such as, January 2000 to December 2009. For data different rates are taken as an interest rate of different countries, such as discount rate is taken for Pakistan, Bangladesh and Nepal. Bank rates are taken for India, advance rates are taken for Sri Lanka, Time deposit rates are taken for Maldives and Fixed saving rates are taken for Bhutan. 3.2. Results Analysis Firs of all after collecting data a unit root test ADF is applied to check the data movements, the result is reported in Table 1 in which it is showing that unit root test rejected its null hypothesis and all interest rate data comes stationary at first difference. All interest rats are significantly stationary at first differential like I(1) but not at I(0) level. For all countries there Dickey and Fuller (ADF) test results are described in table. Critical value is also written for the comparison of results that at first difference all data is stationary and ADF is significant (1981). To evaluate the long run co integration a statistical test is applied on the interest rate data of these SAARC countries and results are described in Table 2. We know that trade links or other social links are existing among theses countries so now it is statistically proved that theses countries having effect on each other. Likelihood ratio is greater then critical values from at most 1 to at most 5, which is showing that interest rats have long run integration. At most 6 levels it is showing insignificant but results are applicable on other levels clearly. All significant results have low critical values then likelihood values. This test is applied in Eviews for the period of January 2000 to December 2009. These results are predicting that all seven countries are very liberalize and have no significant trade barriers for each others, all countries have good relation or a long run trade link among them. To evaluate the short run relationship Granger Causality is applied on these interest rates of all countries. This test is applied in pair combinations of these SAARC members to evaluate which country affects other country. All countries that are affecting other countries through their integration or any trade link, which is reported in Table 3. Only Sri Lanka is only country who has no significant effect on any other country it

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means that the trade barriers are there in Sri Lanka for remaining countries. Due to these barriers, Investment of other SAARC member is not significant in this country. Maldives interest rate has significant impact on Bhutan inters rate, Pakistan interest rate has a significant impact on Maldives interest rate, Nepal interest rate has significant impact on Bhutan and Maldives interest rats, Bhutan interest rate has significant impact on Maldives and Sri Lanka interest rates, Bangladesh interest rate has significant impact on Nepal, Sri Lanka and Maldives, India interest rates has significant impact on Bangladesh, Bhutan, Nepal and Pakistan interest rates. Almost among all members of SAARC has significant integration accept Sri Lanka. 4. Conclusion Through Co integration test we imperially test that a long run relationship exists among these countries and in short run different countries significantly affect other countries that are evaluated through interest rates impacts. Short run relationship is evaluated through Granger Causality. only Sri Lanka is only country who has no significant effect on any other country, Maldives interest rate has significant impact on Bhutan inters rate, Pakistan interest rate has a significant impact on Maldives interest rate, Nepal interest rate has significant impact on Bhutan and Maldives interest rats, Bhutan interest rate has significant impact on Maldives and Sri Lanka interest rates, Bangladesh interest rate has significant impact on Nepal, Sri Lanka and Maldives, India interest rates has significant impact on Bangladesh, Bhutan, Nepal and Pakistan interest rates. Almost among all members of SAARC has significant integration. These results are predicting that all seven countries are very liberalize and have no significant trade barriers for each others, all countries have good relation or a long run trade link among them. This study will help to understand the trade relationship among SAARC countries. Sri Lanka has no significant relationship among other countries which is a sign of trade barriers or any other border issues may be there. Other SAARC members have very significant relation which is explain that there are no trade barriers among them. These trade links has very significant effect on economical growth of these countries. Further this study can be extended by evaluation of trade items and their affect on economical growth of each country.

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References Agmon, T. (1972). The relationships among equity markets: A study of share price comovements in the United States, United Kingdom, Germany and Japan. Journal of Finance, 27(4), 839 855. Baldwin, Richard E. (1988). "Hysteresis in Import Prices: The Beachhead Effect," American Economic Review 74, pp. 773-85. Baldwin, Richard E., and Paul Krugman (1989). "Persistent Trade Effects of Exchange Rate Shocks," Quarterly Journal of Economics 104, pp. 635-654.

Bremnes, H., Oystein, G., & Frode, S. (2001). Linkage among interest rates in the United States, Germany and Norway. Scandinavian Journal of Economics, 103(1), 127 145. De Brouwer, G. (1999). Financial integration in East Asia. Cambridge: Cambridge University Press. Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with unit root. Econometric, 49, 1057 1072. Eichengreen, Barry and Douglas A. Irwin (1996).The Role of History in Bilateral Trade Flows,NBER Working Paper Series No. 5565, May 1996. Giddy, I. H., Dufey, G., & Min, S. (1979). Interest rates in the U.S. and eurodollar markets. Weltwir-Tschaftliches Archief, 115, 51 67. Hassan, M. Kabir. (2000). International Trade With SAARC and Trade Policies of Bangladesh. Journal of Economic Cooperation. 21(3): 99-152. Hassan, M. Kabir. (2001). Is SAARC A Viable Economic Block? Evidence from Gravity Model. Journal of Asian Economics. 12: 263-290. Hendershott, P. H. (1967). The structure of international interest rates: The U.S. treasury bill rate and the eurodollar deposit rate. Journal of Finance, 22, 455 465. Hsieh, N., Lin, A., & Swanson, P. E. (1999). Global money market interrelationships. International Review of Economics and Finance, 8, 71 85. Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economics and Dynamics and Control, 12, 231 254. Kaen, F. R., & Hachey, G. A. (1983). Eurocurrency and national money market interest rates: An empirical investigation of causality. Journal of Money, Credit and Banking, 15(3), 327 338. Karfakis, C., & Moschos, D. (1990). Interest rate linkages within the European monetary system: A time series analysis. Journal of Money, Credit, and Banking, 22, 388 394. Katsimbris, G., & Miller, S. (1993). Interest rate linkages within the European Monetary System: Further analysis. Journal of Money, Credit and Banking, 25, 771 779. Lessard, D. R. (1974). International portfolio diversification: A Multivariate analysis for a group of Latin American countries. Journal of Finance, 29, 254 263. Makridakis, S. G., & Wheelwright, S. C. (1974). An analysis of the interrelationships among the major world stock exchanges. Journal of Business, Finance, and Accounting, 1, 195 216. Markowitz, H. M. (1952). Portfolio selection. Journal of Finance, 7, 71 91. Phylaktis, K. (1999). Capital market integration in the Pacific Basin region: An impulse response analysis. Journal of International Money and Finance, 18, 267 287. Swanson, P. E. (1987). Capital market integration over the past decade: The case of the US dollar. Journal of International Money and Finance, 6, 215 225.

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Annexure

Table 1: Unit-Root Test (ADF) Results for Period (January 2000 to December 2009)

Table 2: Co integration Results for Period (January 2000 to December 2009)

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Table 3: Granger Causality Results for Period (January 2000 to December 2009) Sri Lanka Maldeep - bhotan Pakistan - maldeep Nepa l- bhotan, maldeep Bhotan - maldeep, serilanka Bangladysh - Nepal, srilanka, maldeep India - bangladesh, Bhutan, Nepal, Pakistan

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Attitude of Gomal University Teachers towards Students Evaluation Salahuddin Khan, Muhammad Shah, Allah Noor ,Rahmat Ullah Shah Institute of Education & Research, Gomal University Dera Ismail Khan, Khyber Pakhtunkhwa, Pakistan Abstract The purpose of this study was to investigate the Attitude of Gomal University Teachers towards Student Evaluations. For this purpose a sample of 144 faculty members were taken to know the attitude of faculty regarding students evaluation in the year 2008-09. The Teacher Attitude towards Students Evaluation Instrument (TASEI) was used in the study. The Instrument was adopted from the Chang s (2000) Attitude towards Student Ratings of Instruction (ASRI) Questionnaire with some slight changes in the items. A five-point-Likert scale ranging from strongly agree (5-point) to strongly disagree (1point) was used for rating the TASEI instrument. The main objective of the study was to investigate, the attitude of faculty members regarding their evaluation by students whether it is positive or negative. The study concluded that all the faculty members of Gomal University Pakistan have shown positive attitude towards the students evaluation of teachers. Key Words: Attitude, Teachers, Students, Evaluation 1. Introduction Like most of the Universities in the world which have employed the student s evaluation of teachers since long, the Universities of Pakistan including Gomal University, Dera Ismail Khan has started the evaluation of teachers by their students since 2004. The main focus of this evaluation is summative. Before the introduction of student evaluation of teachers, the teachers were evaluated by their Heads called Annual Confidential Report (ACR) and the evaluation was and still used for formative purposes. Both the evaluations are still in practice in Gomal University now days. There are many methods available for assessing the competency and skills of teachers. Researchers continue to explore options for developing the most effective means of assessing these competencies and skills. Teachers cognitive knowledge and skills, general education and content knowledge might be determined through written examinations. However, the most important skill a teacher must possess can only be assessed through Students evaluation. Numerous studies indicated that when and how much evaluation of teachers by students is presented. Finley et al (1993) set forth that students have been evaluating teachers since the introduction of the first formal published evaluation form, the Purdue Rating Scale of Instruction, in 1926. According to Wachtel, (1998) Evaluations of Teachers by their Students have been employed in institutions since 1920. According to Kwan (2001) Students evaluations have become a part of life at Universities, as a way of monitoring and improving the quality of teaching . The author further added that In response to the growing concern over the quality of teaching and the increasing public demand for accountability in higher education, many Universities have setup system for collecting student s feedback ratings to evaluate teaching (P. 171). Millman, (1990) suggested that the overall purpose of teachers evaluation involves collecting and using information to determine the value, worth, or merit of teaching. A study by Seldin (1993) indicates that students evaluation of teachers has been used as a part of faculty evaluation system. Marsh & Roche (1993)

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found that faculties used student s evaluation of their teachers for promotion, improving teaching and to evaluate the teacher performance. Darling-Hammond et al (1983) suggested that the use of student s evaluation of teachers are inexpensive, easy to implement, useful in improving teacher s performance, and has a high degree of reliability. According to Arreola (1995) students are easily available source for evaluation. It is more objective and useful than administrator evaluation, classroom evaluation, and peer evaluation. Main focus of the study was to determine the Gomal University teachers attitudes regarding their evaluation by students. 2. Objective of the study To investigate, the attitude of faculty members regarding their evaluation by students whether it is positive or negative. 3. Procedure of the Study For the purpose of reaching at certain findings and drawing conclusions, the researcher has adopted the following procedure. Population of this study comprises of all the faculty members of Gomal University. One hundred and forty four (N=144) full time faculty members were taken as a sample for the study in which, three (N=3) were full Professors, twenty (N=20) were Associate Professors, seventy five (N=75) were Assistant Professors, and forty six (N=46) were working as Lecturer. Twenty-eight (28) different departments from four faculties of Gomal University Pakistan were selected. The Teacher Attitude towards Students Evaluation Instrument (TASEI) was used in the study. The Instrument was adopted from the Chang s (2000) Attitude towards Student Ratings of Instruction (ASRI) Questionnaire with some slight changes in the items wordings and excluding eight items from the original Chang s instrument. The Chang questionnaire was comprises of 33 items, where as the Instrument adopted and used in this study was reduced to only 25 items, keeping in view the present situation and environment of the area. According to Baumgartner (1995) Likert type scales are very flexible and can be constructed more easily than most of the other type of attitude scales. Ordinarily the items are a mixture of positive and negative statements to add variety to the scale and reduce the respondent s tendency to respond automatically. If the statement is positively worded, the number circled by the examinee is the score for that item. If the statement is negatively worded, the scoring procedure must be reversed. The circled number must be subtracted from the highest possible number plus 1. For example, if an examinee circles 4, this indicates agreement with the statement but a negative view. Thus, 4 is subtracted from 5 (the highest possible number) and added to 1. This calculation (5-4+1) equals 2, accurately reflecting the examinee s negative perception. TASEI was to be responded on five-point Likert type scale from one to five responses. According to the respondent s opinion 1 stands for strongly disagree, 2 for disagree, 3 for undecided, 4 for agree, and 5 for strongly agree. Items showing positive attitude include item no, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 19, 20, 21, 22, 23, 24, 25, Similarly, the responses showing negative attitudes are converted as 1 into 5, 2 into 4, 3 into 3, 4 into 2, and 5 into 1. Items number, 16, 17, 18, fell under this category. The Instrument has a clear direction on its first page for respondents. The respondents were taken in to confidence that their reply would be used only for research purposes and would not be used for any other purpose. The Instrument was personally distributed to the faculty members, and after a week it was collected back from the members dully

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filled by them. The coded data was tabulated and analyzed by utilizing a Statistical Package for Social Sciences (SPSS-12). The mean and Standard Deviation (M & SD) of the items was calculated and conclusions were made on the basis of the calculated Mean & Standard Deviations. As the TASEI was a five point Likert scale, faculty members who received mean score lower than 2.70 (Strongly Disagree to Disagree) were considered a Negative attitude toward the items and the instrument and also at the end the overall agreement (overall attitude towards TASEI negative attitude). Similarly, the faculty who received the mean score higher than 2.70 and lower than 3.30 were considered as Neutral attitude towards the items and the overall attitude towards TASEI, and the faculty who received the mean score higher than 3.30 (Agree and Strongly Agree) were considered as positive attitude towards items and the overall attitude towards the TASEI. 4. Presentation and Analysis of Data S.No

Short statement from the Items of the TASEI

Lecturers M & SD

The Purpose of Students Evaluation 1 Improve teaching 3.15/1.36 2 Enhanced the Communication 3.17/1.17 3 Effective teaching 2.76/1.44 4 References for teachers promotion 3.10/1.21 5 Increase student learning motivation 3.21/1.31 6 Opportunity for teachers self-evaluation 3.54/1.24 The Concern of Teachers About Students Evaluation 7 I care about the students evaluation 3.36/1.21 8 Teachers care about the students evaluation 2.84/1.50 9 Heads care about the students evaluation 3.13/1.29 The Components of Students Evaluation Includes 10 Personal characteristics of the teachers 3.23/1.33 11 The teaching content and course materials 3.24/1.23 12 Relationship between teacher and the 3.00/1.31 students 13 Teaching skills and teaching methods 2.90/1.43 14 Student learning achievements 2.93/1.29 15 The overall evaluation of the teachers 3.26/1.36 The Negative Effects of Students Evaluation 16 Tension between teachers and students may 2.58/1.26 result 17 Good teaching may not be indicated by 2.80/1.33 evaluation 18 Follow up from results may not be 2.78/1.09 consistent 19 Course requirements may be compromised 2.98/1.20 20 The relationship may deteriorate 2.92/1.24 The Application of Students Evaluation 21 A source of feedback to individual teacher 2.92/1.24 22 Input towards the teacher awards 3.05/1.53 23 Input for the admin: evaluation promotions 3.21/1.39 24 Publication of the results in journal 3.55/1.39 25 3.23/1.28 Overall Agreement

Assistant Prof: M & SD

Associate Prof: M & SD

Professors M & SD

3.92/1.32 3.69/1.18 3.23/1.73 3.38/1.19 3.61/1.26 4.00/1.29

3.39/ 1.20 3.42/1.26 3.42/1.26 3.25/1.09 3.36/1.33 3.36/1.11

3.35/1.24 3.31/1.21 3.31/1.21 3.23/1.12 3.25/1.31 3.32/1.27

3.69/1.10 3.15/1.67 3.84/1.21

3.51/1.20 3.27/1.37 3.46/1.21

3.33/1.25 3.04/1.46 3.39/1.27

3.69/1.10 3.69/1.10 2.84/1.86

3.42/1.17 3.28/1.09 3.16/1.37

3.36/1.20 3.19/1.20 3.02/1.44

3.53/1.05 3.53/1.66 2.46/1.50

3.19/1.11 3.19/1.30 3.10/1.33

3.11/1.20 3.25/1.35 2.81/1.33

2.76/1.48

3.01/1.36

2.89/1.35

3.46/0.87

3.31/1.22

3.09/1.17

3.53/1.05

3.31/1.15

3.18/1.17

3.23/1.58 3.23/1.58

2.71/1.19 2.71/1.19

2.85/1.25 2.58/1.25

3.23/1.58 3.76/1.30 3.23/1.58 3.61/0.92 3.61/1.19

2.71/1.19 3.04/1.44 2.96/1.43 3.33/1.28 3.31/1.17

2.58/1.25 3.13/1.47 3.10/1.42 3.47/1.30 3.30/1.22

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5. Results and Discussion Table 1 shows the mean score and standard deviation of the responses of the faculty members of Gomal University of Pakistan items 1 to 25 of the TASEI. The majority of the faculty members responded in neutral and in positive attitude except items No 15, 16, and 20 were responded in negative attitudes by the faculty members. The lowest and the highest responses of the faculty mean score were 2.46 to 4.00 on TASEI. The faculty members were divided in to four categories i.e. Lecturers, Assistant Professors, Associate Professors, and Professors. The mean score of the Lecturer ranges from 2.58 to 3.55, Assistant Professor s mean score ranges from 2.47 to 4.00, Associate Professor s mean score ranges from 2.76 to 3.47, and Professor s mean score ranges from 2.58 to 3.39 respectively. The overall agreement mean score of the Lecturer s were 3.23, Assistant Professor s were 3.61, Associate Professor s were 3.31, and Professor s mean score were 3.30. The highest mean score for Lecturer s and Professor s was item 24 Publication of the results in journal , for Assistant Professor s was item 6 Opportunity for teachers self-evaluation , and for Associate Professor s was item 7 I care about the students evaluation respectively. 57% faculty members responded in neutral attitude towards students evaluation, while 42% faculty members attitude was positive towards students evaluation, and 1% faculty members were of the negative attitude towards students evaluation. The purpose of students evaluation, Under this heading six items were included (Table-1). The attitude of Lecturers regarding these six items were in neutral except item # 6, opportunity for teachers self-evaluation , in which the Lecturers attitude was found positive. The Assistant Professors attitude regarding the purpose of students evaluation items were found positive except item # 3, Effective teaching which was found in neutral attitude. The Associate Professors attitudes were found positive in four items of the purpose of students evaluation, while items # 3 & 4 i.e. effective teaching and reference for teachers promotion which were found in neutral attitude. Similarly, the Professors attitude were found positive in three items while in three items i.e. 3, 4, and 5 effective teaching , reference for teachers promotion , and increase students learning motivation were found in neutral attitude. A maximum response among the four categories of the faculty members were found among the six items concerning the purpose of students evaluation. A majority of the four categories of faculty members responded in neutral attitude. The Lecturers responded in neutral five out of the six items, Assistant Professors responded one out of six, associate Professors responded two out of six, and Professors responded three out of six items in neutral. A possible explanation for the findings may be that the results of the students evaluation are not provided to the faculty members. Thus the faculty does not aware that whether the students have given positive response to their teaching or otherwise. Therefore the finding may be this way. The concern of teachers about students evaluation, Under this heading three items were included i.e. 7, 8, & 9 (Table-1). All the categories of faculty members responded in positive attitude towards items # 7, I care about students evaluation . Similarly, all the categories of faculty members responded in neutral attitude to item # 8, Teachers care about students evaluation , while Lecturer responded to item # 9 as neutral, and the rest of the faculty responded to item # 9 Heads care about the students evaluation as positive

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The components of students evaluation, Six items were included i.e. items # 10, 11, 12, 13, 14, and 15 under this heading (Table1). The response of the Lecturers were found neutral to all the six items, while Assistant Professors and Professors responded in positive to only the first item # 10 i.e. Personal characteristics of the teachers , while the rest of the five items were responded in neutral attitude. Only the Assistant Professors responded to four items i.e. items # 10, 11, 13, and 14 in positive attitude, while item # 12 was responded in neutral. Item # 15 The overall evaluation of the teachers was responded in negative attitude. The negative effects of students evaluation, Under this heading five items were included i.e. items # 16, 17, 18, 19, and 20 (Table-1). The response of the Lecturer to these items were in neutral except item # 16 Tension between teachers and students may result which was responded in negative attitude. The responses of Assistant Professors and Associate Professors were found in neutral to three of the items, while two items i.e. item 17, and 18, Good teaching may not be indicated by evaluation , Follow up from results may not be consistent were responded in neutral attitude. The responses of the Professors were found in neutral attitude to the items except item # 20, The relationship may deteriorate was found in negative attitude by the Professors. The application of students evaluation, Under the heading four items were included i.e. items # 21, 22, 23, and 24, (Table-1). The Lecturer responded in neutral to the two of the items i.e. 21, and 22, A source of feedback to individual teacher and Input towards the teacher awards . The rest of the two items were responded in positive attitude i.e. Input for the admin: evaluation of promotions and Publication of the results in journal . All the four items under this heading were responded in positive attitude by the Assistant Professors. While Associate Professors responded in positive attitude to only on of the item i.e. item # 24, while the rest of the three items were responded in neutral attitude. Similarly, the Professors responded to item # 24, in positive, while negative response was found to item # 21, A source of feedback to individual teacher by the Professors and the rest of the two items were founded in neutral attitude. The overall agreement, All the four categories of the faculty members of Gomal University Pakistan have shown their positive attitude towards the overall agreement for the students evaluation of teachers. The Lecturers responded in neutral attitude to 18 out of 25 items of TASEI, 10 items were responded in positive attitude, while only one item was responded in negative attitude. On the other hand 18 items were responded in positive attitude, 10 items were in neutral attitude, and one item was responded in negative attitude by the Assistant Professors. The Associate Professors responded in neutral attitude to 14 items of the TASEI, and 11 items were responded in positive attitude. Similarly, the professors responded to 15 items of TASEI in neutral attitude, 8 items were responded in positive and two items were responded in negative attitude. A large number of studies have been conducted to know the teachers attitudes regarding students evaluation. A survey undertaken by Gross et al (1979) to determine the faculty attitudes toward student evaluation of teacher s performance, they concluded that teachers were of the view that the practice is good, and were satisfied with the evaluation system and the uses of the

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results. Another study by Ory et al (1980) shows that teachers in general have given importance to evaluation, and credit the information taken through the evaluation as useful and accurate for their self improvement than it use for promotion purposes. A study by Barnett et al (2003) find out that although the faculty responded an overall neutral attitude, despite the fact that they feel that the students did not posses an adequate knowledge regarding the evaluation items. Jacobs (1987) found that a majority of faculty responding to her survey did not feel that student ratings have a negative effect on faculty morale, Avi-Itzhak and Kremer (1986) found that senior and tenured faculty are most opposed to the use of student ratings for summative purposes, while non-tenured faculty, both tenure-track and non-tenure-track, were most supportive of this use of student ratings. According to Franklin and Theall s study (1989), faculty members who familiarize themselves with existing research on student ratings of instruction tend to have more positive attitude about their use. The above studies indicate and support the present study in hand to some extent, this study show the positive attitude towards the students evaluation of teachers.

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References Arreola, R. A. (1995). Developing a comprehensive faculty evaluation system Bolton, MA: Anker Publishing Company, Inc. Available Online http://www.springerlink.com/content/1573-188X/ Avi-Itzahak, T. & Kremer, L. (1986). An investigation into the relationship between university faculty attitude towards student rating and organizational and background factors. Edu: Res: Quar: 10. 31-38. Barnett, C. W., Mathews H W. & Richard, A. J. (2003). A comparison Between Students Ratings and Faculty Self Ratings of Instructional Effectiveness. Retrieved Online on Nov: 3, 2007 from website http://edu.mui.ac.ir/medicaleducation/journalclub/1382/dr-aslani/comparison.pdf Baumgartner, T. A.. & Jackson, A. S. (1995). Measurement for Evaluation in Physical Education and Exercise Science. Fifth Edition, Wm. C. Brown Communications, Inc Chang, T. S. (2000). Student ratings: What are teachers college students telling us about them? Paper presented at the meeting of the American Educational Research Association, New Orleans, LA Darling-Hammond, L. (1983). Teacher Evaluation in the Organizational Context: A Review of the Literature. Rev: of Edu: Res: 53. 285-328. Finley, S. J. & Crawley, F. E. (1993). Students Evaluation of Teacher Performance: A Review of Literature and Instruments for Science Educators. Paper presented at the Annual Meeting of the National Association for Research in Science Teaching, Atlanta Georgia. (ERIC Document Reproduction Service No 361 208) Franklin, J. & Theal, M. (1989). Who reads ratings: Knowledge, attitude and practice of uses of student ratings of instruction? Paper presented at the annual meeting of the American Educational Research Association, San Francisco. Gross, R. B. & Small, A. C. (1979). A survey of faculty opinions about student evaluations of instructor. Tea: of Psy: 6. 216-219. Jacob, L C. (1987). University faculty and students opinion of students ratings Bloomington, IN: Bureau of Evaluation Studies and Testing (ERIC Document Reproduction Service No, ED 291) Kwan, K. (2001). Evaluating an Evaluation: A case study of the cost and effectiveness of a student s feedback system in one University. Marsh, H. W. & Roche, L. (1993). The use of students evaluations and an individually structured intervention to enhance university teaching effectiveness. Amer: Edu: Res: J. 30. 217-251 Millman, J. & Darling-Hammond, L. (Eds.) (1990). The new handbook of teacher evaluation: Assessing elementary and secondary school teachers. Newbury Park, CA: Corwin Press, Inc. Ory, J. C. & Braskamp, L A. (1980). Faculty Perceptions of the Quality and Usefulness of Three Types of Evaluative Information Reports Research (ERIC Reproduction # ED199296) Seldin, P. (1993). The use and abuse of student ratings of professor The Chr: of Hig: Edu: 46. 40-45 Wachtel, H. K. (1998). Students Evaluation of College Teaching Effectiveness: A Brief Review. Ass: and Eva: in Hig: Edu: 23. 191-212

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Assessing the satisfaction of insurance customers and its impact with reference to Saudi Arabia

Dr. Abdalelah S. Saaty Dean, College of Business, King Abdul Aziz University, Rabigh Campus, Saudi Arabia. Abstract The purpose of this research is to find out the level of satisfaction of insurance customers who mainly purchase the compulsory insurance i.e., motor insurance and health insurance in Saudi Arabia. The study further analyzed the relationship among the level of satisfaction and customer loyalty (i.e., customers will purchase other insurance policies in future), change in thinking towards insurance, and change in thinking to future purchase plan. The study is based on primary data, collected from 700 users of insurance through a structured questionnaire in Jeddah city of Saudi Arabia. Consumers responses on various aspects of insurance were analyzed using simple statistical techniques such as percentages, mean, Chi-square tests, factor analysis, and ANOVA analysis with help of Statistical Package for the Social Sciences (SPSS). The findings show that on 22 attributes of insurance measured the customers are by and large satisfied for most of the attributes related to insurance such as behavior of the employees, infrastructure of the insurance company, etc. except for advertisement, claim settlement process, and discounts and promotions of the insurance company. The study showed that there is positive relation between satisfaction and willingness to buy insurance in future, satisfaction and change in thinking, and positive change in thinking is related to future purchase plan. Relating to the factors i.e., advertisement, claim settlement process, and promotions and discounts where customers are not satisfied, managers should take corrective steps as these factors are very important in an insurance policy. Key words: Customer satisfaction, insurance, Saudi Arabia, INTRODUCTION The insurance industry in Saudi Arabia was liberalized in the year 2004. This newly liberalized industry has been growing fast, the growth rate was 27% in 2008, and 33.8% in 2009 (The Saudi Insurance Market Report, 2009). The growth is mainly driven by compulsory lines of business i.e., Motor Insurance and Health Insurance for expatriates. Health insurance gross written premiums represented 50% of the insurance market with remarkable growth rate of 51.8% in 2009. General insurance represented 43% of the total insurance market with an average growth rate of 14.4% and Protection and savings insurance market was 7% percent establishing very high growth rate of 68.9% in 2009. It is note worthy that motor insurance within the category of general insurance represents 21% of the total insurance market of Saudi Arabia. Thus the motor insurance

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and health insurance business in Saudi Arabia makes more than 70% of the total insurance market (The Saudi Insurance Market Report, 2009). Insurance penetration defined as Gross Written Premiums (GWP) divided by the total Gross Domestic Product (GDP) in 2009 increased to 1.06% up from 0.62% in 2008, representing a 69.9% increase. Insurance density defined as Gross Written Premiums per capita increased from SR440 per capita in 2008 to SR 576 per Capita representing 30.8% increase (The Saudi Insurance Market Report, 2009). Despite the high growth in insurance penetration, the total penetration level is incomparably low to the developed countries such as US and Japan. One of the most unpopular lines of business for Insurance in Saudi Arabia is Protection and Savings (P&S). Interestingly this segment has shown high growth rate of 81% in 2008 and approximately 69% in 2009 (The Saudi Insurance Market Report, 2009). However, the researchers hypothesize that this remarkable growth in Protection and Savings may have happened due to the customers change in perception about the insurance by using compulsory insurance such as motor and health insurance. Thus they stepped out of these compulsory insurance to purchase Protection and Savings, which may further extend to other personal lines of insurance. Since 2004 the Saudi insurance industry has been growing on an average of more than 30% annually (The Saudi Insurance Market Report, 2009). But 71% of the total GWP is contributed by compulsory lines of insurance only. However after six years of liberalization it is considered appropriate to assess the satisfaction level of the insurance customers to further standardize the insurance industry. The industry is also ready for second generation reforms, prior to it, is appropriate to conduct research to find out perception of people which is expected to have positively changed in favor of insurance by use of compulsory lines of insurance evident from high growth rate in protections and savings insurance during 2008, and 2009. This study is important because the market potential will saturate soon with the coverage of compulsory lines of business i.e., Motor and Health Insurance. Thus, to promote other lines of insurance business it is important to know the mind set of public about insurance and satisfaction level of existing customers of insurance who may be purchasing the compulsory lines of insurance. These customers (users) can be targeted with appropriate strategy ones their mind set is understood. REVIEW OF LITERATURE The Swedish customer satisfaction barometer (Fornell, 1992), the American customer satisfaction index (Fornell et al., 1996), and European customer satisfaction index have all demonstrated that customer satisfaction is the key issue for increasing customer loyalty (Gronholdt, et al., 2000). Therefore, many service providers are content with focusing on achieving customer satisfaction and think they can increase and sustain customer loyalty in service environments by doing so. They believe that loyal customers will keep coming back to buy more, will spend more, and will refer others (Stum and Thiry, 1991) Customer satisfaction is defined as the degree of concordance between expectations and experience, where comparability is apparent, the customer is deemed to be satisfied (Parashuraman et al., 1994). Customer satisfaction is viewed as the outcome

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of a comparison process between perceived product/service performance and previously held expectations, when performance exceeds expectation satisfaction occurs, while performance below expectations results in dissatisfaction (Oliver, 1997). Bei and Chiao (2001) looked at customer satisfaction as the function of perceived service quality, product quality and price which is measured by a customer s overall judgment. Dimitris et al., (2007) defined customer satisfaction as a measure of how a product or service performs, compared to customer s expectation. Halstead et al., (1994) considered customer satisfaction as an affective response that focuses on product performance against some pre-purchase standard during or after consumption. Mano and Oliver (1993) referred to satisfaction as an attitude or evaluating judgment varying along the hedonic continuum focusing on the product, which is evaluated after consumption. Fornell (1992) identified satisfaction as an overall evaluation based on the total purchase and consumption experience of the target product, or service performance compared with prepurchase expectations overtime. Oliver (1997, 1999) regarded satisfaction as a fulfillment response or judgment on a product or service, which is evaluated for one-time or ongoing consumption. Customer s satisfaction positively affects customers loyalty. Customer loyalty is concerned with the likelihood of a customer returning, making business referrals, providing strong word of mouth, as well as offering references and publicity (Bowen and Shoemaker, 1998). Previous studies found that customers experiencing high level of satisfaction are likely to remain with their existing service providers and maintain their service subscription (Dick and Basu, 1994; Gerpott, Rams and Schindler, 2001; Lee and Cunningham, 2001). Loyal customers are less likely to switch to competitors in view of a given price inducement, and they make more purchases compared to less loyal customers (Baldinger and Robinson, 1996). Although most research on loyalty has focused on frequently purchased package goods (i.e. brand loyalty), the loyalty concept is also important for industrial goods (i.e., vendor loyalty), services (i.e., service loyalty), and retail establishments (i.e., store loyalty) (Dick and Basu, 1994). Customer satisfaction has been examined as an antecedent of purchase intention; repurchase behavior and profitability (Patterson et al., 1997; Anderson and Sullivan, 1993; Carr, 1999; Hallowell, 1996; Anderson et al., 1994). Researchers in the professional services area have found that customers of business services tend to remain with the same provider if continually satisfied (Woodside et al., 1992). Thus in case of insurance policies as well a satisfied customer will purchase insurance policies again from the same company, will buy the same policy and new policies, will spread positive word of mouth, give referrals. Important factors affecting the customer satisfaction The following factors are important and affect the satisfaction level of the customers; however it is not limited to these factors only. i. Employee behavior: employee behavior is one of the important factors affecting the customer satisfaction. Employee behavior are important in service company as they connect the organization with its customers and they represent a critical

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factor in developing effective working relationship with customers (Gronoos, 1990; Gwinner et al., 1998). ii.

The physical service environment: physical service environment can exert a powerful influence on consumers behavior, their perceptions of service quality and their satisfaction with a service (Baker et al., 2002; Eroglu and Machleit, 1990; Hui et al., 1997; Spangenberg et al., 1996; Wakefield and Baker, 1998; Wall and Berry, 2007).

The conceptual framework of this study is illustrated in figure 1.

Insurance customers in Saudi Arabia are satisfied H1

Islamic values

H3 Customer satisfaction

H2

H4

Figure

Customer attitude

Customers plan to purchase in future

H5

1: Conceptual framework of the study

The conceptual framework of the study hypothesized that insurance customers in Saudi Arabia are satisfied. In this study the researchers wish to study the relationship between level of satisfaction and customers future purchase decisions. The hypotheses states that satisfaction level is positively correlated to the purchase decisions of the customers. The researcher wish to find out the relation between the variables satisfaction level and change in thinking of the customers as customers in Saudi Arabia are reluctant in using insurance because of Islamic principles. The positive change in thinking is hypothesized to be positively related to the future purchase decisions of the customers. As established by the previous studies religious factors affect the demand for insurance, in this study the researchers analyze the affect of Islamic principle on insurance customer s future plan to purchase insurance. Thus from the given background the researcher propose the following hypothesis to be tested in this study.

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Hypothesis of the study H1 H2 H3 H4 H5

: Insurance customers in Saudi Arabia are satisfied. : Satisfied customers will purchase insurance policies in addition to compulsory insurance : Islamic principle negatively affects the purchase intentions of the insurance customers. : Level of satisfaction is positively correlated to change in attitude. : Positive change in attitude is positively correlated to future purchase plan.

DATA AND METHODS Data collection This study targets the insurance customers of Saudi Arabia especially the users of motor insurance and health insurance. The study was proposed on sample of 1000 users and approximately 1200 questionnaires were distributed by trained undergraduate students to the users randomly in Jeddah city. Only 700 usable questionnaires were collected back. The collected information through questionnaire were entered in SPSS software for analysis.

Survey instrument A questionnaire was used for the purpose of data collection from the users of insurance. The first question enquired from the respondents about the insurance they purchased. This was to find out what insurance the people of Saudi Arabia generally purchase. The other question was related to the main subject of the investigation such that the satisfaction of insurance customers for the different aspects of insurance. There were 22 factors relating to different aspects of insurance asking about the satisfaction level of the customers for these aspects. For effective administration the questionnaire was translated into Arabic. Data analysis The data was analyzed on SPSS software by using the following statistical tools i.e., percentage analysis, mean, Chi-square tests, and factor analysis, and ANOVA analysis. RESULTS AND DISCUSSION Product mix of insurance customers At the outset, table 1 presents the combination of the insurance products purchased by the respondents. The table shows that more than 90% respondents purchased motor insurance followed by health insurance (36%). However market penetration for the protection and savings, and property insurance is very low. It is also visible from the table that the consumers who use motor insurance also get convinced to hold other types of insurance products. Out of total 251 respondents who reported COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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holding health insurance 201 respondents primarily uses motor insurance. Likewise, a total of 58 respondents holding property insurance, 50 of them also held motor insurance. This result implies that promotion of an insurance product may likely have linkage effects in promoting other types of insurance products as well. Consumer satisfaction on insurance The analysis of consumer s responses on their satisfaction level of various aspects of insurance products has been given in table 2. Mean value less than 3 clearly indicate that consumers by and large are satisfied with various aspects of insurance products attributes. However, consumers show dissatisfaction on parameters on advertisement, product promotion and claim settlement process. To better understand the major area of consumer satisfaction on insurance products, the consumers responses of 22 aspects of insurance purchase behavior has further been categorized using factor analysis. Based on factor analysis, the satisfaction levels of consumers were categorized in four sets of components/ factors, which explains the 62.542 percent of variance. The total variance explained by factor 1 is 18.064 percent primarily comprising of variables related to the effectiveness of the insurance company in delivery of insurance products to consumers as indicated by factor loading values. Factor 2 explains 17.389 percent variation and loads high on factors related to the effectiveness of insurance service providers. Similarly, factor 3 explains variation of 16.251 percent and correlates high on factors related to satisfaction on insurance product attributes. The last component of factor analysis shows a variation of 10.837 percent and loads high on factors related to product promotion and discounts. He following section tests the hypothesis of the study. H1

: Insurance customers in Saudi Arabia are satisfied Table 2 analyzes the level of satisfaction of the insurance customers. There were 22 attributes related to the different aspects of insurance given to the customers. The satisfaction level was measured on five point likert scale where 1 equal to highly satisfied to 5 equal to least satisfied. The analysis of customers responses on their satisfaction level of various aspects of insurance products divided the 22 factors in two groups. First group shows the factor for which customers are satisfied and the second group shows the factors for which customers are not satisfied. Mean value less than 3 for a factor indicate the customer is satisfied for that factor and is placed in group one and mean value more than two indicate that customers and not satisfied for that particular factor. The table indicates that customers, by and large are satisfied with various aspects of insurance products attributes. However, there were only 3 factors for which the mean value is more than 3 indicating that customers were not satisfied for these factors i.e., advertisement (3.02), promotion and discount (mean 3.12) and claim settlement process (mean 3.02). Thus, the hypothesis 1, which states that buyers of insurance policies are satisfied with the insurance policies they use, is true. H2

: Satisfied insurance customer will purchase other insurance policies in future. Table 4 indicates the relationship between satisfaction level and purchase intention of insurance products by the customers. It is evident from the table that 92% highly satisfied customers have reported their willingness to purchase more insurance products, while the

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willingness has declined to 87% in case of satisfied customers and to 61% in case of less satisfied consumers. The result of chi-square test further proves this statistically. The chi-square statistics indicate that there is significant difference in satisfaction level of 2

consumers and their purchase intention of more insurance products ( =167.832, p = 0.05, means that null hypothesis that there is no significant difference between the opinions of Male and Female supervisors in developing a research culture in public sector universities is accepted. Table 2: Comparison between opinions of Male and Female scholars about the role of HEC in developing a research culture in public sector universities. S.N 1 2

Scholar Gender Male Famale

N

Mean

Std

t

df

p-value

24 20

121.83 130.85

12.398 11.891

-2.447

42

0.019

Note: The result is significant if probability of occurrence (p-value) is equal to or less than 0.05 level. The above table shows the testing of significant difference between the opinion of Male and Female scholars regarding the HEC role in promoting research culture in universities. Since p = 0.019 < = 0.05, means that null hypothesis that there is no significant difference between the opinions of Male and Female scholars in developing a research culture in public sector universities is rejected. Table 3: Comparison between opinions of PhD and M.Phil scholars about the role of HEC in developing a research culture in public sector universities S.N 1 2

Scholar Category PhD M.Phil

N

Mean

Std

t

df

p-value

27 17

124.59 130.85

14.56 9.56

-.868

42

0.390

Note: The result is significant if probability of occurrence (p-value) is equal to or less than 0.05 level. The above table the testing of significant shows difference between the opinion of PhD and M.Phil scholars regarding the HEC role in promoting research culture in universities

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since p = 0.390 > = 0.05, means that null hypothesis that there is no significant difference between the opinions of PhD and M.Phil scholars in developing a research culture in public sector universities is accepted.. 6. Discussion The paper investigates the role of HEC in developing a research culture in public sector universities in Pakistan as perceived by both gender. The researcher set objectives of the study to reflect the role HEC through various initiatives for the promotion of research culture in universities. The first objective of the study was to compare the opinions of male and female supervisors about the role of HEC in building a research culture in universities. No significant difference was found between marl and female supervisors. The reasons of insignificance may be: i. Equal communication channels are available to both male and female supervisors for receiving information from HEC. ii.

Both gender supervisors enjoy equal financial benefits of HEC regarding supervision of M.Phil/Ph.D students.

iii.

HEC provide them with equal professional development opportunities.

The second objective of the study was to compare the opinions of male and female scholars. results shows significant difference between the views male and female scholars about the role of HEC in the development of research culture in Pakistani universities. The significant difference between the opinions of male and female scholars because of the following reasons: i. Unequal research facilities are available to them in their respective universities. ii.

Both male and female scholars have not equal access to HEC digital library. There are no separate computer labs for female scholars.

iii.

Research supervisors do not facilitate them fairly. The supervisors may be genderbiased.

The third objective of the study was to investigate difference between M.Phil and Ph.D students. No significant difference was found between M.Phil and Ph.D students regarding the role of HEC in the promotion of research culture. The reasons of insignificance may be: i. Equal research facilities are available to both M.Phil and Ph.D scholars in their respective universities. ii.

HEC offers scholarships to all eligible scholars whether M.Phil or Ph.D students.

iii.

Both categories of students have access to HEC digital library. They also have equal access to their respective library.

This means that HEC promotes research culture in public sector universities through its different initiatives. On the whole results shows the positive role of HEC in developing a research culture in public sector universities of Pakistan.

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References Abbott, M., & Doucouliagos, H. (2004). Research output of AustralianUniversities. Education Economics, 12(3), 251-265. Creswell, J.W.(2008). Educational research: Planning, conducting and evaluating quantitative and qualitative research. Upper Saddle River, New Jersey,Columbus. Ohio. Pearson Education, Inc. Creswell, J. W. (2008). Educational research: Planning, conducting and evaluating quantitative and qualitative research. Upper Saddle River, New Jersey,Columbus. Ohio. Pearson Education, Inc. Cheetham, A. (2007).Growing a Research Culture. Address to Academic Senate at university of Western Sydney. Durrani, S. A.(1984). Importance of scientific research in Islamic countries: A Blue print for progress. Higher Education Review, 2, 7-29. Etzkowitz, H., Webster, A., Gebhardt, C., & Terra, B.R.C.(2000). The future of University and University of the future: Evaluation of Ivory tower to entrepreneurial paradigm. Research Policy, 9(2), 313-330 Isani,U. A & M. L.Virk. (2004), Higher Education In Pakistan A Historical futuristic Perspective, Islamabad: National Book Foundation Naqvi, S. .News &Views, HEC magazine July, 2009. Ministry of Education, Government of Pakistan, National Educational Policy.2009 Wolfle, D. (1972) The Home of science: The role of University. New Yark : McGrawHill,

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PRODUCTIVITY TRENDS IN PAKISTAN: AN ANALYSIS OF SERVICES SECTOR KHALIL AHMAD AND MUHAMMAD ILYAS4

Abstract Total factor productivity (TFP), an important source of economic growth, could not catch attention of researchers and policy makers in the services sector of Pakistan. This study is an attempt to fill this gap in literature. The study finds that TFP in the services sector grew at an annual average rate of 0.91 percent over 1965-2010 period. It has largely fluctuated over time. On overall basis, it has contributed about 16 percent of value added growth. The study recommends that official authorities should pay attention to increase and stabilize TFP growth in the economy in general and in the services sector in particular. Keywords: PRODUCTIVITY TRENDS ; ANALYSIS ; SERVICES SECTOR 1. Introduction Services sector is the largest sector of Pakistan economy. This sector consists of transport; storage and communication; wholesale and retail trade; finance and insurance; ownership of dwellings; public administration; and the like. This sector contributes 53.8 to GDP; 96 percent to GDP growth; and absorbs 42 percent of the employed labour force (Pakistan Economic Survey 2009-10). This sector has fast grown over time. The details of growth rates of this sector are given in Table 1. The value added in this sector grew at an annual average rate of 6.18 percent during 1961-2009 period. However, growth rates in this sector have been very volatile ranging from the minimum of 3.01 percent (1970-71) to the maximum of 21.45 percent (1975-76). During 1960s it recorded a high rate of 8 percent and during 1990s it witnessed a depressed rate of 4.73 percent. This sector has continuously increased its share in GDP from 38.67 percent in the fiscal year1960-61 to 53.8 in the fiscal year 200809. The average contribution of the services sector in GDP remained at 46.90 percent over the period 1961-2009. Services sector of Pakistan has strong forward and backward linkages with agriculture and industrial sectors. The productivity improvement of this sector leads to higher economic growth by enhancing productivity in other sectors through its backward and forward linkages with them. In spite of importance of this sector in Pakistan economy no serious effort has ever been made for estimating its total factor productivity (TFP). This study is intended to fill in this gap in the Pakistani context. The rest of the study is organized in the following order: Section II contains review of relevant literature; Model and data are explained in section III; Section IV presents measurement of variables; Results are analyzed in section V; and finally concluding remarks and recommendations of policies are given in section VI.

4

The authors are, respectively, Assistant Professor of Economics at Economics Department, University of the Punjab, Quaid-i-Azam Campus, Lahore, and Lecturer in Economics, at Economics Department, Superior University, Lahore.

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Table 1: Value Added Growth at Constant Factor Costs of 1980-81(Selected Years) Period

Growth Rate (Percent) 6.82 3.01 7.09 6.04 5.16 3.55 4.51 3.29 5.88 5.97 6.5 7.0 6.6 3.6

Share in GDP (Percent) 38.67 41.39 46.57 48.57 51.21 52.52 53.44 53.35 52.72 51.82 51.7 51.8 53.0 53.8

1960-61 1970-71 1980-81 1990-91 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Period Average 1960-61 to 1969-70 8.00 40.40 1970-71 to 1979-80 6.32 44.14 1980-81 to 1989-90 6.65 47.78 1990-91 to 1999-00 4.73 49.50 2000-01 to 2008-09 5.21 52.68 1960-61 to 2008-09 6.18 46.90 Source: Estimated by the authors using data from various issues of Pakistan Economic Survey.

2. REVIEW OF EARLIER STUDIES The literature on Services sector TFP is enormous to exhaust. However unluckily in case of Pakistan such literature is very rare. Here, some selected studies are being reviewed. Kemal et al (2002) employed growth accounting technique to estimate TFP in the form of Solow residual for GDP, agriculture and manufacturing sectors of Pakistan during the 1964-65 to 2000-01period. As per their results, the growth rate of TFP in the manufacturing sector was 3.21 percent. The contribution of TFP to manufacturing value added growth was 50.27 percent. Wizarat (2004), using time series data over the period 1955-91 computed TFP and labour productivity, (LP), for large scale manufacturing sector of Pakistan. She constructed index numbers for TFP and LP using Neo-Classical growth accounting technique. Both the indices i.e. TFP and LP, showed continuous increase from the mid 1950s to the mid 1960s and showed the decline thereafter. She also compared LP and TFP estimates for Pakistan with similar estimates for some developed countries5. The comparison revealed that Pakistan s large-scale manufacturing sector diverged from the manufacturing sector of the Europe, at an alarming rate. Chaudhary (2009) employed the Cobb-Douglas and translog production functions using data over the period 1985 2005 to calculate total factor productivity for agriculture sector, manufacturing sector and for the overall economy. According to Cobb-Douglas specification the average TFP growth was found to be 2.48 percent and according to traslog specification it was found to be 2.40 percent. 5

These countries were U.K., Germany and the Europe as a region.

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Pasha et al (2002) estimated TFP of services sector of Pakistan along-with that of agriculture sector, manufacturing sector and overall economy over the period 1972-73 to 1997-98. According to their results TFP grew at an annual average rate of 0.7 percent over the entire study period. However, during different periods it greatly fluctuated. During the non-plan period (1972-73 to 1977-78) it was 1.6 percent. It fell to 1.3 percent during the Fifth plan period (1977-78 to 1982-83) and again improved to 1.8 percent during the sixth plan period (1982-83 to 1987-88). During the Seventh and the Eighth plans (1987-88 to 1992-93 and 1992-93 to 1997-98) it was minus 0.1 percent and minus 203 percent respectively. They used the crude measure of inputs and hence their estimates of TFP are not reliable because TFP is measured as a residual. Sabir and Ahmad (2003) studied impact of macroeconomic policies on productivity growth of agriculture, manufacturing and services sector as well the overall economy of Pakistan. The sample period spanned over 1972-73 to 2001-02. They divided the sample into pre-reforms period 1972-73 to 1987-88 and reform period 1987-88 to 2001-02. They used growth accounting technique for estimation of TFP. According to their estimates average annual growth rate of TFP was 1.7 percent during the pre-reform period and minus 1 percent during reform period. The annual average growth rate over the entire period under review remained at 0.4 percent. TFP contributed 24 percent to value added growth of services sector during pre-reform period and minus 23 percent during reform period. The overall contribution of TFP to value added growth in this sector remained 6.7 percent. Regression results showed that economic reforms have slowed down productivity growth for the overall economy and for manufacturing and services sectors. However, economic reforms have favoured agriculture sector by increasing its productivity. The above mentioned studies pertaining to Pakistan are based on traditional measures of inputs which give rise to miscalculation of TFP. The present study is free from this drawback because of two reasons: First, it has adjusted the capital input for variation in its utilization due to business fluctuations. Second, it has adjusted the labour for variation in work hours and improvement in average schooling years.

3. THE MODEL AND DESCRIPTION OF DATA THE MODEL In the growth literature, since Solow (1956), the growth accounting method is most widely used (Ahmad et al 2008, p. 120). This method is very simple and useful in decomposing value added growth into growth resulting from inputs growth and from TFP growth. This study has used growth accounting method for the calculation of TFP. This method became popular among economists owing to seminal works of Kendrick (1961) and Denison (1962). In this method TFP is calculated as a residual. Value added growth is a sum of inputs growth and TFP growth as in equation 1. Vg = Ig + TFPg ..................................................................................................................... 1 Where Vg is growth rate of value added, Ig is the weighted average growth rate of capital, K and labour, L inputs and TFPg represents the growth of TFP. Ig is calculated as below: Ig = K + (1- )L .................................................................................................................. 2 In equation 2 and (1- ) are respectively the shares of capital and labour in value added. In equation 1 value added growth and inputs growth are observable whereas TFP growth is nonobservable and hence is calculated as a residual. TFPg = Vg Kg (1- )Lg .................................................................................................. 3

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Using data for growth rates of value added, capital, and labour, and for factor shares of K and L, TFPG can be calculated with the help of equation 3. Contributions of capital and labour inputs are calculated as a product of their growth rates and their respective shares in value added. Equation 3 calculates TFPG as a residual. It points to that portion of value added growth which is in excess of growth of factor inputs. According to Chen (1997), it measures the degree of our ignorance. It also represents a shift of the production function which might be the result of many factors such as: technical innovation, organizational and institutional change, shifts in the societal attitude, fluctuations in demand, changes in factor shares, omitted variables and measurement errors (Basudeb and Bari 2000: 7).

SOURCES OF DATA Estimation of TFP growth requires data for value added, capital and labour inputs. This study uses data from 1965-66 to 2007-08. National income accounts do not contain data on capital stock. Instead it reports data about gross fixed capital formation. Therefore, gross fixed capital formation (GFCF) was used to estimate capital stock through perpetual inventory method .6 The required data about labour force, value added, and GFCF for the years from 1965-66 to 1995-96 were used from Pakistan (1999). The data about remaining years were taken from Pakistan (various issues). Value added and capital stock are measured as millions of Rupees at constant factor costs of 1980-81. The unit of measurement of labour input is millions of work hours.

4. Measurement of Variables Traditionally, the capital input is measured in net terms i.e. net of depreciation [Ahmad et al 2008, p. 122]. The traditional calculation of TFP is based on two factors: First, the technical efficiency; and second, the improvement in the use of inputs. For the accurate measure of TFP growth figures, the capital input is adjusted for variation in utilization. Wharton Method7 is one of the many ways for adjusting TFPG estimates for business fluctuations. In this method, a linear trend is fitted to capital output ratio (K/Y) and potential output is estimated from this trend. The capacity utilization has been measured by the ratio of actual to potential output. This ratio is finally used for the adjustment of capital stock for business fluctuations.8 Traditionally, in the estimation of TFP, labour input is measured as number of employed workers. However, the average work hours usually change due to business fluctuations. Further, workers choice between work hours and leisure also changes over time. In addition, improvement in the level of education and training also takes place. If variation in work hours and improvement in the education and skill level is ignored, the TFP figures are likely to be overstated. For the purpose of avoiding the bias in the estimation of TFP growth the labour input is measured in terms of hours worked. The necessary data have been taken from various issues of Pakistan Labour Force Survey. Also, the effect of variation in average schooling years on the quality of labour input has been incorporated. Ahmad et al (2008) contains the detailed adjustment procedure of adjusting TFP growth figures for variation in the work hours and education levels.9

5. Interpretation of Results Table 2 contains growth rates of value added, capital and labour inputs, and TFP in Pakistan services sector based on Solow residual method for the period 1965 to 2010. 6

For the estimation of capital stock, please see: Ahmad et al (2008). Oguchi (2004) contains other methods for such an adjustment. These methods are the Production Function method, short-run adjustment and Proxies for capacity utilization rate. 8 For details of this method please see: Ahmad et al (2008). 9 Due to non-availability of data about hours worked and levels of education of workers for some years the missing values were generated through interpolation and extrapolation. 7

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Estimates for services sector TFP growth were calculated using equation 4. TFPgt Vgt 0.78Kgt 0.22Lgt ................................................................................ 4 Where TFPgt =Growth rate of TFP Vgt =Value added growth Kgt =Growth of capital stock Lgt =Growth of labour The value added in services sector of Pakistan recorded an annual average growth rate of 5.80 percent during 1965-2010 period. However, this growth did not remain constant throughout the period under review. The highest growth rate of 6.60 percent was recorded in 1980s and the lowest growth rate of 4.50 was recorded in 1990s. The growth rate of value added during 1960s, 1970s and 2000s remained above 5 percent but below 6 percent. It has widely fluctuated in different decades. Its highest growth rate of 5.39 percent was observed during 2000s and the lowest growth rate of 2.77 percent during 1990s. During rest of the decades it remained above 3 percent but below 5 percent. The labour input showed an annual average growth rate of 0.89 percent over the entire period under study. The highest growth rate of labour input was recorded in the late 1960s (0.12 percent) and the highest rate in 2000s. The use of labour in this sector remained on increasing. It means that there are good prospects for absorption of labour in this sector. TFP has grown at an annual average rate of 0.91 percent over the entire period of study. It has widely fluctuated over the decades. Its peak rate of growth (2.31 percent) was observed in 1980s and the trough rate of growth (-1.27 percent) in 2000s. It means that 2000s was a lost decade with respect to TFP growth. TFP growth started from 0.92 percent in late 1960s; improved to 1.46 percent and 2.31 percent in 1970s and 1980s respectively; deteriorated to 0.89 percent in 1990s; and finally dipped to minus 1.27 percent in the recent decade of 2000s. Table 2 Growth Rates of Value Added, Inputs and TFP (Percent) Source of 1965-66 to 1970-71 to Growth 1969-70 1979-80 Value added 5.88 5.94 Capital 4.84 3.27 Labour 0.12 1.21 TFP 0.92 1.46 Contribution to Value Added Growth by: Capital 82.31 55.05 Labour 02.04 20.37 TFP 15.65 24.58

1980-81 to 1989-90 6.60 3.58 0.71 2.31 54.24 10.76 35.00

1990-91 to 1999-2000 4.50 2.77 0.84 0.89

2000-01 to 2009-10 5.37 5.39 1.25 -1.27

1965-66 to 2009-10 5.80 4.00 0.89 0.91

61.56 18.67 19.77

100.37 23.28 -23.65

68.97 15.34 15.69

Source: Estimated by the authors using data from 50 Years of Pakistan in Statistics and Pakistan Economic Survey 2010, Government of Pakistan .

Table 2 also reveals that growth of value added in the services sector has mainly depended on the labour and capital inputs. The contribution of TFP in value added growth during the entire period was only 15.69 percent. The rest of 84.31 percent growth of value added was inputs driven. The capital input has emerged as the single largest contributor of value added growth in services sector of Pakistan. Its average contribution

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was about 69 percent. The contribution of capital input in value added growth has violently varied over time. Its highest contribution of over 100 percent was recorded in 2000s and the minimum contribution of about 54 percent was observed during 1980s. Its contribution continuously declined from 82 percent in the late 1960s to 55.05 percent and 54.24 percent respectively during 1970s and 1980s. Then it moderately improved to 61.56 percent in 1990s and tremendously improved to over 100 percent in 2000s. It is interesting to note that contribution of capital input in value added growth resembles the letter U . Contrary to this contribution of labour input resembles the letter N . The highest contribution of labour input (23.28 percent) to value added growth was observed in 2000s and its lowest contribution of about 2 percent was found in the late 1960s. On overall basis it has significantly improved its contribution to value added growth. Its overall contribution during the entire period was little over 15 percent. The contribution of TFP to value added growth resembles inverted V . Its peak contribution of 35 percent was observed in 1980s and the trough contribution of minus 23.65 percent in 2000s. It started from about 16 percent in late 1960s and continuously improved to 24.58 percent and 35 percent respectively during 1970s and 1980s. It then sharply fell to about 20 percent during 1990s and further fell headlong to minus 23.65 percent. Figure 1 Growth Rates of Value Added, Inputs And TFP

Source: Estimates of the authors using data from 50 Years of Pakistan in Statistics and Pakistan Economic Survey 2010, Government of Pakistan .

A glance at Figure 1 indicates the fact that the paths paved by value added growth and capital growth are very similar to each other. On the other hand growth rates of labour input and TFP are more different from the value added growth path and the path of capital input growth. Very interestingly growth rate of labour input and that of TFP assume opposite paths with the only exception during 1970s. Further, TFP growth is procyclical, that is, rising during expansion and falling during contraction. When growth of TFP improved during 1970s and 1980s value added growth also improved. While TFP declined during 1990s, value added growth also dipped. However, we can note one

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exception of this association during 2000s with value added expanding and TFP contracting. On overall basis TFP growth has deteriorated over time although it has contributed significantly to value added growth (i.e. about 16 percent of value added growth). 6. Conclusion and Policy Implications Total factor productivity is an important factor of economic growth. However, unluckily, this area could not attract proper attention of researchers in Pakistan. Sabir and Ahmad (2003) and Pasha et al (2002) are the only studies that have touched TFP in the services sector of Pakistan economy. Further, these studies have used traditional measure of inputs and hence incorrectly measured TFP. The present study has avoided the bias in the measurement of TFP by using the accurate measure of capital and labour inputs. The capital input was adjusted for variation in its use as a result of business fluctuations. The labour input was adjusted for variation in hours worked and improvement in quality of labour as a result of increased education and training. Although TFP in the services sector has grown at an average rate of 0.91 percent from 1965-66 to 2009-10, it has widely fluctuated over the years. It achieved peak rate of growth during 1990s and lowest rate during the recent decade of 2000s. The capital input is the largest contributor of value added growth in the services sector of Pakistan with a share of about 69 percent. The labour input and TFP made almost equal contribution to value added growth with 15.34 percent and 15.69 percent shares respectively. The contributions of capital and labour inputs to value added growth have improved over time. On the contrary, contribution of TFP not only has deteriorated over time but it has also heavily fluctuated between 35 percent and minus 23.65 percent of value added growth. Pakistan being a capital scarce country cannot afford low rates of TFP. Higher rates of TFP growth can help in attaining and maintaining respectable growth rates of services sector value added. Unfortunately, the authorities could not pay due attention to this area of growth. This study strongly recommends estimation and publication of TFP figures by official organizations such as Federal Bureau of Statistics and Finance Division on regular basis. Equally important is to implement proper policies for promoting growth of TFP in services sector of the economy.

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References Ahmad, K., M. Aslam Ch. and M. Ilyas (2008), Trends in Total Factor Productivity in Pakistan Agriculture Sector , Pakistan Economic and Social Review, Vol. 46, No. 2 pp. 117-132. Basudeb, G. and Bari, F. (2000), Sources of Growth in South Asian Countries , A paper prepared for presentation at the UNU/WIDER Development Conference on Growth and Poverty, Helsinki 25-26, May, 2001. Chaudhry, A. A. (2009), Total Factor Productivity Growth in Pakistan: An Analysis of the Agriculture and Manufacturing Sectors , The Lahore Journal of Economics, Vol. 14, September, pp. 1-16. Chen, Edward K. Y., (1997), Total Factor Productivity Debate , Asian Pacific Economic Literature, Vol. 11, No. 1, pp 18-38. Denison, E. (1962), The Sources of Economic Growth in the United States and the Alternatives Before Us, Committee for Economic Development, New York. Kemal, A. R., Din, Musleh ud, and Qadir, Usman (2002), Global Research Project: Pakistan Country Report, Pakistan Institute of Development Economics, Quaid-iAzam University Campus, Islamabad. Kendrick, J. W., (1961), Productivity Trends in the United States, Princeton, N. J., Princeton University Press for National Bureau of Economic Research. Pakistan, (1999), 50 Years of Pakistan in Statistics, Volume I Bureau of Statistics, Statistics Division, Islamabad, June.

Summary, Federal

Pakistan, (various issues), Pakistan Economic Survey, Finance Division, Economic Advisor s Wing, Islamabad. Pasha H. A., Pasha, A. G. and Hyder, K. (2002), The Slowdown of the Growth of Total Factor Productivity in Pakistan, Social Policy and Development Centre, Research Report No 44. Sabir, Muhammad and Ahmed, Qazi Mehmood (2003), Macroeconomic Reforms and Total Factor Productivity Growth in Pakistan: An Empirical Analysis, Conference Paper No. 55 presented at the 56th International Atlantic Economic Conference held at Quebec City, Canada during 16-19 October. Solow, R., (1956), A contribution to the theory of economic growth , Quarterly Journal of Economics 70: 65-94. Wizarat, Shahida, (2004), Industrial Productivity Growth in Pakistan: Convergence or Divergence? in Chaudhary & Ahmed ed. Globalization: WTO, Trade and Economic Liberalization in Pakistan, Ferozsons (pvt.) Ltd., pp. 210-221.

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An Econometric Analysis of Export - Led Growth Hypothesis: Reflections from Pakistan Hassan Mobeen Alam Assistant Professor, Hailey College of Commerce University of the Punjab, Lahore Pakistan

Abstract Objectives: Income equalities in Pakistan have been a major obstacle to the economic growth of Pakistan. This led to serious economic threats to the economy in the shape of low GDP growth and precariously low foreign exchange reserves. In search of alternatives we find that a shift in goals of economy, from inward to outward orientation, is imperative. This shift calls for a change in production line focusing the demand arising from global markets rather than being confined to meet very limited home market. The purpose was to investigated the validity of export-led growth hypothesis in Pakistan and in case results are positive and significant the making recommendations to the policy makers for modalities. This study used twenty seven years (1971-2007) quarterly time series data from Pakistan. To investigate the efficacy of export-led growth hypothesis we used the quarterly time series data running from 1971 to 2007 for Pakistan. This study has applied the co-integration technique and error correction model to investigate the relationship among the export import and GDP growth. We used the unit root test (ADF) for checking the stationarity of the variables and the variables were stationary at first difference which enable us to use co-integration technique. We should conclude and recommend policy implication through this estimation in short run and long run perspective. The research will be useful for policy makers in Pakistan as it gives important suggestions to step up the measures for boosting experts and make arrangements to the diversification of exportable goods production. Of course the earnings of service sector to other countries like tourism, health & education etc.is not preview of this study. However that constitutes a significant part of balance of payment. So this area should be given the due attention. Keywords: An Econometric Analysis of Export - Led Growth Hypothesis: Reflections from Pakistan 1. Introduction Export-led growth hypothesis describe that growth in exports of a country can contribute to the economic growth of the country. The hypothesis tells that overall growth of economies does not owe to increase in the labor and capital stock only, but also expansion in exports. The competitiveness in global markets may lead to product innovation and force domestic producers to reduce various inefficiencies. This highly significant relationship between two variables, expansion in exports and growth in economic activity can also be due to the externalities of various countries in the international trade. Many studies, so far, confirm the presence of strong relationship between the said variables.

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Export expansion is believed to lead to and lead by an improved allocation of all types of resources, economies of time & scale, improvements in production techniques by widening knowledge & technical base, through multilateral international arrangements for transfer of technology, accumulation & formation of capital, raising the level of employment by jobs creation and thus, economic growth and development. In developing countries export promotion is a source to fill the imbalances gap in the external sector. It also assists the economic planners to ensure about the scale and pace of economic recovery. The concept of trade openness is from classical school of economic and from the theories of Adam Smith and David Ricardo. Theory of International Trade also relates trade and international development. Economic gains of specialization, discernible in enhanced exports, entails in higher levels of GDP, thus exports directly contributing to growth in national income. Thus contribute heavily to foreign exchange earnings and improving the balance of payment situation. It is argued that international trade or trade openness plays an important role in economic growth and there are economic gains from specialization. It has been commonly viewed that being a component of GDP, exports contribute directly to national income growth and are among the most important sources of foreign exchange earnings that ease the pressure on the balance of payments and generate employment opportunities. Furthermore, opening the trade is also central in international concern about tariffs and trade barrier where trade theory suggests that all parties on aggregate will improve their welfare position in relation to their closed economy situation. The neoclassical view has been that growth can be achieved by export led growth hypothesis. The growth records of newly industrializing countries, in particular, Hong Kong, Singapore, Korea and Taiwan and second-generation newly industrializing countries in which Malaysia and Thailand are cited as the examples compared to, say, Latin America and Africa. Over the last thirty years these newly industrializing countries have approximately doubled their living standards every ten years. China is the latest country to join this group. China's experience during the 1980s and 1990s tends to support the argument that openness to trade is a mechanism for achieving more rapid and efficient growth and better distribution of domestic resources (Findlay and Watson, 1996, p.4). Many studies contain similar assertions for other countries and some authors (e.g., Krueger, 1995) identify trade policy as the crucial element of economic policy. During the 1980's and 1990's, many Latin American countries privatized their trade policy towards a more outward oriented policy. Some of the arguments for the more privatized trade policy were related to an increased competition in international market to generate a more efficient use of scarce resources and increased export opportunities. So we can expect that after improving or export promotion can enhance the economic growth. In Pakistan, export-led economic policy has been put into practice in the second half of 1990s but with a limited success. Pakistan's export earnings remained stagnant around USS 8-9 billion during the mid-1990s that constitute approximately 13% of the GDP.As far as it s share in the total world trade remained consistently very poor,0.2%. Growth rates of exports have been fluctuating year to year, 3% per year (in nominal dollar terms) for past two decades. Pakistan is facing number of economic, political and socio-

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economic in problems that hinder the export growth. Two major economic obstacles are lack of economic infrastructure, especially power shortage and a very limited export base. So far no Government has been able to plan a long term power policy to cater the needs of industrial sector rather all have resorted to raise the power tariff forcing the export based industry less competitive in export markets. On the other hand Pakistan s export base is very limited, based on cotton and cotton related textile industry that falls under the category of primary/ semi-finished items. The problem is further aggravated by the policies of US & European Union who deny a deeper access to it. Issues of heavy taxation policy and high bank rates are the problems beside the overly regulated environment that caused the stagnant performance in export sector. We can safely say that Pakistan s competitiveness in international market, it s potential to achieve high levels of export growth rates in the long run, has been affected by these exogenous and endogenous factors. In the aftermath of the 2008 general elections the change in the political leadership, a split mandate, has further deepened the crises and posed new challenges to the fiscal managers of Pakistan. Performance of Pakistan s economy remained excellent in the period of 2004 to 2008 in which economic growth rate was at an average rate of 7 percent per annum. On the other side, export performance of Pakistan has also registered a 16% increase during 2003 to 2006. So the issue is that Pakistan's exports are highly volatile due to the concentration in few items in which, cotton manufacturing, leather, rice, textile and sports goods, which account 72 percent share in total exports during 2008. The composition of exports has changed rapidly in the era of 90's and moved from primary and semi manufactured to manufactured exports. However, there is no change in the structure of exports from last 3 years and this structure also determines the level of economic growth. 2. Literature Review A number of empirical studies show strong relationship between export promotion and economic growth. For example, Baldwin and Caves (1997), Rivera-Batiz and Romer (1991), Segerstrom, Anant and Dinopoulos (1990), and Grossman and Helpman (1990). The findings of above-cited researches explain the relationship of global trade and local economy. It narrates that export competitiveness entails in manifold improvements in the home country such as technology transfers, training & skills improvement of workers, managerial efficiencies, and enhancement of productive capacity. The hypothesis that exports can lead economic growth is assisting the economic managers to give a rationale to improve and efficient their outward orientation instead of inward-orientation strategies of economic development like industrialization for import substitution.. Export orientation can be a tool to improve growth in total-factor productivity (Ram, 1987; Kavonssi, 1984; Bhagwati, 1978; Krueger, 1978); and also be a factor to attract foreign direct investment (Balasubramanyam, et al., 1996). Olusegun A. Omisakin (2009); studied the topic and analyzed the causal and dynamic relationship between foreign trade and growth of the economy. He used data, time series, from Nigeria employed the (ARDL) .Autoregressive distributor lag model technique and Toda-Yamamoto to examine the relationship. He used the twenty six years data from 1970

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to 2006. The result of Toda-Yamamoto showed bidirectional relationship between export and output. The variables used in this study, with exception of capital, display high level of statistical significance in explaining output. The focus of this study was to find the mutual relationship between output / production level of the economy in the period and for the same period growth in exports. The result is not invariant with economic intuition. Fouad AbouStait (July 2005); used the time series data from 1977 to 2003 from Egypt to check the causal relationship between the export and economic growth. He used the Granger causality test to find the relationship. He also analyzed the reforms of 1991 to verify the hypothesis for the period of 1991-2003.The results revealed significant relationship between GDP and exports but a less significant impact of exports on capital formation, highlighting the weaker link among these variables, capital formation and exports, for the case of Egypt. Hasan, Malik and Hasan(1995); studied on the well-known topic, export led growth hypothesis. They used the technique Granger causality to test the direction of the causality between export and economic growth. In this study we made an attempt to find out the presence and direction of causality between two factors, export growth & economic growth. The method used was Granger s causality. Our findings confirm a sustained bi-directional relation between output and exports whereas unidirectional relation between primary exports & output. Again the study confirms a two way causal relation among an overall growth in exports and economic growth. Therefore it is imperative upon the policy maker to undertake the large scale measures to boost the manufactured exports to achieve better economic growth rates. Akbar and Naqvi ; tried to find the validity of the export led growth hypothesis on Pakistan s economy. They took the time series data from Pakistan and used the Granger causality test to check the causality and relationship between the export expansion and economic growth. The hypothesis was not confirmed by the Granger causality analysis. Findins reveal that this study ignored the two important variables, investment and energy situation, which can be liable to understate/overstate the causality results. Sami, Zaman and et all (2009); studied to reconfirm the hypothesis for Pakistan. The econometric techniques which were applied to check the relationship were Unit root test, Co-integration and Granger causality through Vector Error Correction Model using time series data from 1970 to 2008.. The result shows to economic growth is dependent upon export expansion Granger causality test reveals one way causal relation between economic growth, exports and imports. Per-Ola Maneschiod (2008); analyzed this hypothesis (export led) for the countries of central & South America. He used the techniques of co integration and causality. Further, they wanted to know that weather this causal relation is either two-way or one way from export to GDP that may be interpreted as endorsing the hypothesis and being global policy. The empirical findings reveal a co-integrating relationship for Argentina and Mexico. This is valid in pre-break and post-break period. However the findings do not confirm such relationship for Brazil. The results of co-integration between GDP and export (in Argentina) reflect the exports as leading factor but GDP is leading variable in Mexico. Findings also suggest significant relation in Mexico in the post-break era. Giles and William (Jan. 2000); explored the mutual impact of export oriented trade and growth. Their findings were on the current situation by using the time series data. They used VAR COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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model. To test ELG time series techniques were used .On the other hand, Tang (2006) disapproved the presence of any relationship between GDP, exports and imports in the long run. He also denied the presence of an causality, both in the long run & short run, between expansion of exports and growth in China whereas in the short run growth cause to exports in terms of Granger Causality. Shirazi and Manap (2001); tried to reinvestigate the export-led growth hypothesis for Pakistan. The focus of their research was to explore the causal relationship among the variables, real output and growth of import & exports, using the model developed by Toda and Yamamoto (1995). The data was pertaining to the period of 1960-2003. Results significantly endorsed the presence of causal relationship among growth of the three variables, output, imports and exports. It further revealed the unidirectional causal effect between export & output growth but no significant causal relationship between import and export growth. E.M. Ekanayake (1999); used the annual data, encompassing a period of 1960-1997 taken from eight Asian countries to find out the causality among economic growth & exports. For the purpose models applied were co integration and error correction. Results supported the bidirectional causal relation among exports and output growths but not such relation in short run. Yousif Khilifa Al-Yousif (1997); analyzed the relationship between exports and economic growth and endorsed the hypothesis by confirming a positive & significant relation between the two variables for the period of 1973 to 1993. Emilio J. Medina-Smith (2001); wanted to know the validity of the hypothesis for the developing countries using the annual data for the period 1950-1997 from Costa Rica. He empirically examined the relationship in short and the long-run. The findings highlight overall economic performance of Costa Rica since 1950s due to the physical investment and population. From the study it can be considered that export is the driving force of economic growth .Despite the sufficient evidence across the globe the universality of the hypothesis is yet to be established. The export led growth hypothesis is probably beneficial only for a limited number of developing countries, and only to a certain extent. Objectives of study The objectives of conducting this study are as follows: 1.

To analyze the relationship between exports and imports expansion and economic growth.

2.

To estimate the validity of export led growth hypothesis for the developing countries.

3.

To suggest some policy recommendation for the potential building of the export base of the Pakistan.

3. Methodology This study used twenty seven years (1971-2007) quarterly time series data from Pakistan. The purpose of the paper was to investigate the export-led growth hypothesis using the quarterly time series data running from 1971 to 2007 for Pakistan. This study has applied the co-integration technique and error correction model to investigate the relationship

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among the export import and GDP growth. We used the unit root test (ADF) for checking the stationarity of the variables and the variables were stationary at first difference which enable us to use co-integration technique. The data used for analysis is from 1971 to 2007 and it is collected from World Bank Development Indicator (WDI) and International Financial Statistics (IFS). Specification of model: The multiple linear regression model is as: Economic Growth = f (Exports, Imports) GDP= po + Pi EXP +p2IMP +e0 Here: GDP= Gross Domestic Product, EXP= Exports, IMP= Imports, and Eo= Error term All the variables are stationary at first difference and co-integration technique along with error correction model is suggested for estimation. Results of co-integration Technique Dependent Variable: GDP Value of c: .566286 Variable

Coefficient

Standard error

t-value

Limp

0.491360

0.02375

20.688842

Lexp

0.337456

0.019535

17.274431

LGDP- 0.566286 + 0.491360LIMP + 0337456LEXP Explanation As the value of t-statistic for variable imports is 20.688842 which is greater than 2 hence imports is significant and it shows positive relationship with dependent variable GDP in longrun. The value of t-statistic for variable exports is 17.274431 which is greater than 2 hence exports is significant and it shows positive relationship with dependent variable GDP in long-run. Interpretation of Variables As these results show the elasticity of GDP with respect to IMPORTS is about 0.49 suggesting that if imports decrease by 1%, on average, there will be 0.49% increase in GDP in the long run. As these results show the elasticity of GDP with respect to EXPORTS is about 0.34 suggesting that if exports decrease by 1%, on average, there will be 0.34 % increase in GDP in the long run. The value of t-static for Imports is 20.688842, the highest value in all the variables, hence imports is highly significant in the long run and the value of t-static for export is 17.274431 which is the lowest value in all the variables hence export is the less significant in the long run. By comparing

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coefficients we can conclude that coefficient value of imports is the highest value and shows that imports will have highest t effect on dependent variable GDP in the long run. Results of Error Correction Model Dependent variable; GDP: Value of c: 0.058402 Coefficient

Standard error

t-static

D(LGDP(-1))

0.481430

(0.12990)

3.70619

D(LGDP(-2))

0.129949

(0.06834)

L90I58

D(LGDP(-3))

-0.011087

(0.04891)

0.22670

D(LEXP(-1))

-0.146181

(0.07901)

1.85025

D(LEXP(-2))

-0.051636

(0.06419)

0.80443

D(LEXP(-3)) D(LIMP(-1)) D(LIMP(-2))

-0.047154 -0.266267 -0.405475

(0.05688) (0.12454) (0.07787)

0.82899 2.13796 5.20704

D(LIMP(-3))

-0.131761

(0.08788)

1.49937!

ECT-,

-0.898063

(0.10493)

8.55855

Explanation As the value oft-statics for D(LGDP(-1)) is 3.71 which is greater than 2 and shows that variable is significant and shows positive relationship with dependent variable LGDP in short run (lag-1). The value of t-statics for D(LGDP(-2)) is 1.90 which is less than 2 and shows that variable is insignificant and shows positive relationship with dependent variable LGDP in short run (lag-2). T-statics for D(LGDP(-3)) is 0.23 which is less than 2 and shows that variable is insignificant and shows negative relationship with dependent variable LGDP in short run (lag-3). The result of t-statics for D(LEXP(-1)) is 1.85 which is less than 2 and shows that variable is insignificant and shows negative relationship with dependent variable LGDP in short run (lag-1). T-statics for D(LEXP(2)) is 0.80443 which is less than 2 and shows that variable is insignificant and shows negative relationship with dependent variable LGDP in short run (lag-2). T-statics for D(LEXP(-3)) is 0.82899 which is less than 2 and shows that variable is insignificant and shows negative relationship with dependent variable LGDP in short run (lag-3). T-statics for D(LIMP(-1)) is 2.14 which is greater than 2 and shows that variable is significant and shows negative relationship with dependent variable LGDP in short run (lag-1). As the value oft-static for D(LIMP(-2)) is 5.21 which is greater than 2 and shows that variable is significant and shows negative relationship with dependent variable LGDP in short run (lag-2). As the value of t-statics for D(LIMP(-3)) is 1.499 1.49937 which is

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greater than 2 and shows that variable is significant and shows negative relationship with dependent variable LGDP in short run (lag-3). The value of t-static for error correction term is 8.56 which is greater than 2 and shows the significance of error correction term. 4. Interpretation of estimations As these results shows, the elasticity of GDP of current period with respect to GDP of 2006 is about 0.48 suggesting that if GDP of 2006 increases by 1% than on average GDP for current period will increase by 0.48% in the short run (lag-1). The elasticity of GDP of current period with respect to GDP of 2005 is about 0.1299 suggesting that if GDP of 2005 increases by 1% than on average GDP of current period will increase by 0.1299% in the short run (lag-2).The elasticity of GDP of current period with respect to GDP of 2004 is about 0.0111 suggesting that if GDP of 2004 increases by 1% than on average GDP of current period will decrease by 0.0111% in the short run (lag-3). The elasticity of GDP of current period with respect to EXP of 2006 is about 0.15 suggesting that if EXP of 2006 increases by 1%than on average GDP of current period will decrease by 0.15% in the short run (lag-1). These results exhibit, the elasticity of GDP of current period with respect to EXP of 2005 is about 0.52 suggesting that if EXP of 2005 decreases by 1% than on average GDP of current period will increase by 0.52% in the short run (lag-2). The elasticity of GDP of current period with respect to EXP of 2004 is about 0.047 suggesting that if EXP of 2005 decreases by 1% than on average GDP of current period will increase by 0.047% in the short run (lag-3). As these results shows, the elasticity of GDP of current period with respect to IMP of 2006 is about 0.266 suggesting that if IMP of 2006 increases by 1% than on average GDP of current period will decrease by 0.266 % in the short run (lag-1). As these results shows, the elasticity of GDP of current period with respect to IMP of 2005 is about 0.41 suggesting that if IMP of 2005 increases by 1% than on average GDP of current period will decrease by 0.41 % in the short run (lag-2). The elasticity of GDP of current period with respect to IMP of 2004 is about 0.132 suggesting that if IMP of 2004 increases by 1% than on average GDP of current period will decrease by 0.132 % in the short run (lag-3). Interpretation of Error term The error term shows speed of adjustment towards long-run equilibrium and its value is 0.90. The negative sign shows convergence towards long run equilibrium and 89% adjustment will be taken place in each period toward long run equilibrium. Interpretation of R2 The value of r is 0.91 which shows that 91% variation in dependent variable is due to independent variable. Interpretation of F-statistic

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The value of f-static is 21.15184 and it shows that model is good fit. 5. Conclusions and Policy Implications This study used twenty seven years (1971-2007) quarterly time series data from Pakistan. The purpose of the paper was to investigate the export-led growth hypothesis using the quarterly time series data running from 1971 to 2007 for Pakistan. This study has applied the co-integration technique and error correction model to investigate the relationship among the export import and GDP growth. We used the unit root test (ADF) for checking the stationarity of the variables and the variables were stationary at first difference which enable us to use co-integration technique. We should conclude and recommend policy implication through this estimation in short run and long run perspective. In the long run as we have analyzed by using co-integration technique that there is positive relationship between economic growth and import export. Means independent variables Imports and Exports are positively related with independent variable GDP. So the government should make effort and take steps to enhance the Import and Export in order to promote economic growth. For this purpose as we have analyzed that there is positive relationship among the variables, the government should make such kind of environment to promote export and import. There should be no mercantilist view that there should be no trade. If there is trade then there will be more economic growth by the expansion of export and import. As our results of co-integration technique are explaining that there is no negative relationship among the variables so government should take strong and immediate steps for the expansion of import and exports for the promotion of economic growth. There should be no trade barriers for example import and export quota and import and export tariff or some other kind of trade restrictions. Then there will be more economic growth. In the short run the result of error correction model is showing the short run impacts of independent variables import export on the dependent variable economic growth. The model shows that GDP of 2006 has a positive effect upon the current period GDP as well as the GDP of 2005.Exports of year 2006 are showing negative effect upon the current period GDP and the period 2005 has also negative effect on the GDP. The result of this model is showing that the effect of imports in the year 2006 has negative effect on the GDP.

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References Ashfaque H.Khan, Afia Malik, and Lubna Hasan (1995), "Exports, Growth and Causality: An Application of Co-integration and Error-correction Modeling". Cyril A. Ogbokor (2005),"Time-series Evidence for Export-led Growth Paradigm: A Case Study of Zimbabwe". E.M. Ekanayake (Dec 1999), "Exports and Economic Growth in Asian Developing Countries: Cointegration and Error-Correction Models". Emilio J. Medina-Smith (2001), Is the Export-Led Growth Hypothesis Valid for Developing Countries? A Case Study of Costa Rica". Fouad Abou-Stait. (July 2005), "Are Exports the Engine of Economic Growth? An Application of Cointegration and Causality Analysis for Egypt, 1977-2003" Rehman, Khan and Ahmad (2004), "Does Fischer Effect Exist in PakistanA cointegration Analysis. Pakistan Economic and social survey volume XLII". Judith A. Giles and Cara L.Williams (Jan 2000), "Export-led Growth: A Survey of the Empirical Literature And Some No causality Results Part 1". Mohammad Akbar and Zareen Fatima Naqvi; "Are Exports an Engine of Growth in Pakistan?11 Nasim Shah Shirazi and Turkhan Ali Abdul Ma nap; "Exports-Led Growth Hypothesis: Further Econometric Evidence from Pakistan". Olusegun A. Omisakin (2009) "Export-Led Growth Hypothesis: Further Econometric Evidence from Nigeria". Per-Ola Maneschiod (2008), "A Note on the Export-Led Growth Hypothesis: A Time Series Approach". Robert A. Blecker and Arslan Razmi (March 2009), "Export-led growth, real exchange rates and the fallacy of composition" Sami Ullah, Bedi-uz-Zaman, Muhammad Farooq and Asif Javid (2009), "Cointegration and Causality between Exports and Economic Growth in Pakistan". Yousif Khalifa Al-Yousif (1997), "Exports and economic growth: some empirical evidence from the Arab Gulf countries".

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Financial Performance of Leasing Sector. The Case of Pakistan Hassan Mobeen Alam (Corresponding Author) Assistant Professor, Hailey College of Commerce University of the Punjab, Lahore Pakistan

Ali Raza M.Com Scholar, Enr. No.100 (Session 2009-11) Hailey College of Commerce University of the Punjab, Lahore Pakistan

Muhammad Akram Lecturer, Hailey College of Commerce University of the Punjab, Lahore Pakistan Abstract Leasing, as the part of financial institutions, plays an imperative role in the countries economy development and growth and contributes a major share in the GDP by supporting in channelizing of funds. This objective of this study is to examine financial performance of leasing companies since 2008 to 2010. Ratio analysis technique has been used to evaluate financial performance of leasing companies. This study concludes that in 2010 the financial ratios are showing the positive change but there is a decline in financial performance of leasing companies in 2009 as compared to 2008. Key words: Leasing, financial performance, SECP, State Bank of Pakistan, NBFCs. 1. Introduction Financial system facilitates for funds mobilization to investors containing different components like monetary policies, financial markets, and financial instruments etc. State Bank of Pakistan (SBP) and Securities and Exchange Commission of Pakistan (SECP) has been taking many steps to improve the structure of financial instruments, credit quality, and payment system for betterment of financial system. Financial sector has many stakeholders according to banking view point like Non-banking Financial Institutions (NBFIs) and banking institutions. Non-banking Finance Companies (NBFCs), development Finance Institutions (DFIs), mutual funds and modarabas are the major components of NBFIs (SBP, Financial Stability Review, 2009-2010). NBFCs as a part of NBFIs provide many services like leasing, asset management, discounting, investment advisory and other which are notified by federal government (Companies Ordinance,1984). The purpose of this study is to know the financial performance of leasing companies in Pakistan. The idea of leasing was very ancient. It is an inventive way of getting machinery, equipment or other asset without paying the full amount upfront and profit is earned through the use of equipment not ownership. It can be defined as a written agreement between leasing company (lessor) and user of equipment (lessee) whereby the user of equipment agrees to pay a specified sum of money as rental to the leasing company over a specified period of time for the equipment owned by leasing

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company. Since 1947, Pakistan has been taking many steps to strong the financial system of the country. Therefore, the first leasing company was established in Pakistan with the name of National Development Leasing Corporation Ltd (NDLC) in 1984 regulated by SBP till 2002 but from 2002 to onward SECP is the regulatory body of leasing companies. Initially, the reasons of lack in momentum of leasing industry growth and hurdles for development in Pakistan were the lack of awareness to the general public and corporations with reference to its benefits and nature, economics managers mismanagement, national wealth pilferage, increase in oil prices in the area of 1970s, international recession in 1980s and political instability and the total numbers of incorporated leasing companies from 1984 to 1989 were 9 which were raised to 35 from 1990 to 1999 and only one company was incorporated in 2003 (AFSA). Now many Modarabas, commercial banks, investment companies and investment banks are providing the leasing services and became the member of Leasing Association of Pakistan (LAP) and in 2000, there were 40 members of LAP which were the highest in total. Table 01:

Number of member entities of LAP

Leasing Companies Leasing Modarabas Investment banks Investment Companies Total Source: (LAP)

2007 17 5 4 1 27

Year 2008 15 5 4 1 25

2009 11 4 3 -18

Table 01 shows the total number of leasing companies from 2007 to 2009 which are providing the services of leasing in Pakistan and also are the members of LAP. The numbers of companies are decreasing year to year and according to financial stability review of NBFIs by SBP, there are only 9 leasing companies which are providing the services in 2010 (SBP, Financial Stability Review, 2009-2010). This decrease in number is due to the many reasons, which are (SBP, Financial Stability Review, 2009-2010): i. Many banks had started to provide the facility of car financing. Therefore, major companies have stopped its car financing operations; ii. Lower volume of business due to the economy slowdown; iii. Non-compliance with minimum equity requirements (MER); iv. High provisioning cost and high financial cost; v. More reliance on the borrowing from other banks and institutions; and vi. Competition with banking sector. All the above mentioned reasons are directly or indirectly putting their effects on the performance of leasing companies in terms of profitability; share in NBFIs assets growth and number of entities etc. In Pakistan, most of the leasing companies are providing the three types of products, which are: i. Operating lease; ii. Corporate lease; and iii. Automobile lease.

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Each product has some reasons from which the companies are getting the benefits for business. Operating lease is normally for less than one year and corporate & automobile lease normally contains the period of more than one year. There are two main advantages of leasing, which are: i. Leasing provides asset based financing as compared to collateral based financing; and ii. This mode of financing is accepted under Shariah rules. Due to above mentioned advantages people are more interested in leasing because Shariah rules are applicable here and these advantages are not only for people but companies also attain many advantages. There are many reasons to finance the asset or machine through operating lease. The reasons are (SLCL): i. Aggressive credit approval; ii. Easy accounting treatment; iii. Technology risk alleviation; iv. Full service lease facilities; v. Flexible structure and terms; vi. Improved financial ratios; vii. Low capital budget requirement. SECP, being regulatory body, has been taking many steps for the improvement of financial system and to increase the performance of leasing companies to solve the above mentioned problems faced by the leasing sector. SECPs' Specialized Companies Division (SCD) has two wings, NBFC-I and NBFC-II. The NBFC-I wing is accountable to look after the leasing, housing finance, and investment finance, whereas NBFC-II is responsible for the activities of asset management and asset advisory business. According to " Non-banking Finance Companies and notifies Regulations 2008", 20 percent of assets of such companies must be invested which are providing the services in combination of leasing, investment finance and housing finance and it is necessary to attain the license from the SECP to provide the services and if a company wants to provide only the leasing service then it is necessary to invest 70 percent of its assets but it shall not engage in the business of land and residential apartments and buildings (SECP, 21st November, 2008). Table 02:

Number of licenses held by leasing companies

Form of Business

Year 2007 2008 2009 2010 Leasing 19 18 15 14 Source: (SBP, Financial Stability Review, 2006-2007) (SBP, Financial Stability Review, 2007-2008) (SBP, Financial Stability Review, 2008-2009) (SBP, Financial Stability Review, 2009-2010)

Table 02 depicts the number of licenses held by leasing companies from 2008 to 2010. There is a direct relation exist between the number of companies and the number of licenses which means that as the number of companies decrease, the number of licenses also decrease and these licenses were renewed after one year but now SECP has changed this period from one year to three years by making the amendments in the " Non-banking Finance Companies (Establishment and Regulation) Rules, 2003" to solve the on-going concern issue raised by stakeholders and to save the renewal cost and time (SBP,

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Financial Stability Review, 2009-2010). Before taking the license, it is necessary to meet with the conditions of minimum equity requirements (MER). In the beginning, Rs. 50 million was enough to start the business but limit was raised in 1992 to Rs. 100 million and in September 2000 the limit had raised to Rs. 200 million. Many efforts are made for strengthen of leasing sector and protection of stakeholders interest, a new schedule has issued by SECP regarding MER. Table 03: Companies

Minimum

Equity

Requirements

(MER)

for

Leasing

MER for Time line for existing NBFCs as of 30th June Form of business fresh 2008 2009 2010 2011 licenses Leasing 700 200 350 500 700 Sourc: (SBP, Financial Stability Review, 2007-2008) (SECP, 21st November, 2008)

Table 03 describes the MER for leasing companies. Till 30th June, 2008 capital should be Rs. 200 million, till 30th June, 2009 it should be Rs. 350 million, till 30th June, 2010 it should be Rs. 500 million and till 30th June, it should be 700 million. Table 04:

Equity of leasing Companies Equity

Number of Companies FY07 FY08 FY09 Over Rs. 2.0 Billion 1 1 1 Between Rs. 1.0-2.0 Billion 1 1 1 Between Rs. 0.5-1.0 Billion 2 3 2 Between Rs. 0.2-0.5 Billion 4 5 5 Less than Rs. 0.2 Billion 6 2 1 Source: (SBP, Financial Stability Review, 2009-2010)

Table 04 reveals that how many companies have the compliance with MER. In FY09, there is only one company which has the capital more than Rs. 2.0 Billion. Therefore, there is a chance of mergers and acquisitions of leasing companies with commercial banks and investment banks due to the non-compliance with MER. Many remedial measures should be taken to raise the capitalization, promote product innovation, recognized under developed segments, and market outreach enhancement to ensure the sustained growth. Now, leasing companies are going to enter through operating lease for harvesters, tractor lease and farm loans, in agriculture sector and focusing on micro financing. This study has the purpose to evaluate the performance of leasing companies in Pakistan and ratio analysis is used containing three year period from 2008 to 2010 with motivated factors, which are: i. Researcher is unable to find the prior study in Pakistan on this topic in which ratio analysis is used to know the performance whereas a study has found on this topic in India. For example see Seem Saggar (1995). Therefore, researcher can called it as an exploratory research; and ii. To make it a source of knowledge for all type of investors to take the investment decisions. COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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2. Data and Methodology All data has been retrieved from Securities & Exchange Commission of Pakistan (SECP), Asian Financial Service Association (AFSA), Leasing Association of Pakistan (LAP), State Bank of Pakistan (SBP), and leasing company s websites. Nine companies are selected for analyses out of fifteen and this study covers three year period (2008, 2009 & 2010). First of all, financial statements of each company are downloaded from its web site than seven below mentioned financial ratios are calculated for three years (2008, 2009 & 2010) using these audited financial statements to know the financial performance. The ratios are: i. Profit after Tax / Total Assets ii. Profit after Tax / Total Equity iii. Dividend / Profit after tax iv. Total Borrowings / Total Assets v. Total Borrowings / Total Equity vi. C. Assets / C. Liabilities vii. Total Incomes / Total Expenses 3.

Findings Table 05:

Financial Ratios of Leasing Companies Financial Ratios of Leasing Companies

Sr. No.

Ratios

2008

2009

2010

1

Profit after Tax / Total Assets

0.11

-0.79

-0.25

2

Profit after Tax / Total Equity

0.62

-7.57

-4.91

3

Dividend / Profit after tax

3.29

-0.62

0.58

4

Total Borrowings / Total Assets

3.64

2.41

2.37

5

Total Borrowings / Total Equity

18.26

29.45

24.51

6

C. Assets / C. Liabilities

11.07

11.52

14.68

7

Total Incomes / Total Expenses

10.41

5.83

9.36

Source: Companies audited annual reports.

Table 05 depicts the findings in shape of ratios which are calculated from the audited financial statements of the leasing companies containing three years period of time. Comparative analyses of 2008 and 2009 shows the decrease in performance of leasing companies in 2009 because all the ratios are describing the declining trend in 2009 and ratios relating to profit after tax has turned negative due to the loss after tax in 2009 and the key performance indicators of leasing companies compiled by the SBP also showed the same trend in 2009 and this decrease in profitability is mainly due to the high financial expenses, competition with banking sector and high provisioning cost (SBP,

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Financial Stability Review, 2009-2010) but in 2010 this situation is changing and the ratios show the positive results as compared to the 2009. 4. Conclusions The performance of leasing companies in 2010 is better than the performance in 2009. The ratios regarding 2010 are showing positive change from 2009 but the performance was deteriorated in 2009. Our results are consistent with the reporting by SBP Satiability Review of Financial Sector. The number of leasing companies are gradually decreasing and minimum equity requirements (MER) has the major stake but the decrease in performance in 2009 is due to the high provisioning cost, high discount rate, high financial expenses, instability of economic conditions, political instability, competition with banking sector, separate regulatory body of leasing companies and commercial banks and high reliance on borrowing from other financial institutions. It is suggested to allow the leasing companies to execute the business of land and residential apartments and buildings so that they can earn better profit and enable the small entrepreneur with financing and there should be only one regulatory body for leasing companies and banking sector so that the products and services could be different from each other. Some restrictions can be applied on banks or leasing companies regarding products and services if banks and leasing companies want to offer the same line of products and services. Results are based on the data of sample leasing companies by taking only three year period of time. For future studies, it is suggested that the time period and number of companies should be increased while considering leasing sector for financial analysis. Further, Pakistan is low income developing country and has specific local dynamics of leasing which are different from other countries so these results cannot be generalized for other developing countries.

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References [1] AFSA, A. F. (n.d.). Pakistan Country Report. Retrieved March 03, 2011, from http://www.alfaworld.org/country_report.php [2] **Companies Ordinance,1984. (n.d.). Pakistan. [3] EIB, E. I. (n.d.). Retrieved February 19, 2011, from http://escortsbank.net/Financial_reports_main.aspx [4] FDIBL, F. D. (n.d.). Retrieved March 04, 2011, from http://www.firstdawood.com/fdib/fdibl.asp [5] GLL, G. L. (n.d.). Retrieved February 19, 2011, from http://www.graysleasing.com/financials.asp [6] **Kantawala, A. S. (2002). Financial Performance of Non banking finance Companies in India. The Indian Economic Journal , Volume 49, No.1, 8692. [7] LAP. (n.d.). Leasing Association of Pakistan. Retrieved January 11, 2011, from http://www.pakistanleasing.org [8] PGLL, P. L. (n.d.). Retrieved February 19, 2011, from http://www.pakgulfleasing.com/fh.htm [9] **Saggar, S. (1995). Financial performance of Leasing Companies, Duing the Quinquennium Ending 1989-90. Reserve Bank of India: Occasional Papers , 16, No.3, 223-236. [10] **SBP. (2006-2007). Financial Stability Review. Performance Review of Non Banking Financial Institutions . Pakistan. [11] **SBP. (2007-2008). Financial Stability Review. Performance Review of Non Banking Financial Institutions . Pakistan. [12] **SBP. (2008-2009). Financial Stability Review. Performance review of Non Banking Financial Institutions . Pakistan. [13] **SBP. (2009-2010). Financial Stability Review. Performance Review of Non Banking Financial Institutions . Pakistan. [14] SCLL, S. C. (n.d.). Retrieved February 19, 2011, from http://www.standardcharteredleasing.com/financial.html [15] **SECP. ( 21st November, 2008). Non-Banking Finance Companies and Notified Entities Regulations, 2008. [16] SLCL, S. L. (n.d.). Retrieved March 04, 2011, from http://www.seclease.com/operating.html [17] SLCL, S. L. (n.d.). Retrieved February 19, 2011, from http://www.seclease.com/financials.html [18] SLL, S. L. (n.d.). Retrieved February 19, 2011, from http://www.sigmaleasing.com/ [19] SMEL, S. L. (n.d.). Retrieved February 19, 2011, from http://www.smelease.com/financials/index.html [20] SPLL, S. P. (n.d.). Retrieved February 19, 2011, from http://www.saudipakleasing.com/html/financial.htm [21] TIBL, T. i. (n.d.). Retrieved March 04, 2011, from http://www.trustbank.com.pk/financial.html

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Pecking Order and Trade-off Model: Theory Vs Practice Junaid-ul-haq MS Student, International Islamic University, Islamabad, Pakistan Rao Umer Nasir MS Student, International Islamic University, Islamabad, Pakistan Wasimullah Associate Professor, International Islamic University, Islamabad, Pakistan Abstract The main focus of this research study is to identify potential factors that actually help predict the financing behavior and then compare these factors with the ones provided by pecking order and trade-off theory. After going through the literature it was found prudent to ask the managers themselves as to which model they follow and what their preferences are in the selection of that model. The data is collected through survey technique in which a questionnaire is developed and sent to 36 firms in the chemical industry of Pakistan and out of these 22 responded to the survey. The findings of the research are surprising because according to trade-off theory tax shield is of the primary concern to the manager but here it was found to be of a lot less importance. Same is the case with some other assumptions of these theories. Keywords: Pecking Order ; Trade-off Model; Theory Vs Practice 1. Introduction Modgilani-Miller (1958) analysis of the irrelevance of financing decisions began with the premise that financing decisions do not affect the cash flow stream itself. To be more precise, they showed that when the markets are perfect, corporate and personal taxes are not taken into account, then the firm value is not affected by the capital structure decisions and the firm s financing and investment decisions are independent. However, when one or more of these assumptions are relaxed, it has been shown by many economists that the value of firm may change with the change in debt-equity mix. It has been found by empirical evidence which indicates that changes in capital structure convey information to investors (Harris and Raviv, 1991). But it is still abstruse to researchers that how firms actually chose the debt, equity or hybrid securities they issue. In this study two main schools of thoughts on capital structure are contrasted. Myers distinguished these two schools of thoughts as Static trade off theory and Pecking order theory (Myers and Majluf, 1984). According to the static trade off theory firm is viewed as setting a target debt to equity ratio and gradually moving towards it. This theory implies that the value of firm can be maximized, while minimizing the external claims to cash flow streams. Such claims include taxes, bankruptcy costs and agency costs (Carmen and Joseph, 2009). The pecking order theory, as implied by the name, emphasizes that the firms set their preferences from internal to external financing and debt to equity. This theory further suggests that the firm has no well defined target capital structure, and further postulates that making financial decisions, firms follow hierarchy of financing decisions when establishing its capital structure. Initially, the top priority is given to internal financing by firms to finance their projects i.e. retained earnings. In case internal financing is proved to be not enough then the firm goes for external financing. In this external financing first

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preference is given to bank loan then to public debt. As a last resort the firm will issue equity to finance a project (Rafiq et al, 2008). In Pakistan limited research has been done on the determinants of capital structure. The initial work on capital structure was done by Shah and Hijazi in 2004, this study was based on 5 year data with few explanatory variables. In 2007 Shah and Khan extended the previous research by adding more year s data, explanatory variables and relevant models of panel data. Hajazi and Tariq in 2006 analyzed the determinants of Pakistan cement industry and in 2008 Rafiq et al used the Chemical industry data. In 2008, Walliulah and Nishat worked on the dynamics of capital structure, this study used wrong econometric techniques which was later on corrected and improved by Khalid in 2010. All these researches have found that the firms are following some specific model in structuring their capital but little or no research has been done on why actually the firm follows a specific theory to structure its capital. This study investigates if the theories which were discussed above can explain the actual financing behavior of the firms in Pakistan. The basic approach is to ask managers whether they prefer an optimal combination of long term funds (static tradeoff model), or an optimal financing hierarchy in raising new funds (pecking order model). 2. Capital structure theories 2.1. Static trade off theory According to static trade off theory firm follow a predetermined target debt ratio. This ratio is supposed to maximize the value of a firm by minimizing its costs which it has to bear in shape of market imperfection, such as bankruptcy costs, agency costs and taxes. Earlier models following this approach were used to balance out the corporate tax advantages of that against cost disadvantages of bankruptcy (e.g. Kraus and Litzenberger, 1973; Kim, 1978), while the refinements made in static trade off model also considered non-debt tax shields and personal taxes as well (Miller, 1977; DeAngelo and Masulis, 1980). The agency cost approach, which was originally out lined by Jensen and Meckling (1976) and later on refined by Myers (1977), holds the argument that the firms value is maximized when the external equity and agency costs of debt are minimized by the issuance of both equity and debt. Thus, the unique optimal point of capital structure involves a balance and trade-off between equity and debt even if the corporate and personal taxes are absent. Static trade-off theory further argues that optimal capital structure and the book value of debt ratio ought to be correlated positively with return on assets before taxes and interest. The firms with high levels of profitability can shelter more income which minimizes the danger of bankruptcy. Following this argument, according to static tradeoff theory, the more profitable firms ought to maintain a high debt to equity ratio. However, empirical researches have shown that the otherwise is true. For example, statistical studies which were conducted over 50 years in five countries show hat the firms with high profitability borrow the least, even if they can shelter plenty of income that they have (Baskin, 1989). Thus, static trade-off model is not entirely supported by empirical evidence. This shows that there is some alternative to model of capital structure. 2.2. Pecking order theory International funds preferred over outside sources when issuing equity because of transaction costs and expenses. These internal funds are followed by outside debt and COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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ultimately outside equity, this strategy for gathering funds is called pecking order strategy. The name itself is self explanatory as the word Pecking order means the order of importance in relation to one another among the members of a group also known as hierarchy (Oxford dictionary, 7th edition). This shows that a hierarchy is followed when choosing the source of funds. It is also well-known that debt is mostly preferred aver equity because of the taxes. Moreover, as the outside debt causes an increase unwanted monitoring and external equity causes both unwanted monitoring and dilution of control, so internal financing is preferred over both of these because the form does not suffer from the drawbacks of external debt and equity. Myers (1984) and Myers & Majluf (1984) were the first ones who explained financing behavior by incorporating the private information held by insiders or managers, into a capital structure model. Myers & Majluf (1984) argue that manager or insiders of a firm are better informed about the current value of the firms as well as its future prospects, then the outsiders or lenders. This asymmetry of information leads to under pricing of debt and equity by the market. In this situation if the firm finances its new investors will capture more than the net present value of this new investment which will, ultimately, be seen as the loss to present shareholder of the firm. So, such investment projects will be rejected by the present shareholders of the firm even if the project holds a positive of the firm even if the project holds the positive NPV. To avoid such under invest problems, the firm follows a pecking order strategy by financing its projects first by internal funds, then by straight debt followed by convertible debt, while external debt is least preferred and comes in the last. On the other hand if market over value the firm, then external equity will be first choice of the firm, which will send a signal to the investors community implicitly that the firm is overvalued. These scenarios apply only to firms that the asymmetry of information. The basic idea of Myers & Mujluf (1984) was extended by Krasker (1986), who argues that the larger a stock issue, the worse the signal to investors and hence the stock prices of shares will subsequently fall. Naryanan (1988) showed that when a firm faces asymmetry of information then it is allowed for it to issue debt or equity, all such firms either issue debt or ultimately the project they aim to finance. Miller and Rock (1985) also developed a model in which they showed that internal financing completely dominates all other external sources. Their model was different from Myers and Majluf, as they did not make any distinct between different types of external funds. Miller and Rock were of the point that all type of external sources send the signal to investors that internal funds and sources have fallen short of projections. This shows that the model presented by Miller and Rock was not completely, static trade-off nor was it pecking order theory. 2.3. Some remarks about previous research and potential problem s with measurements Titan and Wessels (1988) made a remarkable effort to identify the determinant of capital structure. They unable to identify any support for an effect of debt ratios which was caused volatility, future growth, collateral value or non debt tax shields. But they did find out that a negative relationship is present between the debt levels and uniqueness of the line of business of a firm. However, it is still questionable that weather the factor analytic or regression techniques can capture the relevant aspects suggested by the theories, which makes their results not conclusive. Pinegar and Wilbricht (1989) suggests that model

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models that reveals the aspects of marginal performance of assets of a firm are more useful then the models based on personal taxes and bankruptcy related costs, when determining the finance mix of a firm. Thus, it was suggested by Pinegar and Wibricht that only mangers are only the one who can truly elaborate if they follow a pecking order strategy or trade-off theory, when financing new projects. Empirical evidence shows that the US managers are most likely to follow the pecking order strategy. Literature on capital structure is extensive (Harris and Raviv, 1991). However, Aug and Jung (1993), apart from Pinegar and Wibricht (1989), conducted an empirical test of Myer s pecking order on the mangers of South Korea. The result indicates that South Korean managers, regardless asymmetry of information prefer bank loan (debt) which rejects the Myers Pecking order structure itself. Recently, the relationship between corporate control and capital structure has gained paramount importance (Bergloj, 1991; Slovin & Suska, 1993;John and John, 1993; Ihamoutila, 1994) Investments in R&D as well as other investments tend to change the financing decisions or debt-equity ratio of firms. This makes the puzzle of capital structure even more complex issue and therefore difficult to test. Financing decisions are made simultaneously with investment decisions. Furthermore, by applying crosssectional approach and using the book or market value, some insight can be gained but this insight may not has anything in common with the actual decision making of managers about the capital structure. Empirical Evidence also shows that bank ownership significantly influences the financial decisions of any firm (Mayer & Alexader, 1990; Hoshi et al., 1991; Langenskiold et al., 1993; Ihamoutila, 1994). 3. Procedures and Data The best way to gain an inside on the information, that weather the firms follow a hierarchy or set a target capital, is to ask manager themselves. Therefore, following the procedure of Pinger and Wilbricht (1998) a questionnaire containing seven questions was send to 36 chemical firms. At the time of survey the current position of Pakistan was quite devastating for the firms in the target industry. Political instability and insecurity due to terrorism were contributing to bring the economy of Pakistan on its knees which ultimately negatively affected liquidity of the firm. So, the result gathered would show a picture of financing decisions made in a stressful ambience. In this research study, chemical industry is considered for the purpose of data collection. 36 chemical firms were identified for the purpose of data collection, out of these 36 firms 15 are listed on KSE-100. The data was collected through questionnaire and telephonic interview. 22 firms responded which is 61.1% of the total; the response percentage is of satisfactory level as it is above 50% but some caution should be applied during the interpretation of results. 3.1.1. Pecking Order Vs Trade-off theory According to the data gathered we found out of 13 firms prefer to follow a hierarchy of financial funds when financing new projects, i.e. these firms follow pecking order strategy. On the other hand, 9 firms have target capital structure, which they believe the optimal level of capital structure and at this optimal point they can maximize the value of the firm. In other words, they follow the path that leads to trade-off theory; static or dynamic is of concern here. It was identified that out of 9 firms all the seven firms were

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listed in KSE-100 that responded usually considered as operating ones, believe in the value maximization of their firm through achieving an optimal level of capital structure. A list of financing sources was also given in the questionnaire and mangers were asked to rank them from 1 (unimportant) to 6 (important). The list of these financing sources is given below along with their mean score on Table a. The above mean scores presented in the table (a) give a picture of relative importance of listed financing sources to the survey. Furthermore, only these 13 managers were asked to rank these financing sources who selected option b in the first question, i.e. the ones who selected pecking order theory in first question. The financing source that has the mean value closest to 1 is considered most unimportant on the one with closest to 6 is considered most important. According to the table a, internal equity is considered most important or the first choice of the mangers when following a hierarchy of financing sources. The value of internal equity calculated is 1.18. The reason for choosing the internal sources of funds will be disclosed later in the discussions. Straight debt is ranked of internal equity with a mean score of 2.14. This shows that when internal funds fell short mangers go outside and also for bank loans or loan from the other financial institutions without any contract of converting these loans into any other form of equity. The third option for managers in consideration is issuance of new shares as it has a mean score of 3.73. If still firm faces a shortage of funds then new shares are issued to existing shareholders. Therefore, issuance of new shares to existing shareholders comes on forth position with 4.09 as its mean score. Then comes the convertible debt and last choice for managers is to issue equity to target capital providers. The pattern, above, conforms to the pecking order theory. Firms prefer internal financing sources to external and if project has to be financed through external sources then straight debt is preferred over external equity. There can be a number of reasons to justify such financing behaviors. Some of these reasons are covered later in the paper. 3.1.2. Factors Affecting technique decisions In the questionnaire managers were also asked to rank the factors that might affect their financing decisions. Eight factors were given to be ranked and they were ranked from 1 (unimportant) to 6 (important) scale. Table b shows these factors and their mean scores in table b. The table b shows that the most important factor is the expected cash flow from the project which is considered when gathering funds for new investment. This factor, being most important in the view of managers will choose a financing source which might cost the minimum and maximizes the cash flow generation from the new projects. At this point, it makes a sense as to why mangers have ranked internal equity as their first priority because it will save the maximum cost of firm in shape of no dividend or interest payments. But still merely this reason is not enough to anticipate the financing behavior of companies. The second highest ranked factor is expected inflation which affects the choice among financing sources. Tax consideration are placed on the third position which means that firms consider tax shields not as important as the trade-off theory says. To gain further logical insight of the financing behavior six more factors were evaluated by the managers on the same scale. Table c summarizes these factors along with their mean scores in table c.

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The table c when compared with the table b gives out a less absolute picture of financing behavior of the companies. In the very first question, 13 out of 22 firms selected to follow a pecking order strategy. None of these firms is listed on KSE-100and so considered smaller than the ones which are listed on KSE-100. When table b and c are combined, the result shows that internal equity is preferred over external and avoidance to mispricing is least considered, with a mean score of 4.59, while the firm considered the maintenance of voting rights to be important than many other options. Such a behavior points out that firms of relatively smaller size tend to keep the voting rights limited while cutting costs (e.g. interest) by generating funds, first, from internal sources and then by external straight debt. It is now reasonable to assume that the firms which are not listed in KSE100 are actually are run by founding families and these families considered important. Keeping the voting rights to themselves more than the widely held firms listed on KSE100. As discussed earlier, Myers is of point that firms follow as pecking order strategy to avoid mispricing of their securities. This problem, however, is not considered important here as the avoidance of the mispricing of securities gained a mean score of 4.59 which places it on seventh position in table b. 3.1.3. Perceptions about the efficiency of market Imperfection of market information has been under review for quite a long time (Farma, 1970; Berglund, 1986; Ostermark, 1991). So, during the survey managers were also asked to give some insight on their perceptions of market efficiency. Surprisingly, 20 out of 22 firms, that took part in the survey, enlightened that there securities are fairly priced by the market less than 50% of the times, which means that their securities are mispriced most of the firms. This mispricing verifies the existence of asymmetric information between managers and the investors. Only 2 firms voted out hat their securities are fairly priced between 50 to 80% of the times. No attempts were made to find out as to who answered what but we managed to find out that these 2 firms were listed on KSE-100. Although, very weak, but the answer of these two firms also show the reason for these KSE-100 listed to follow trade-off theory, as the 7 out of 9 firms, who selected trade-off theory in question 1, were all listed on KSE-100. Now coming back the mispricing due to asymmetric information, we find that most firms follow a hierarchy of financing resources due to this asymmetric information which is in accordance to the Myers pecking order theory. 4. Conclusion Our findings show that here in chemical industry of Pakistan, managers tend to follow a finance research hierarch, instead of a target capital structure. It further illuminates that firms that report a greater level of asymmetric information tend to follow pecking order strategy. Another important finding is that firms, here, also avoid the dilution of control and voting rights. Our results are partly, if not completely, consistent with theory. Still there is a need to find out the impact of firm size, and corporate control over the financing and investment decisions of firms. It has also been found out that a significant difference exist between the preferences of other firms listed of KSE-100. So, now it can be concluded that these preferences may differ because of the difference in size or performance of the company e.g. smaller firms seem to consider voting rights more important than the larger firms. This point may further explain why smaller firms or firms

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who are not listed on KSE-100 tend to follow a financing hierarch. Our results further elaborate that like in Finland and US, firms consider the long term survivability as the most important point when financing a new investment, means that the riskiness of the project also tends to affect the choice of these managers as to whether set an optimal target capital structure or follow a financing hierarchy.

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References Ang, J. and Jung, M. (1993), An alternative test of Myers' pecking order theory of capital structure: the case of South Korean firms, Pacific-Basin Finance Journal, pp. 3146. Baskin, J. (1989), An empirical investigation of the pecking order hypothesis, Financial Management, pp. 26-35. BerglOf, E. (1991), Corporate control and capital structure -- essays on property rights and financial contracts, Stockholm: Ph.D, thesis, Stockholm School of Economics. Berglund, T. (1986), Anomalies in Stock Returns on a Thin Security Market Helsinki: Swedish School of Economics and Business Administration, No. 37. Carmen Cotei, Joseph Farhat (2009). THE TRADE-OFF THEORY AND THE PECKING ORDER THEORY: ARE THEY MUTUALLY EXCLUSIVE?. North American Journal of Finance and Banking Research Vol. 3 No. 3. DeAngelo H. and Masulis, R. W. (1980), Optimal capital structure under corporate and personal taxation, Journal of Financial Economics, pp. 3-29. Fama, E. F. (1970), Efficient capital markets: a review of theory and empirical work, Journal of Finance, pp. 383-4 17. Harris, M. and Raviv, A. (1991), The theory of capital structure, Journal of Finance, pp, 297-355. Hijazi, S,T. and Tariq, Y,B. (2006), Determinants of capital structure: A case for Pakistani Cement Industry, The Lahore journal of Economics, Vol. 11, No. 1, pp. 63-80. Hoshi, T., Kashyap, A. and Scharfstein, D. (1991), The role of banks in reducing the cost of financial distress in Japan, Journal of Financial Economics, pp. 67-88. Ihamoutila, M. (1994), Corporate Ownership, Capital Structure and Investment -- A Theory and Evidence Helsinki: Ph.D. thesis, Helsinki School of Economics and Business. Administration, A-97 Jensen, M. C. and Mecklin, W. (1976), Theory of the firm: managerial behaviour, agency costs, and capital structure, Journal of Financial Economics, pp. 305-360. John, T. A. and John, K. (1993), Top-management compensation and capital structure, Journal of Finance, pp. 949-974. Khalid, S. (2011), Financial reforms and Dynamics of Capital structure choice: A case of Publically listed firms of Pakistan, Vol. 3, No. 1. Kim, E. H. (1978), A mean variance theory of optimal capital structure and corporate debt capacity, Journal of Finance, pp. 45-64. Krasker, W. (1986), Stock price movements in response to stock issues under asymmetric information, Journal of Finance, pp. 93-105. Kraus, A. and Litzenberger, R. Z. (1973), A state preference model of optimal financial leverage, Journal of Finance, pp. 911-922. Lagenskitld, P., Palmgren, C. and Koskinen, M. (1993), The Dual Role of Banks and Agency Cost of Debt-- Evidence on Finnish Data, Swedish School of Economics and Business Administration, Working Papers, p. 259. Mayer, C. and Alexander, I. (1990), Banks and securities markets: corporate financing in Germany and the United Kingdom, Journal of the Japanese and International Economies, pp. 450 475.

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Miller, M. H. (1977), Debt and Taxes, Journal of Finance, pp. 261-276. Miller, M. H. and Rock, K. (1985), Dividend policy under asymmetric information, Journal of Finance, pp. 1031-1051. Milton Harris, Artur Raviv (Mar., 1991). The theory of capital structure, The Journal of Finance, Vol. 46, No. 1, pp. 297-355. Modigliani, F.,Miller,M.H., (1958). The cost of capital, corporate nance and the theory of investment, American Economic Review, Vol. 48, pp.261 275. Myers, S. C. (1977), Determinations of corporate borrowing, Journal of Financial Economics, pp. 147-175. Myers, S. C. (1984), The capital structure puzzle, Journal of Finance, pp. 575-592. Myers, S. C. and Majluf, N. S. (1984), Corporate financing and investment decisions when firms have information that investors do not have, Journal of Financial Economies, pp. 187-221. Narayanan, M. P. (1988), Debt versus equity under asymmetric information, Journal of Financial and Quantitative Analysis, pp. 39-51. A S Hornby Editor, Seventh Edition: Sally Wehmeier (2005), Oxford Dictionary (7th Edition) 0stermark, R. (1991), Empirical evidence on the capital asset pricing model in two Scandinavian stock exchanges, OMEGA, International Journal of Management Science, pp. 223-234. Pinegar, M. J. and Wilbricht, L. (1989),What managers think of capital structure theory: a survey, Financial Management, pp. 82-91. Rafiq, M., Iqbal, A. and Atiq, M. (2008), The Determinants of capital structure of the Chemical Industry in Pakistan, The Lahore Journal of Economics, Vol, 13 No. 1, pp. 139-158. Shah, A. and S. Khan. (2007). Determinats of Capital Structure: Evidence from Pakistani Panel Data, International Review of Business Research Papers, Vol. 3 No. 4, pp. 265-282. Shah, A. and T. Hijazi. (2004). The determinants of capital structure of stock exchangelisted non-financial firms in Pakistan, Pakistan Development Review, Vol. 43, pp. 605-618. Slovin, M. B. and Sushka, M. E. (1993), Ownership concentration, corporate control activity, and firm value: evidence from the death of inside block holders, Journal of Finance, pp. 1293-1321. Titman, S. and Wessels, R. (1988), The determinants of capital structure choice, Journal of Finance, pp. 1-19. Waliullah and M. Nishat. (2008). Capital Structure Choice in an Emerging Market: Evidence from Listed Firms in Pakistan, Paper presented in 21st Australasian Finance and Banking Conference.

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APPENDIX Instructions: Please answer the following questions as they relate to decisions you make in raising long-term funds. 1. In raising new risk capital, your company seeks to (choose a or b) a. Maintain a target capital structure by using approximately constant proportions of several types of long-term capital ("a constant debt-to-equity ratio"). b. Follow a hierarchy in which the most advantageous sources of funds are exhausted before other sources are used. 2. You should only answer this question if you chose b in the first question. Rank the following sources of long-term funds in order of preference for financing new investments (1 = first choice, 6 = last choice). a. -- Internal equity (retained earnings) b. -- Straight debt c. -- Convertible debt d. -- Issue of shares to existing shareholders e. -- General new issue of shares f. -- Issue of shares to target capital providers 3. Indicate the relative importance of the following factors, when your firm is considering how to finance a new investment (on a scale of 1 to 5, where 1 = unimportant and 5 -important). a. -- Tax considerations b. -- Expected cash flow from the project to be financed c. -- Riskiness of the project to be financed d. -- Avoiding dilution of common shareholders' claims e. -- Avoiding mispricing of securities to be issued f. -- External value of the Finnish Mark to other currencies g. -- Expected inflation h. -- Confidence in the economic policy 4. Approximately what percent of the time would you estimate that your firm's outstanding securities are priced fairly by the market? a. More than 80 percent of the time b. Between 50 and 80 percent of the time c. Less than 50 percent of the time 5. Indicate the relative importance of the following financial planning principles in governing your firm's financing decisions (on a scale from 1 to 5, where 1 = unimportant and 5 = important), a. -- Maintaining financial flexibility b, -- Ensuring long-term survivability of the firm c, -- Considering financial decisions of competitors d. -- Preferring financing sources used earlier e, -- Maximizing prices of publicly traded securities f. -- Maintaining voting control 6. Other things held constant, in which way will the new capital tax law affect your divided policy? a. Increase the dividend payments

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b. Decrease the dividend payments c. Will not affect the dividend payments 7. Would your company conduct a general new issue of shares in 1993 if the market value of your shares was "fail'? a. Yes b. Probably c. Probably not d. Not Thank you Table a Internal Equity

1.18

Straight Debt

2.14

Convertible Debt

4.5

Issue of shares to existing share holders

4.09

General new issues of shares

3.73

Issues of shares to target capital providers

5.64

Table b Expected Cash flow

1.18

Expected Inflation

2.45

Tax consideration

2.59

Riskiness

3.05

Confidence in economic policy

3.73

Avoiding dilution

3.14

Avoiding mispricing

4.59

Rupee against other currencies

4.86

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Table c o Financial Flexibility

4.68

o Long term survivability

1

o Financial decisions of competitors

3.09

o Use of earlier sources

1.64

o Maintaining voting control

1.68

o Maximizing prices of shares

1.45

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MONEY SUPPLY AND PRICES RELATIONSHIP (EVIDENCE FROM PAKISTAN) SALEEM KHAN PhD. SCHOLAR, DEPARTMENT OF ECONOMICS, GOMAL UNIVERSITY D.I.KHAN, PAKISTAN PROF. DR. KHAIR-UZ-ZAMAN DEPARTMENT OF ECONOMICS, GOMAL UNIVERSITY D.I.KHAN, PAKISTAN DR. MUHAMMAD AZAM DEPARTMENT OF MANAGEMENT SCIENCES, ABDUL WALI KHAN UNIVERSITY MARDAN, PAKISTAN SAMI ULLAH ASSISTANT PROFESSOR OF ECONOMICS GOVERNMENT COLLEGE OF COMMERCE & MANAGEMENT SCIENCES, BANNU TOWNSHIP, BANNU, PAKISTAN

Abstract Aim of the present study is to investigate the time lag that the money supply survives in their utmost impact on prices in Pakistan. This study consider monthly secondary data on money supply M2 and prices (consumer price index) for the period from 2003:07 to 2009:06, taken from Federal Bureau of Statistics (monthly review on price indices, 2009) and State Bank of Pakistan annual and quarterly report (various issues). The EngleGranger approach indicates that there is long run relationship between the study concerned variables. The distributed Lag model finds that the money supply change s is effective till to the 17th lags i.e., the time lag is half and year or the time is around four quarters. In addition, the Almon methodology sums the total effect of money supply on prices over the period and shows that the impact of time lag effect increases successively. Thus, the empirical finding of this study demonstrates that M2 and CPI have an impotent relevance i.e. positive but nullify their proportional relationship during the study time period in Pakistan. Keywords: Money Supply, Prices, Polynomial Distributed Lag, Engle-Granger approach, Time lag effect. 1. INTRODUCTION The link between money supply and prices has a theoretical as well as empirical background in macroeconomics literatures. Here this study also attempts to estimate the relationship between money supply and prices in Pakistan. From the last few years, domestic prices of goods rose highly and continuously. Their persistent growth has placed the figure of double-digit inflation rate in record. A growing body of evidence

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suggests that inflation lead to lower economic growth [Fisher (1993), Cecchetti (2000)]. In addition, this successive price increase also adversely affects vulnerable poor population, over all purchasing power and monetary sector performance. Theoretically number of reasons nurture inflation including, demand expansion, waning supply, monetary growth and high government expenditure. But recently, empirical analysis on money-price relationship has received greater attention, where most studies believe that the growing money supply is the main reason causes inflation [Ghazali et al. (2008), Khan and Schimmelpfemming (2006)]. Therefore, there is a tendency to assign a single most important objective, price stability objective to the central bank. Where the central bank (State Bank of Pakistan) to reduce inflation up to the target level as decided by the government uses money supply (M2) as an instrument/intermediate target [Akhtar (2006)]. Higher the empirical strength of moneyprices relationship, robust will be the influence of monetary authority to stabilize prices. However in reality, increase in money supply will not cause to raise prices at instant because of time lag effect, which refer to the time difference between monetary policy adjustment and their final impact over the economy in dynamic economic situation. This time lag may be internal or external, where the former is concerned internally to the central bank that refer to the interval arises whenever the central bank starts to take monetary policy tool to take measures to correct already existing economic problem. The external lag refers to the interval from launching monetary policy tool until to their impact on object of it. Objectives of the study This study focal point is to identify the external lag. But in more exegetic way, the study purpose is re-explaining of answers to the following questions in Pakistan happenings. Is there a positive relation between money supply and prices in Pakistan? What are the extent of lags length over which the money supply may impact prices, as well as the cumulative effect of the lag length? Is evidence support proportional relationship between money supply and price level during study time period in Pakistan? To accomplish these objectives, this study uses the most appropriate monetary aggregate M2 and Consumer Price Index. More technically, this research applies a Polynomial Distributed Lag Model in addition to co-integration in order to identify the lag length and measures the sum of lags effect of money supply on prices or the long run relationship between money supply and prices. 2: THEORETICAL BACKGROUND AND EMPIRICAL EVIDENCE This section provides a terse and selective theoretical as well as empirical review that describes the behavior of price level and money supply, and their mutual interrelation with time lag. The economics studies mention that it was David Hume, who directed the successive new gold importation and coinage to rapidly increase prices in the economy. Later on Fisher (1900) a Professor of Economics at Yale University forms a link between money supply and price level. Fisher's Equation is equivalent to MV = PQ1, which is essentially a definition. An addition of the assumption that the velocity (V) is constant,

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the quantity equation becomes a theory of the effect of money, called the quantity theory of money. The Quantity theory of Money allows us to explain the overall level of prices. It provides an interpretation that the change of price level only comes from money supply and is proportional in relation. This proportional relationship is debatable in economics. In the classical system, the stock of money determines the price level. They looked upon stable money a prerequisite for stable prices. Keynes, on the other hand, argues that money is important but is not responsible for changes in price levels. Instead, structural factors play important role suggesting that money supply is not an effective instrument to control price changes. In he view, the transmission process of monetary policy was indirect and fiscal policy was direct. It is Phillips curve that represents Keynesian views on money and prices relationship. Where, Phillip s curve put up a trade-off between money wage inflation and unemployment. Keynesians evince that there is a choice for policy makers to make. Increasing money supply helps to increase inflation but also to reduce unemployment. Hence, inflation is the inverse function of unemployment. So, they assume positive but not necessarily a proportional relationship between money supply and prices. It was Friedman a leader of the group of monetarist, who wrote a book in 1956 Studies on the Quantity Theory of Money where he studied the empirical relationship between money supply and prices. He emphasized the significance of monetary factors in macro economy adjustment. Friedman provided evidence that the effects of money supply on real variables can be only temporary for the short run and neutral in the long run. That is way Friedman argues that Phillips curve exists only in the short run while it is vertical in the long run, which again means there is a direct and proportional relationship between money supply and prices in the long run. Like monetarist, Rational Expectation Hypothesis also endure direct and proportional relationship between money supply and prices but assume the non existence of Phillip s curve even in the short run. The aforementioned scholar s stated concepts declare that changes in money supply will change prices. However in reality, empirical studies detached money-price relationship with time lag, refer to the time between monetary growth and the happening of its impact on prices in the economy. Friedman stressed on lags effect between monetary policy action and their ultimate results. That is, not only does monetary growth take a relatively long time to increase prices but the time it takes to work is random and can be different from time to time. After a large number of empirical studies, he found that the time lag was about one or one and half years from the changes of money supply to the changes of prices. To measure causality and monetary adjustment lag between money-prices relationships, numerous studies have been tested in Pakistan. Hussain and Abbas (2000) made use of Co-integration and ECM to study the time lag and causality among money (M2), Income (GNP) and prices (CPI). Their study used annual data from 1949-50 to 1998-99 and investigates bi-directional causality in money-price and unidirectional causality from income to money supply. They found significant impact of money lag with feedback effects, that money affect prices after one years and price affect money after two years. Hussain and Mahmood (1998) study used co-integration methodology and monthly data from July 1981 to June 1998, for different monetary measures and price indices, and concluded that there exists a long run relationship between price indices and

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broad money M2 rather than other monetary measures. The analysis further suggests a unidirectional causality running from money supply to prices and thus supports the monetarist s claim regarding the role of money. Kamal (2006) demonstrates that the Quantity Theory of Money holds in the long run for Pakistan economy. His study used quarterly data for the period of 1975:1 to 2003:4 and exercised econometric techniques like above studies. From the co-integration analysis, his study concludes that inflation has a positive long run association with money supply and negative relationship with income, also the results from the VAR lead to the conclusion that inflation is strongly associated with the short run movements in money supply. His study conclusion is that inflation in Pakistan is a monetary phenomenon and it takes three quarters or twelve months of money growth to affect prices/inflation in the economy. Hussain and Rashid (2006) obtained unidirectional causality from money to prices in the long run. Their study concluded that money effect prices with two years lag. Qayyum (2006) estimated the relationship between the rate of inflation, money growth, growth in real income and growth in velocity in Pakistan in the 1960-2005 periods. He in study utilized ARDL approach and concludes that the money supply is the key factor that affected the inflation in Pakistan. The estimated results also indicate that in the long run there is a one to one relationship between the rate of inflation and growth in money supply. Further his study confirms the monetarist s proposition that money supply is the main factor that contributes toward the inflation in Pakistan. Khan and Schimmelpfeeming (2006) used co-integration and ECM, and monthly data from Jan, 1998 to June, 2005, and concluded that monetary factor determine inflation in the economy with a lag of 12 months. Research on other countries has also found positive relationship between money and prices, and interpreted diversified result for the time lag. Chen (2009) uses the data of broad money supply and monthly price indices for the period of 1998 to 2008 and makes an empirical study of Chinese inflation time lag. Through the estimation of Polynomial Distributed Lag Model, the author concludes that money supply s change has significant time lag effect on price s change and the lag time is about half and years. Ghazali et al. (2008) investigated the relationship between money and prices in Malaysia consider monthly data of money M1, M2, and M3 and consumer price index (CPI) from January 1974 to September 2006. The Johnson co-integration technique suggests that there is long run relationship between money supply and prices. Toda-Yamamoto causality test fined that there is unidirectional causality running from money supply to prices. Tang (2004) also in Malaysia reports similar direction of causality. Lee and Lie (1983) examined causality among money, income and prices in Singapore and found bidirectional causality between money and income and unidirectional from money to prices. Monetary Division Research Department, Nepal Rastra Bank (2001) investigated money-price relationship on quarterly database in Nepal. The study used Almon methodology and shared that the impact of money supply on prices was distributed over the third quarter. 3. DATA OVERVIEW AND RESEARCH METHODOLOGY 3.1 Data Overview The empirical work of the study is based on two nominal macro variables i.e. money supply and prices, which are time series in nature. Both variables have a diverse form of measurement. Here in this study consumer price index (CPI) is used as a proxy for prices

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and broad monetary aggregate (M2) as a proxy for money supply. The data set contains monthly information for the period July 2003 to Jun 2009. The study employed 72 observation and all data set account are in local currency (Rupee). Data on CPI is obtained from monthly review on price indices September 2009 (Federal Bureau of Statistics) and on M2 is come from State Bank of Pakistan s Annual and quarterly reports (various issues). 3.2: Unit Root and Co-integration: The study concerned variables are time series, therefore at first instance, it is attempted to examine both variable of the model individually whether each of them is of the same order of integrated. After being confirmed that both the variables are of the same order of integration i.e. I (1), the study proceeded on to test the long run behavior of these economic variables, name co-integration test. The study carried out Augmented Dickey Fuller (ADF) test statistic of unit root and Engle-Granger co-integration testing procedure of co-integration. 3.3: Polynomial Distributed Lag Model: To investigate the appropriate lag length and to extract the cumulative lag effects, here refer to the Polynomial Distributed Lag model that was developed by Shirley Almon (1965). The Almon methodology is flexible in that it does not requires the a priori assumption of a particular shape for the weight structure of lag co-efficient, it can be approximated by a polynomial of some specified degree. In occurrence of multicollinearity, OLS estimates are not rational, so PDL is preferred. Following Chen (2009) and Nepal Rasta Bank (2001), the general form of the model is as following; Y = + 0Xt + 1Xt-1 + 2Xt-2 + + iXt-s + t (1) To the specification of variables this study uses data of national broad monetary aggregate (M2) as money supply and consumer price index as prices. Here the monetary aggregate (M2) is considered as explanatory variables and CPI as explained variable. For illustrative purposes assume that prices depend on money supply in current year and in the preceding s years. Put the two variables into the general model, the equation becomes as: CPIt = + 0M2t + 1M2t-1 + 2M2t-2 + + i M2t-s + t (2) Most of the time series variables are I (1) in their level and can be converted into stationary form with first difference. Therefore the study takes variables in their first difference for estimation purposes which transformed the equation (2) and can be written as: CPIt = + 0 M2t + 1 M2t-1 + 2 M2t-2 + + 17 M2t-17 + t (3) Where, Stand for first difference, and s stand for the lag length. The coefficient 0 is known as short run multiplier, it gives the change in the mean value of CPI following a unit change in M2 in the same current year. The successive i s (i =1, 2 17) stand for the past multiplier, and measures the impact of a unit change of past money supply (M2) on current prices (CPI). Finally the sum is known as the long run multiplier, is constant and is white noise error term. In using Almon approach to the distributed lag model i s can t be measured directly, where Almon assume that i s can be approximated by a suitable degree polynomial in the lag length (i) of the regressions2. Where the polynomial degree reduce the number of parameters to be estimated and produce smoothness in the lag coefficients. In E-views 3, all happen automatically and gives the result directly. 3.4: Selection of the lag length and polynomial degree: To estimate parameters of the lag period, it is an admitted fact that PDLs play useful role but the problem is selection of the lag length and order of the degree of polynomial3. There are a number of procedures and criteria for determining the appropriate lag length and polynomial degree. One of the approaches is ad hoc estimation COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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of distributed lag model. This method had introduced by Alt (1942) and Tinbergen (1949). The approach adopts sequential procedure in estimation. For example, in this study model, first current price i.e. CPI is regressed on current M2 then by M2-1, M2-2, , and so on until the co-efficient of the lagged M2 become statistically insignificant and the sign of parameter changes. Another most useable and acceptable techniques for selection of the lag length in literatures are Akaick information criteria and Schwartz information criteria. In our study, the two basics (lag length and polynomial degree) are specified on the basis of these criteria s, AIC and SBC. Further has reinforced with sequential approach suggested by Alt and Tinbergen, and diagnosed with F-statistic. In addition to all these estimation was also subjected to specification and diagnostic tests (Breusch-Godfrey LM, Redundant Variable and Wald-Coefficient tests). 4: RESULTS AND INTERPRETATION This section of the paper is divided into two important estimated parts. One includes test for unit root and co-integration; another represents the empirical results for polynomial distributed lag model. 4.1: Test for Order of Integration and Co-integration In this empirical section to estimate the basic polynomial distributed lag (PDLs) model, at the very beginning precautionary time series test, unit root test and cointegration test are conducted to the variables under consideration. The aim is to determine the order of integration in series and to avoid the complexity of spurious results. 4.1.1: Test for Order of Integration: Most of macroeconomic variables for which time series observations are available exhibit unit root in level. If series is non-stationary, it means that series is integrated. An integrated series has a mean and variance that depends on time (Bannerje et al. 1993). The integrated series violate one of the important assumptions of OLS and whenever used in any specified model often develop spurious results. This study examined each individual variable, consumer price index (CPI) and broad monetary aggregate (M2) for order of integration using Augmented Dickey-Fuller test. The table-1 presents result of order of integration for variables used in study. Table 1.Test for Order of Integration: Augmented Dickey-Fuller Test (ADF) ADF Test-Statistic Variable Lag h r

Lag

CPI

I(0)

1.648841

1

-0.792122

1

M2

I(0)

1.507802

10

-1.250715

10

CPI I(1)

-4.636535*

0

-5.401830*

0

M2

-3.492235**

9

-3.88603**

9

I(1)

Note; Null hypothesis for ADF is unit root in series versus non-unit root (stationary) alternatively. The critical values for ADF are 3.53 (Without trend), -4.09 (With trend) at 1%, -2.90 (With out trend), and 3.47 (With trend) at 5%, tabulated from Mackinnon (1991) critical values. The term h denote the model with constant have no trend and r constant with trend. Asterisk (*) and (**) represent level of significance at 1% and 5% respectively. The lag length is specified on the minimum value of Schwartz Criteria, for M2 the SC values are not decisive, therefore LM test is conducted, at lag 9 the residual are white noise as indicated by the LM test of serial correlation.

The results indicate that the null hypothesis of unit-root can not be rejected at 1 % in level for both the variables. In contrast, the unit root is strongly rejected with first difference for both variables. The ADF result shows the variables (CPI, M2) are nonCOPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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stationary at level, however for CPI at first difference the alternative of unit root is accepted at 1 % level of significance in both the case i.e. with constant with out trend and, constant with trend. For another variable (M2) the null hypothesis of unit root is rejected with first difference at 5 % level in both the cases as mentioned above. In conclusion, both variable are not-stationary in their levels while stationary at first difference and therefore indicating that variables are of integrated of order first I (1). 4.1.2: Testing for Co-integration: Once the order of integration has been determined, if the series are individually non stationary in their levels and integrated at the same order i.e. I (1). There may be the cases of linear combination in these time series to produce stationary relationship, if they are co-integrated. A number of methods of testing for co-integration (long run relationship) have been proposed in the literature. In a bivariate context (i.e. CPI and M2 in our study) to analyzed this co-integration property of time series, the most applied technique is the Engle-Granger (1987) co-integration regression technique. Our study also used Engle and Granger test to estimate the long run relationship between the variables in study. In order to execute this EG test for co-integration, it formulate two steps in estimation. Here in the first, estimate co-integration regression of the series CPI and M2 as, CPI = + M2 + (4) Where is the error term and can be written in the form of linear combination of CPI and M2 as, = CPI - - M2 (5) Second, it test the acquired residual ( ) for unit root or performed an ADF test on the residual series to determine their order of integration. If the residual does not exhibit first order integration and is stationary at level i.e. I (0), then the CPI and M2 are said to be cointegrated. The result for our co-integration regression is, CPI = 41.31759 + 0.02934(M2) (12.05775) (30.61913) R-squared = 0.93 Note; there are t-ratios in parenthesis, The results for unit root on the residuals ( ) obtained from the above estimated regression: Table 2. Engle-Granger Co-integration tests Variables ADF-test Constant Dependent Independent of residuals

Trend

Lag

CPI

M2

-3.12999*

Yes

No

6

CPI

M2

-3.1269*

Yes

Yes

6

Note: the Engle-Granger 1 % critical value is 2.5899 (Gujarati, Fourth edition) The lag length is specified on the basis of minimum value of Schwartz Criteria. * Significant at one percent.

Table 2 reports the results from using the EG co-integration methodology. The test statistics in the table are ADF test estimated for the residual series of co-integration regression. The computed test statistic is greater in absolute form than EG critical value. So the results indicate that the residual series from the regression of CPI on M2 is zero order integrated I(0); that is the series is stationary. One can interpret the equation (4) as co-integrated function and its parameter as long run parameter.

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4.2: Results for Polynomial Distribute Lag Model Before estimate Polynomial Distributed Lag Model, initially here simply estimate price-money equation, where first difference of CPI is regressed on first difference of M2 and their lag periods. The following regression results were obtained: See Table-3, Table-4 in annex, From the results in table 3, the t-statistic are not significant for current and till to the third lag period of M2 but it is significant at fourth lag [M2 (-4)] under 5 % level of significance. So it indicates that money supply have no obvious impact on prices up to the third lagged period, however the money supply s change have to influence prices start at fourth month clearly. Further the coefficients results increases progressively, which shows that the impact of M2t on CPI will come to the end after gradually some period of time. From this, one can not judge how long the time lag is; therefore we have to estimate the successive lag of the model i.e. 9-month lag, 12-month lag, 17-month lag and 24month lag step by step. From the regression results in 17th month lag period, it is obvious that money supply (M2) at current and the lag factor of M2 (-11) has a theoretically opposite sign and insignificant t-ratios. The coefficients of money supply only at lag ten and seventeen have a priori signs and significant results, while the coefficient of the remaining lagged periods have a priori signs but the t-ratios are insignificant. These regression coefficients reveals that the change of money supply begins to impact prices at 4-month lag (see in table3) and it come to a head until to the lag seventeen as shown in table4. Beyond at the lag period of seventeen till to the lag period twenty-fourth the results are not significant, see table8 in annex. In table 4, sum of the current and lag coefficient of M2 is equivalent to (.14321), which grasps the positive relevance but not the proportional relation between CPI and M2. The t-statistic is insignificant for more explanatory variables. Therefore, to check the hypothesis of proportionality and the insignificant variables are redundant variables, this study applied two test i.e. Wald-Coefficient test and Redundant Variable test. Redundant Variable Test: The null hypothesis for the test is that the insignificant variables of 17-month lag model are redundant variables. The result is as following: Table 5. Test for Insignificant Parameters, Redundant Variables: DM2, DM2 (-1), DM2 (-2), DM2 (-3), DM2 (4), DM2 (-5), DM2 (-6), DM2 (-7), DM2 (-8), DM2 (-9), DM2 (-11), DM2 (-12), DM2 (-13) DM2 (-14), DM2 (-15), DM2 (-16), F-statistic 1.871959 Probability 0.060071 Log likelihood ratio 33.38768

Probability

0.006563

Look at the table 5, F-statistic and Log likelihood ratio reveals that the insignificant variables are not redundant4. Both test statistics rejected null hypothesis. Wald-Coefficient Test: The quantity theory of money as well as monetarist suggested that there is direct and proportional relationship between money supply and prices. Our coefficient results support positive relevance but have to test proportionality of money in the long run, here attempts to apply Wald-Coefficient test to the above tested model. The results is as following, COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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Table 6 Wald-Test Null C(2)+C(3)+C(4)+C(5)+C(6)+C(7)+C(8)+C(9 Hypothesis: )+C(10)+C(11)+C(12)+C(13)+C(14)+C(15)+ C(16)+C(17)+C(18)=1 F-statistic 1025.174 Probability 0.000000 Chi-square

1025.174

Probability

0.000000

Where the null hypothesis is that the sum of the coefficients is one. Both the test statistics are highly significant and strongly rejected the null hypothesis, while reveals no proportional relationship between money supply and prices during the study time period in Pakistan. PDL Test with First Degree Polynomial: The previous regression results have no systematic sequence and also most of the coefficients have no significant values. To smooth the lagged effect and gives the total sum of lagged effect of money supply on prices, the PDLs model is used here. Based on the empirical study discussed in previous section, the seventeen distributed lags with first degree polynomial is used for this analysis5, the results are as given in table 7 in annex: The estimated results of the desired equation (3) using polynomial degree demonstrates that all the coefficients of current and lagged M2 have positive relevance, which is in line with the theory prescription. Considering the total effect, the sum of lag is very low which is contradicting with proportionality of money. The empirical result support positive relevance of CPI and M2, but not their proportional relationship. 5. Conclusion This study attempts to find linkages between money supply and prices using monthly data over the period 2003:07-2009:06 for the Pakistan economy. Where, M2 used as a proxy for money supply and CPI for prices. The ADF simply test order of integration and Engle-Granger long run relationship between study concerned variables. In addition, the study applied Polynomial Distributed Lag model to specify the lag period i.e. the time period in which the change in money supply s change prices. The empirical results concludes; first that both variables i.e. M2 and CPI are nonstationary in level and stationary at I(1). Second, the EG test confirm their long run relationship. Third the regression analysis shows that the change in money supply originates impact on prices only after 4-month lag and revives hitherto the 17-month lag. The time lag is half and year i.e. four quarter to five. Fourth, our empirical result validates positive relevance of the quantity theory but nullify their proportionality during the study time period in Pakistan. Indeed, theoretically money supply and prices have a positive relevance. Empirically the diversified results support this positive relevance but divided in feeble, moderate and robust relationship. However, this study shows almost weak relationship between CPI and M2, it implies that even higher monetary growth is not necessarily linked to higher prices. There may be some factors that add more to the change in prices rather than sole monetary aggregate. If a stable price is goal of economic policy and money-prices as deeds as this study results, then going through intermediate step by targeting monetary aggregates i.e. M2 by monetary authority may be misleading.

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Endnotes 1. M represented the currency in during a certain period; V represents the velocity of money circulation; P represents the price index of goods and services and Q represents transaction volume of goods and services. 2. Gujarati, D.N. (2007) Basic Econometrics Fourth edition, 3. If the lag lengths are incorrectly specified, generally lead to the biased coefficient estimates, the selection of lag length and polynomial degree is extremely important. 4. If there is inclusion has unnecessary or exclusion of necessary variables in the model, the value of adjusted R-square decreases. At the seventeenth-month lag, value of adjusted R-square is maximum compare to others lag model, which reinforce that variables are not redundant. 5. The lag length is specified on the basis of minimum Akaike value and significant F-statistic. Where the Akaike value is smaller and F-statistic is higher for the seventeen-month lag, as shown in estimation of various basic regression models. In addition the residual of this PDL is diagnosed with LM test (insert table 9).

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REFERENCES Agha, A. I. et al. (2005), Transmission Mechanism of Monetary Policy in Pakistan, SBPResearch Bulletin, Vol. 1, No. 1, pp. 1-23. Akhtar, S. (2006), Pakistan-Economic Outlook and Prospects, Speech Delivered At The Adam Smith Institute, Thun, Switzerlan, June27. Banerjee, A., J. Dolado, J. W. Galbraith and D. F. Hendry (1993), Co-integration, Error Correction and the Econometric Analysis of Non Stationary Data, Oxford, OUP. Chen, H. (2009), An Empirical Study of Chinese Inflation Time Lag, International Business Research, Vol. 2, No. 1 Cecchetti, S.G. (2000), Making Monetary Policy: Objectives and Rules, Oxford Review of Economic Policy, 16(4), pp.43-59. Dimitrios, A. (2006), Applied Econometrics: A Modern Approach using EViews and Microfit, Palgrave Macmillan Engle, R. and C. Granger (1987), Co-integration and Error Correction; Representation, Estimation and Testing , Econometrica, 55:pp. 251-276. Fisher, S. (1993), The Role of Macroeconomic Factors in Growth, Journal of Monetary Economics, vol.32, pp. 485-512. Ghazali, M. F. and et al. (2008), Linkage between Money and Prices: A Causality Analysis for Malaysia . International Business Research, Vol. 1, No. 4 Gregorio, J. D. (2001), Rapid Growth of Monetary Aggregates and Inflation: The International Evidence, Working Paper of the Central Bank of Chile, pp. 1-16. Gujarati, D. N. (2007), Basic Econometrics, 4th edition, Mc Graw-Hill, Publishing Company ltd. Haque, N. and A. Qayyum (2006), Inflation everywhere is a Monetary Phenomenon; An Introductory Note, The Pakistan Development Review, 45:2, pp.179-183. Hussain, F. and T. Mamood (1998), Causality between Money and Prices: Evidence from Pakistan, the Pakistan Development Review, 37:4, pp. 1155-1161 Hussain, F. and K. Abbas, Money, Income, Prices and Causality in Pakistan: A Trivariate Analysis, pp. 1-10. Kemal, M. A. (2006), Is Inflation in Pakistan a Monetary Phenomenon? The Pakistan Development Review, 45:2, pp. 213-220. Khan, M. S. and A. Schimmelpfenning (2006), Inflation in Pakistan: Money or Wheat? SBP- Research Bulletin, Volume 2, pp. 213-234. Khan, R. and A.R. Gill. (2007), Impact of Supply of Money on Food and General Price Indices: A Case of Pakistan, IUB Journal of Social Sciences and Humanities, Vol. 5, No.2, Lee, S. Y. and W. K. Li (1983), Money, Income, and Prices and Their Lead-Lag Relationship in Singapore, Singapore Economic Review, pp. 73-87. Monetary Division, Research Department and Nepal Rastra Bank (2001), Money and Price Relationship in Nepal: A Revisit, Economic Review: Occasional Paper, 13, pp. 50-65. Muhammad, A. H. Q. and S. Anwar (2009), Food Prices and Money Supply: A Causality Analysis for Pakistan Economy, 5th International Statistical Conference, pp. 1-12. Omer, M. and O.F. Saqib (2009), Monetary Targeting in Pakistan: A Skeptical Note, SBP Research Bulletin, Vol: 5, No. 1, Pakistan, Government of (2009), Monthly Review on Price Indices September 2009, Federal Bureau of Statistics, Annex-II, Pakistan, Government of (Various Issues), Annual and Quarterly Reports, State Bank of Pakistan. Qayyum, A. (2006): Money, Inflation and Growth in Pakistan The Pakistan Development Review, 45:2, pp. 203-212.

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Tang, T-C. (2004), Causality between Money and Price in Malaysia: A Revisit, Labuan Bulletin of International Business and Finance, 2(1), pp. 71-78. Thornton, D. L. (1983), Polynomial Distributed Lags and the Estimation of St. Loise Equation, Federal Reserve Bank of St. Louis, 13-25.

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ANNEXURE Table 3. Regression results for 4th month lag model, CPI c i M2t-s (i, s=0, 1, 2, 3, 4) Dependent Variable: DCPI Method: Least Squares Sample(adjusted): 2003:12 2009:06 Included observations: 67 after adjusting endpoints Variable Coefficient Std. Error t-Statistic C 0.963210 0.502275 1.917692 D M2 -0.003122 0.002968 -1.051936 D M2 (-1) 0.000516 0.003271 0.157583 D M2 (-2) 0.001170 0.003825 0.305787 D M2 (-3) 0.003672 0.003554 1.033285 D M2 (-4) 0.006876 0.003310 2.077738 R-squared 0.120952 Akaike info criterion Adjusted R0.048898 F-statistic squared Durbin-Watson 0.950199 Prob.(F-statistic) stat Table 4. Regression results for 17th month lag model, CPI c i M2t-s (i, s = 0, 1, 2 17) Dependent Variable: DCPI Method: Least Squares Sample(adjusted): 2005:01 2009:06 Included observations: 54 after adjusting endpoints Variable Coefficient Std. Error t-Statistic C DM2 D M2 (-1) D M2 (-2) D M2 (-3) D M2 (-4) D M2 (-5) D M2 (-6) D M2 (-7) D M2 (-8) D M2 (-9) D M2 (-10) D M2 (-11) D M2 (-12) D M2 (-13) D M2 (-14) D M2 (-15) D M2 (-16) D M2 (-17)

R-squared Adjusted Rsquared Durbin-Watson stat

-4.562732 -0.001773 0.004315 0.007800 0.005037 0.001345 0.008349 0.008869 0.009078 0.002659 0.011071 0.018995 -0.005914 0.011376 0.007397 0.011184 0.008621 0.009239 0.025562

1.206692 0.005503 0.005713 0.006233 0.005712 0.005969 0.005764 0.006773 0.007759 0.007811 0.007653 0.007890 0.007585 0.006602 0.007095 0.007001 0.007564 0.007479 0.007510

-3.781192 -0.322176 0.755363 1.251402 0.881880 0.225300 1.448324 1.309427 1.169972 0.340455 1.446594 2.407306 -0.779780 1.723289 1.042595 1.597487 1.139669 1.235266 3.403663

Prob. 0.0598 0.2970 0.8753 0.7608 0.3056 0.0419 3.624772 1.678643 0.153321

Prob. 0.0006 0.7492 0.4551 0.2191 0.3839 0.8231 0.1564 0.1989 0.2499 0.7355 0.1569 0.0215 0.4408 0.0937 0.3043 0.1191 0.2622 0.2250 0.0017

0.560098 0.333862

Akaike info criterion 3.572613 F-statistic 2.475728

1.182027

Prob.(F-statistic)

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Table 7. PDL test with first degree polynomial, dependent variable is CPI and independent variables are M2 till to 17th lags. CPI pdl ( M2, 17, 1) i Coefficient Std. Error T-Statistic 0 0.00256 0.00205 1.24657 1 0.00312 0.00193 1.61444 2 0.00368 0.00182 2.01982 3 0.00424 0.00172 2.45970 4 0.00480 0.00164 2.92622 5 0.00536 0.00157 3.40546 6 0.00592 0.00153 3.87735 7 0.00648 0.00150 4.31776 8 0.00704 0.00150 4.70295 9 0.00760 0.00152 5.01502 10 0.00816 0.00156 5.24582 11 0.00873 0.00162 5.39751 12 0.00929 0.00169 5.48000 13 0.00985 0.00179 5.50703 14 0.01041 0.00189 5.49277 15 0.01097 0.00201 5.44975 16 0.01153 0.00214 5.38800 17 0.01209 0.00227 5.31505 Sum of Lags 0.13184 0.02708 4.86889 R-squared F-statistic 0.372923 15.16484 Durbin-Watson Prob(F-statistic) 1.625602 0.000007 Table8. Regression results for 24th month lag model, Dependent Variable: DCPI Method: Least Squares Sample(adjusted): 2005:08 2009:06 Included observations: 47 after adjusting endpoints Variable Coefficien Std. Error t-Statistic t C -3.844430 1.826826 -2.104431 DM2 -0.004228 0.006762 -0.625235 D M2 (-1) 0.000690 0.006861 0.100586 D M2 (-2) 0.003741 0.007648 0.489230 D M2 (-3) 0.002256 0.007468 0.302118 D M2 (-4) -0.003128 0.007388 -0.423413 D M2 (-5) 0.009128 0.007415 1.230978 D M2 (-6) 0.010522 0.008671 1.213489 COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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D M2 (-7) D M2 (-8) D M2 (-9) D M2 (-10) D M2 (-11) D M2 (-12) D M2 (-13) D M2 (-14) D M2 (-15) D M2 (-16) D M2 (-17) D M2 (-18) D M2 (-19) D M2 (-20) D M2 (-21) D M2 (-22) D M2 (-23) D M2 (-24) R-squared Adjusted R-squared Durbin-Watson stat

0.009649 -0.000618 0.016094 0.029131 -0.003243 0.009529 0.012394 0.010504 0.005017 0.013073 0.033266 -0.001504 -0.006679 0.006033 -0.001787 -0.015374 -0.016282 0.004276 0.665915 0.268195 1.079741

0.010002 0.964709 0.3457 0.010202 -0.060595 0.9523 0.010254 1.569603 0.1315 0.010010 2.910347 0.0084 0.009934 -0.326402 0.7474 0.009503 1.002741 0.3274 0.010337 1.198910 0.2439 0.010069 1.043221 0.3087 0.010927 0.459168 0.6508 0.010561 1.237842 0.2294 0.010516 3.163251 0.0047 0.010325 -0.145673 0.8856 0.010177 -0.656345 0.5187 0.009397 0.641946 0.5279 0.009273 -0.192734 0.8490 0.009859 -1.559393 0.1338 0.009805 -1.660576 0.1117 0.009900 0.431917 0.6702 Akaike info criterion 3.781674 F-statistic 1.674330 Prob.(F-statistic) 0.116954

Table9. LM test to the Residual of PDL test, CPI c pdl ( M2, 17, 1) Breusch-Godfrey Serial Correlation LM Test: F-statistic 0.765554 Probability Obs*R-squared 1.636217 Probability

0.470558 0.441265

Table 9 shows that both test statistics are insignificant and exclusively accepted the null hypothesis of no serial correlation in residuals.

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Effects of Organizational Resources on Organizational Performance: an Empirical Study of SMEs. Mohammad Ziaul Hoq College of Business, University Utara Malaysia (UUM) Prof. Dr. Ajay Amarsingh Chauhan College of Business, University Utara Malaysia (UUM) Abstruct This study intends to look into the combined effects of Organizational Resources (social Capita orientation, market orientation, entrepreneurial orientation and strategic orientation) on Organizational performance and interaction effects of Innovation and Marketing Capabilities (mediators) on the said relationship. Structural Equation Modeling (SME) will be used to test the measurements and substantive models. This is the first examination of the role of all four organizational orientations and multidimensional measure of Small and Medium Enterprises (SMEs) performance. It examines SMEs in Bangladesh, a hostile business environment. Mangers and policy makers can enhance probability of their success by developing the different organizational orientations. Key words: Social Capital Orientation, Entrepreneurial Orientation, Market Orientation, Strategic Orientation, SME. 1. Introduction The main objectives of this research are three fold. First; to investigate the effects of Organizational resources on Marketing Capability and Innovation . Second, to investigate the effects of Innovation and Marketing Capability on Organizational Performance. Third; to investigate the extent to which Innovation and Marketing Capability mediate relationship between Organizational resources and Organizational performance . 2. Background of the Study High failure rates of small firms are largely attributed to weakness in financial management and marketing (McCaran-Quinn and Carson, 2003).Many classical management concepts are unsuitable for application in a small firm context, with research suggesting non-implementation of theoretically based marketing practices is the rule rather than exception in the small firm (McCaran-Quinn and Carson, 2003). SMEs cannot do conventional marketing because of the limitations of resources which are inherent to all SMEs. Also, SME owner/managers behave and think differently from conventional marketing decision-making practices in large companies ( Gillmore et al. , 2001). More over, SMEs lack the resources and capabilities to develop their own markets and their small size makes it difficult for them to reap the benefits arising from the economies of scale and scope, and the experience curve (Nooteboom, 1993).

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Further more, El-Namaki (1990) attributed small-business failures to a lack of professional management skills and to the entrepreneur s lack of general competence in the entrepreneurial process, i.e. centralization of power, lack of strategic planning, lack of technological innovation, etc. Ibrahim and Goodwin (1986) found that entrepreneurial behaviors and managerial skills were two key success factors in small-business management. According to Barney, (1986a) research on competitive advantage should embrace firm resource variables. Similarly, contemporary research focuses on the integration and identification of those variables necessary for a firm to achieve competitive advantage is indicated by performance levels (Narver and Slater 1990, 1994; Jaworski and Kohli 1993; Baker and Sinkula 1999; Hurley and Hult1998).These variables are identified as Strategic Orientation (SO), Market Orientation (MO), Entrepreneurial Orientation (EO), and Social Capital Orientation (SCO). Although the relationships between each of the four orientations- SO, MO, EO, SCO and performance have been studied either individually or combination of 2 / 3 orientations, there have been no study of the combined effects of all of these orientation on performance (Kropp et. al., 2006). As such, there is a gap in literature concerning how these constructs interact to influence organizational performance. This study intends to shed new and important light on these constructs and the interrelationships among them. To do so this study devises a theory-based structural equation model that links these constructs together. In this study SO, MO, EO, SCO are referred as Organizational resources . This study intends to look into the combined effects of Organizational resources on SME performance (financial and non-financial) as well as interaction effects of Innovation and Marketing Capabilities (mediators) on the said relationship. The framework of the study follows. Figure 1 : Theoretical Framework

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The theoretical foundations underpinning this research are couched in terms of a resource-based perspective (Barney, 1990), since the key model constructs can be perceived as internal resources. This perspective views firm-specific resources, such as assets and capabilities, as the drivers of a firm s business strategy (Ekeledo and Sivakumar, 2004). Capabilities reside in superior managerial skills and knowledge (Day and Wensley1988; Hall, 1992; Hofer and Schendel, 1978) that make it possible to engage in advantageous business process activities (Day, 1994). The firm, therefore, is the source of competitive advantage (Capron and Hulland, 1999), with its competitive advantage residing in the resources it has available (Barney, 1991; Peteraf, 1993; Teece et al. 1997). Thus, EO, MO, SO, SCO can be viewed as resources which potentially enhance the success of SMEs. Based on the literature and the above theoretical framework, the study could posit the following hypothesis: Proposition 1: Organization s social capital orientations are related to organizational innovations Hypothesis 1: Organization s social capital orientations are likely to influence organizational innovations H1 (i): Communication openness is more likely to influence organizational innovation H1 (ii): Trusting culture is more likely to influence organizational innovation H1 (iii): Shared vision is more likely to influence organizational innovation. Proposition 2: Organization s entrepreneurial orientations are related to organizational innovations Hypothesis 2: Organization s entrepreneurial orientations are likely to influence organizational innovations H2 (i): Pro-activeness is more likely to influence organizational innovation H2 (ii): Riskiness is more likely to influence organizational innovation Proposition 3: Organization s market orientations are related to organizational innovations Hypothesis 3: Organization s market orientations are likely to influence organizational innovations H3 (i): Customers are more likely to influence organizational innovation H3 (ii): Internal operations are more likely to influence organizational innovation H3 (iii): Competitors are more likely to influence organizational innovation Proposition 4: Organization s strategic orientations are related to organizational innovations Hypothesis 4: Organization s strategic orientations are likely to influence organizational innovations H4 (i): Aggressive strategy is more likely to influence organizational innovation H4 (ii): Risk taking strategy is more likely to influence organizational innovation Proposition 5: Organization s strategic orientations are related to marketing capability Hypothesis 5: Organization s strategic orientations are likely to influence marketing capability H5 (i): Aggressive strategy is more likely to influence marketing capability H5 (ii): Risk taking strategy is more likely to influence marketing capability Proposition 6: Organization s market orientations are related to marketing capability Hypothesis 6: Organization s market orientations are likely to influence marketing capability H6 (i): Customers are more likely to influence marketing capability H6 (ii): Internal operations are more likely to influence marketing capability COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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H6 (iii): Competitors are more likely to influence marketing capability Proposition 7: Organization s entrepreneurial orientations are related to marketing capability Hypothesis 7: Organization s entrepreneurial orientations are likely to influence marketing capability H7 (i): Pro-activeness is more likely to influence Marketing strategy H7 (ii): Riskiness is more likely to influence Marketing strategy Proposition 8: Organization s social capital orientations are related to marketing capability Hypothesis 8: Organization s social capital orientations are likely to influence marketing capability H8 (i): Communication openness is more likely to influence marketing capability H8 (ii): Trusting culture is more likely to influence marketing capability H8 (iii) Shared vision is more likely to influence marketing capability. Proposition 9: Organizational innovation will have an impact on the financial performance. Hypothesis 9: Organizational innovation will have a positive impact on the financial performance. Proposition 10: Organizational innovation will have an impact on the marketing performance. Hypothesis 10: Organizational innovation will have a positive impact on the marketing performance. Proposition 11: Marketing capability will have an impact on the financial performance. Hypothesis 11: Marketing capability will have a positive impact on the financial performance Proposition 12: Marketing capability will have an impact on the marketing performance. Hypothesis 12: Marketing capability will have a positive impact on the marketing performance. Proposition 13: Organizational innovation mediate the relationship between social capital orientation and organizational performance Hypothesis 13: Organizational innovation mediate the relationship between social capital and organizational Performance Proposition 14: Organizational innovation mediates the relationship between entrepreneurial orientation and organizational performance Hypothesis 14: Organizational innovation mediates the relationship between entrepreneurial orientation and organizational performance Proposition 15: Organizational innovation mediates the relationship between market orientation and organizational performance. Hypothesis 15: Organizational innovation mediates the relationship between market orientation and organizational Performance. Proposition 16: Organizational innovation mediates the relationship between strategic orientation and organizational performance Hypothesis 16: Organizational innovation mediates the relationship between strategic orientation and organizational performance Proposition 17: Marketing capability mediates the relationship between social capital orientation and organizational performance. Hypothesis 17: Marketing capability mediates the relationship between social capital orientation and organizational Performance

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Proposition 18: Marketing capability mediates the relationship between entrepreneurial orientation and organizational performance Hypothesis 18: Marketing capability mediates the relationship between entrepreneurial orientation and organizational performance Proposition 19: Marketing capability mediates the relationship between market orientation and organizational performance. Hypothesis 19: Marketing capability mediate the relationship between market orientation and organizational Performance Proposition 20: Marketing capability mediates the relationship between strategic orientation and organizational performance. Hypothesis 20: Marketing capability mediates the relationship between strategic orientation and organizational performance. Literature Review Small Medium Enterprises (SMEs) are perceived as vulnerable yet valuable entities, important both economically and socially (McCaran-Quinn and Carson, 2003). They are recognized as engines of economic growth. The growing economic significance of the SMEs as sources of new business creation and employment generation in the developed, OECD countries especially since 1970s is now widely recognized in an increasingly growing volume of literature (OECD1997). It is widely recognised today, that SMEs represent the backbone of the local economies in Europe. SMEs contribute to more than two-thirds of employment (70.2 per cent) and turnover (70.3 per cent) in the Union and between 65 to 85 per cent of the total value added (European Commission, 1993a). Growing recognition of the economic contribution of SMEs has given rise to a large number of activities in many international organisations, both governmental and nongovernmental (OECD, 2000). Furthermore, the commonly perceived merits often emphasized for SMEs promotion especially in the developing countries like Bangladesh include their relatively high labour intensity, dependence on indigenous skills and technology, contributions to entrepreneurship development and innovativeness and growth of industrial linkages (Uddin, 2001). The case for fostering SME growth in Bangladesh is irrefutable as these industries offer bright prospects for creating largescale employment and income earning opportunities at relatively low cost for the unemployed especially in the rural areas strengthening the efforts towards achieving high and sustained economic growth (Uddin, 2001). Moreover, SMEs are not simply to be smaller copies of big ones and there is a recognized need for concepts of strategic management that address the special characteristics and situations of small firms (Borch and Huse, 1993; Dandridge, 1979). The study of business competitiveness is a recurring theme examined by academics, consultants and practitioners. The internationalization of economy, the frequent and uncertain change, the greater competition among firms, the need for continuous innovations, and the growing use of information technologies force companies to face the challenge of improving their competitiveness. These difficulties are greater for SMEs because their economies of scale and their resources are less than those of large firms.

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The importance of a firm s internal resources is widely accepted in the strategy literature in general (Barney, 1991; Manoney and Pandian, 1992) and the competitive dynamics literature in particular (Smith and Grimm, 2000). In the past years, strategic literature drawing on the context provided by the resources-based theory (Barney 1991; Prahalad and Hamel, 1990; Wernerfelt 1984) has persistently insisted on the relevance of internal resources- especially those of intangible nature as determining factors of business competitiveness (Hall 1993, 1992). Likewise, high Performance of SME is explained primarily by the strength of a firm s resources, and not by the strength of its market position (Wernerfelt, 1984). The resources based theory has gained importance, since Prahald and Hamel (1990) emphasized the link between core Capabilities and competitiveness of an organization. In addition, the fundamental premise of successful firms possessing resources that are superior to those of their competitors has been prevalent in the related literature (Hofer and Schendel 1978. Rumelt 1984, Porter 1985. Reed and DeFillippi 1990). Likewise, Barney (1986), Black and Boal (1994) stated that resources should possess certain characteristics that would benefit the firm. This has fostered a wealth of research to determine the source, as well as the necessary maintenance of these resources. It is through this ongoing process of competing and ultimately succeeding through idiosyncratic resources/capabilities that provides the catalyst for superior financial performance. These capabilities, which are developed over time, provide a source of advantage that must be continually protected and improved (Hunt 1997). In this regard, Pelham (2000) pointed that the expanding competitive environment has motivated both the academia and practitioners to reemphasize Market Orientation (MO), whereas Hurley and Hult (1998) made recommendations for incorporating constructs related to innovation into research on MO. While Some researchers (Covin and Slevin, 1989) argued that formal strategic management procedures are particularly inappropriate for small firms which have neither the management nor financial resources to indulge in elaborate strategic management techniques, other researchers (Hambrick 1983; Snow and Hrebiniak 1980) indicated that Strategic Orientation (SO) of the firm may be considered a key element for the management and efficiency of SMEs. Despite the widely acknowledged importance of Entrepreneurial Orientation (EO) in small business research (e.g., Naman and Slevin, 1993 and Wiklund and Shepherd, 2005), the empirical literature lacks evidence regarding the way SMEs are classified according to EO. Alternatively , firms with high levels of EO tend to constantly scan and monitor their environment in order to find new opportunities and strengthen their competitive positions (Covin and Miles, 1999). While scholars developing the resource based perspective have highlighted the importance of social factors, no attention has been given to Capita resources. However, some researchers found Social Capita Orientation (SCO) can offer strong opportunities for a balanced enterprise development of SMEs in a competitive environment (Jarillo, 1988; Ring and Van de Ven, 1994; Sanchez et al., 1996). COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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In previous studies these orientations have been selectively studied. For example, Past studies (Covin and Slevin 1991, Smart and Conant 1994 and Wiklund 1999) found positive impact of entrepreneurial orientation on SME performance, whereas Hult, Hurley and Knight (2004) recognized positive relationship between entrepreneurial orientation and innovativeness. On the other hand, Covin and Miles (1999) revealed the existence of a positive association between entrepreneurial orientation and firm competitiveness. Several researchers (Kohli and Jaworski 1990; Narver and Slater 1990) found positive relationship between the degree of market orientation and firm performance while Henard and Szymanski (2001) identified positive connection between market orientation and innovativeness. However, Lumpkin and Dess, (2001); Simon et al., (2007) recognized that market orientation is a positive contributing factor to competitive advantage. Baker and Sinkula (1999) found positive tie between learning orientation and innovation driven performance, whilst Hult et. al (2004) have demonstrated a positive connection between learning orientation and innovation. Other researchers (Baker and Sinkula 1999b; Day 1996; Dicson 1996; Hunt and Morgan1996) established the positive affiliation between learning orientation and competitive advantage. While Conant, Mokwa and Varadarajan (1990) found positive association between strategic orientation and innovation, Slater and Narver (1993) identified positive link between strategic orientation and performance. Zou and Myers (1999) advocated that a firm's Capabilities in marketing are key sources of competitive advantage. Several researchers (Smart, Denise , Conant and Jeffrey 1994) discovered entrepreneurial orientation is positively and significantly related to distinctive marketing Capabilities and organizational performance. Past studies showed that social Capita positively related to performance and competitive advantages (Batjargal, 2003; Benson, 1998; Florin, Lubatkin & Schulze, 2003; Pennings, Lee, & Van Witteloostuijn, 1998) whilst Castilla et al. (2000); Mitsufuji (2003); Bhat (2005) uncovered positive association of social Capita aspects of the innovation processes.

Research Methodology It was appreciated that there were difficulties in obtaining a universally accepted definition for a small business (Hertz, 1982). The study will concentrate on SMEs in Bangladesh. Mail survey will be used to collect data. Questionnaire will be sent to managing directors of 3,000 small firms which will be randomly drawn from commercial data base with employee size less than 50. A second mailing to non-respondents followed after three weeks. For the company that does not response yet, follow-up will be done via telephone call.

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To measure market orientation, the study plans to use the scale of Narver and Slater (1990) and will assess the sub factors of competitor orientation, customer orientation, and inter- functional coordination. Innovativeness will be quantified using the scale from Hurley et al. (1998) and will measure the introduction of new processes, products, or ideas in the organization. The Miles and Snow typology, which are defenders, prospectors, analyzers, and reactors (Miles and Snow, 1978), will be used as the model of strategic orientation. There are many ways to assess this typology. The paragraph, self-typing approach will be used in this study. The paragraph method has been widely used (McDaniel and Kolari 1987; McKee, Varadarajan, and Pride 1989; Segev 1987; SCOw and Hrebiniak 1980; Zahra 1987). Marketing capability is characterized as the ability to assess customer needs, provide quality customer service and introduce innovation. It will be assessed in this study using measures created by Conant, Mokwa, and Varadarajan (1990). Some of the scale items of marketing Capabilities relate to activities that facilitate the implementation of strategies (e.g., planning process activities), while others relate to realized marketing effectiveness (e.g., capabilities in specific marketing activities such as pricing). Entrepreneurial orientation will be measured with items adapted from Naman and Slevin (1993), Covin and Slevin (1989), and the originally devised by Khandwalla (1977). It will measure risk taking, proactiveness, autonomy, innovativeness and competitive aggressiveness (Lumpkin and Dess, 1996) The general theoretical approach chosen by Seibert et al. (2001) for measuring social capital will be adopted for this research design. Social capital will be considered both as a function of Capita structural configurations and embedded social resources within Capital. The instrument for measuring social capital is based on Burt's research (see particularly Burt 1997, 2000a 2000b as well as Burt, et al. 2000). Burt (2000a, 2000b) asserts that the bridging or bonding aspects of a social Capita may be measured by means of a "Capita constraint index" which is described (Burt 2000b: 4) as a "summary measure of social capital."

The scale for performance will assess profitability, growth in sales and market share as well as general performance. There is no one commonly accepted measure of performance in strategy literature. Therefore two measures of performance were adapted for use. First, an operationalization of Quinn and Rohrbaugh's (1983) Competing Values Framework was employed (Quinn 1988). The second measure of performance was the Perceived Performance scale created by Van de Ven and Ferry (1980). The first step in analyzing the data will be addressed by validity testing, factor analysis, and reliability. Then, data evaluation will be conducted trough identifying outliers, testing of normality, heteroskedasticity, and multicolinearity. This evaluation is carried out to fulfill some assumptions before running the regression analysis to get the data fit.

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Given the multidimensional nature of SME performance in this study, it is anticipated that Structural Equation Modeling (SEM) will be used to test the measurements and substantive models. Contribution of the Study The study expects to contribute to both theory and practice of SMEs strategic issues. First, this is the first examination of the combined role of four Organizational Resources and two Organizational Capabilities on Organizational Performance . Second, the study of combined mediating effects of Organizational Innovation and Marketing Capabilities in relationship between Organizational Resources and Organizational Performance is next to non-existence. So the study intends to shed light on this issue by investigating whether Organizational Innovation and Marketing Capabilities play the role of mediators in the said relationship. Third, this is the first investigation of an integrated model linking Organizational Resources , Organizational capabilities and Organizational Performance using Structural Equation Modeling (SEM). Fourth, the study is conducted in Bangladesh. This is the first empirical study on the above topic in Bangladesh. The implication of this is that, first; this study offers generalisability of previous researches. Second, it enhances the viewpoint of SME business practices in a developing country (i.e. Bangladesh). It is due to the fact that so far study has been conducted primarily in developed nations such as United States of America (USA), European Union (EU), Australia and Japan. Fifth, the results are expected to allow managers to evaluate performance of their organizations by developing different organizational orientations, depending on their strategic objectives. Sixth, the results of the study will allow policy makers of government organizations and non government organizations (NGOs) to get guidelines to make effective policies for the development of SMEs.

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References Ahuja, G. (2000a), The duality of collaboration: inducements and opportunities in the formation of inter firm linkages , Strategic Management Journal, Vol. 21, pp. 317 343. Baker, W. E. and Sinkula, J. (1999), The synergistic effect of market orientation and learning orientation on organizational performance , Academy of Marketing Science Journal, Vol. 27, pp. 411-427. Barney, J. (1990), Firm resources and the theory of competitive advantage , Journal of Management, Call for papers. Barney, J. (1991), Firm resources and sustained competitive advantage , Journal of Management, Vol. 17 No. 1, pp. 99-120. Barney, J.B. (1986), Organizational Culture: Can It Be a Source of Sustained Competitive Advantage? , Academy of Management Review, Vol. 11 No.3, pp. 656-665. Batjargal, B. (2003), Social capital and entrepreneurial performance in Russia: A longitudinal study , Organization Studies, Vol.24, pp.535-556 Benson, H. (1998), What determines success? Examining the human, financial and social capital of Jamaican micro entrepreneurs , Journal of Business Venturing, Vol.13, pp. 371-394. Bhat, J.S.A. (2005), Concerns of new technology based industries nanotechnology , Technovation, Vol. 25, pp. 457-62.

the case of

Black, J. A. and Boal, K. (1994), Strategic resources: traits configurations and paths to sustainable competitive advantage , Strategic Management Journal, Vol.15, pp. 131-148. Calantone, R.J., Cavusgil, S.T. and Zhao, Y. (2002), Learning orientation, firm innovation, and firm performance , Industrial Marketing Management Vol.31 No. 6, pp. 515 524. Capron, L. and Hulland, J. (1999), Redeployment of brands, sales forces, and general marketing management expertise following horizontal acquisitions: a resource-based view , Journal of Marketing, Vol. 63, pp. 41-54. Castilla, E.J., Hwang, H., Granowetter, E. and Granowetter, M. (2000), Social Capitas in Silicon Valley , in Lee, C. and Miller, W.F. (Eds), Silicon Valley Edge: A Habitat for Innovation & Entrepreneurship, Stanford University Press, Stanford, CA. Conant, M. and Varadarajan, R. (1990), "Strategic types, distinctive marketing Capabilities and organizational performance: a multiple measures-based study," Strategic Management Journal, Vol.11, pp.365-383. Day, G.S. (1994), Continuous learning about markets , California Management Review, Vol. 36 No.3, pp.9-31.

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Day, G.S. and Wensley, R. (1988), Assessing advantage: a framework for diagnosing competitive superiority , Journal of Marketing, Vol. 52, pp. 1-20. Deshpande, R., Farley, J. and Webster, F. (1993), Corporate culture, customer orientation, and innovativeness in Japanese firms: A quadrate analysis . Journal of Marketing, Vol.57, pp. 23 37. Dyer, J.H. and Singh, H. (1998), "The relational view: cooperative strategy and sources of inter organizational competitive advantage", Academy of Management Review, Vol. 23, pp.660-79. Ekeledo, I. and Sivakumar, K. (2004), International market entry mode strategies of manufacturing firms and service firms , International Marketing Review, Vol. 21 No. 1, pp. 68-101. EU Commission (1993a), p. 78. Florin, J., Lubatkin, M. and Schulze, W. (2003), A social capital model of high-growth ventures . Academy of Management Journal, Vol. 46, pp. 374-396 Hall, R. (1992), The strategic analysis of intangible resources , Strategic Management Journal, Vol. 13, pp. 135-144. Henard, D. H., and Szymanski, D. M. (2001), Why some new products are more successful than others , Journal of Marketing Research, Vol. 38 No.3, pp.362 375. Hitt, M.A., Keats, B.W and DeMarie, S.M. (1998b), Navigating in the new competitive landscape: building strategic flexibility and competitive advantage in the 21st Century , Academy of Management Executive, Vol.12, pp.22 42. Hofer, C. W. and Dan, S. (1978), Strategy Formulation: Analytical Concepts. West Publishing, St. Paul. Hofer, C.W. and Schendel, D. (1978), Strategy formulation: Analytical Concepts, West Publishing Company, St Paul, MN. Hult, G.T., Hurley, R. F. and Knight, G.A. (2004), Innovativeness: its antecedents and impact on business performance , Industrial Marketing management, Vol. 33, pp. 429-438. Hunt, S.D. (1997), Resource advantage theory: an evolutionary- theory of competitive firm behaviour , Journal of Economic Issues, Vol. 31 No. 1, pp. 59-75. Hurley, R. F. and Hult, G. T. M. (1998), Innovation, market orientation, and organizational learning: an integration and empirical examination , Journal of Marketing, Vol. 62, pp. 4252. Industries ( SSIs): An Analysis of the Prospects and Challenges, CPD/UPL , Dhaka. Jarillo, J.C. (1988), "On strategic Capitas", Strategic Management Journal, Vol. 9, pp.31-41.

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Jaworski, B. and Kohli, A. (1993), Market orientation: antecedents and consequences Journal of Marketing, Vol. 57, pp. 53-70. Kropp, F., Lindsay, N.J. and Shoham, A.(2006), Entrepreneurial, market, and learning orientations and international entrepreneurial business venture performance in South African firms , International Marketing Review, Vol. 23 No. 5, pp.504-523. Lee, C., Lee, K. and Pennings, J. M. (2001), Internal capabilities, external Capitas, and performance: a study on technology-based ventures , Strategic Management Journal, Vol.22, pp. 615-640 Li, L. (2001), Capitas, transactions, and resources: Hong Kong trading companies strategic position in the China market , Asia Pacific Journal of Management, Vol. 18, pp. 279 293. Lumpkin, G. and Dess, G. (2001), Linking two dimensions of entrepreneurial orientation to firm performance: The moderating role of environment and life cycle , Journal of Business Venturing, Vol. 16 No. 5, pp. 429-451. Lumpkin, G.T. and Dess, G.G. (1996), Clarifying the entrepreneurial construct and linking it to performance , Academy of Management Review, Vol. 21 No. 1, pp. 135-72. McDaniel, S. W. and James W. K. (1987), "Marketing strategy implications of the Miles and SCOw strategic typology," Journal of Marketing, Vo. 51, pp. 19-30. McKee, D. O., Varadarajan, P.R. and William M. P. (1989), "Strategic adaptability and firm performance: a market-contingent perspective," Journal of Marketing, Vol. 53, pp. 21-35. Miles, R. E. and SCOw, C. C. (1978), Organizational Strategy, Structure, and Process, McGrawHill Book Company, New York. Mintzberg, H. (1973), The Nature of Managerial Work , Harper & Row, New York. Mitsufuji, T. (2003), How an innovation is formed: a case study of Japanese word processors , Technological Forecasting and Social Change, Vol. 70 No. 7, pp. 671-85. Narver, J.C., and Slater, S.F. (1990), The effect of a market orientation on business profitability , Journal of Marketing, Vol. 54, pp. 20-34. OECD Ministerial Conference on SMEs held in Bologna, Italy, in June 2000, Organization for Economic Cooperation and Development (OECD): Globalisation and Small and Medium Enterprises (SMEs), Vol. 1, Synthesis Report, OECD, Paris 1997. Park, S.H. and Luo, Y. (2001). Guanxi and organizational dynamics: organizational Capitaing in Chinese firms , Strategic Management Journal, Vol. 22, pp. 455 477. Pennings, J. M., Lee, K. and van Witteloostuijn, A. (1998), Human capital, social capital, and firm dissolution , Academy of Management Journal, Vol. 41, pp.425-440

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Peteraf, M.A. (1993), The cornerstone of competitive advantage: a resource-based view , Strategic Management Journal, Vol. 14 No. 3, pp. 57-83. Porter, M. (1985), Competitive Advantage, The Free Press, New York. Reed, R., & DeFilippi, R. J. (1990),. Causal ambiguity, barriers to imitation, and sustainable competitive advantage , Academy of Management Review, Vol.15, pp. 88-117. Ring, P.S.and Van de Ven, A.H. (1994), "Developmental processes of cooperative inter organizational relationships", Academy of Management Review, Vol. 19, pp.90-118. Rumelt, R. P. (1984), Toward a Strategic Theory of the Firm: In Competitive Strategic Management. Robert Lamb. ed. Prentice Hall. Englewood Cliffs. NJ. Sanchez, R., Heene, A. and Thomas, H. (1996), Dynamics of Competence-based Competition: Theory and Practice in the New Strategic Management, Elsevier Science Ltd, Oxford. Segev, Eli (1987), "Strategy, strategy making, and performance - an empirical investigation," Management Science, Vol.33, pp. 258-269. SCOw, C. C. and Donald C. H. (1980), "Measuring organizational strategies: some theoretical and methodological problems," Academy of Management Review, Vol. 5, pp. 527-538. Teece, D.J., Pisano, G. and Shuen, A. (1997), Dynamic capabilities and strategic management , Strategic Management Journal, Vol. 18 No. 7, pp. 509-533. Uddin, A. M. (2001), Globalisation and Competitiveness of Bangladesh s Small scale Zahra, S. A. (1987), "Corporate strategic types, environmental perceptions, managerial philosophies, and goals: an empirical study," Akron Business and Economic Review, Vol. 18, pp. 64-77. Zajac, E.J. (1993), From transactional cost to transactional value analysis: implications for the study of inter organizational strategies , Journal of Management Studies, Vol. 30, pp.131-45.

Error Analysis: Learning Articles and Prepositions among Secondary School Students in Pakistan Nasir Ahmad Ph.D (Scholar). Ph.D Scholar, Foundation University Islamabad

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Dr.Maqsud Alam Bukhari Principal Foundation University Islamabad Shafqat Hussain Ph.D Scholar, Foundation University Islamabad Abstract The present study was conducted to investigate the errors of Pakistani school students in prepositions and articles. The main focus of the study was to analyse the errors of students in articles and prepositions. The sample of the study was comprised of 100 randomly selected students from government secondary schools of Khyber Pukhtunkhwa. The instrument used in the study was the essays written by 8th class students in their annual examination. The annual examination papers in the subject of English of the sample population were collected from the school record. The errors committed by the students in the use of preposition and articles were identified and counted in frequencies while writing essays on different topics. The main findings of the study were; Secondary school students faced more difficulties in learning prepositions as compare to articles; Secondary school students faced more difficulties in learning prepositions of time; Secondary school students were confused while using preposition in their writings; Secondary school students faced more difficulties in learning indefinite articles and omit articles in their writings. Key words: Error Analysis, Articles, Prepositions INTRODUCTION Learning a second is a challenging experience for learners. In the process of learning a second learning students makes errors or mistakes. Hendrickson (1980) observed that it is virtually impossible to avoid errors when learning any new skills, particularly when leaning a foreign language. It means errors are natural for learners and it is important for second language learners as cadling (2001) claims that learner s errors are potentially important for understanding of how the second language is acquired. Olasehide (2002) also maintains that learner s errors are unavoidable and necessary for learning. So errors are not bad but it is a proof that learning is taking place as Broughton (1994) argued that the errors he make are to be seen as a sign that learning is taking place. Error analysis is significant for learners and teachers as Hasyin (2002) observed that errors are advantageous for both learners and teachers. It provides information to the teachers on student s errors. This helps the teachers in three ways, firstly to correct their errors, secondly to improve their teaching and thirdly to focus on those area that need reinforcement. Coder (1967) described that analysis of learner s errors provide insight into the innate nature of learner s learning system and process of language teaching. ___________________________________________________________ *The authors are a PhD scholar (Education) at Foundation University Islamabad **The writer is Dean/Chairman, Foundation University Islamabad

English is a popular language in Pakistan and a gateway to success and better career option. It is the second compulsory language in Pakistan and it is taught as a compulsory subject from class 1 to graduate level. Teaching English as a second language is a difficult task as Wilkins (1972) pointed out that teaching English to the students from different background are almost universally difficult for learners. COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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The students in Pakistan commit errors while learning English. As Rahman (1999) pointed that Pakistan is perhaps the most backward country of south Asia in the field of linguistics. Hence there is a need to analyse the errors of students to provide help to those who learn and teach English as second language. This study was designed to investigate the errors of Pakistani school students in prepositions and articles. This will provide an insight and means to second language teachers and learners to recognize the importance of error analysis in English as a second language. METHOD The sample of the study was comprised of 100 randomly selected students from government secondary schools of Khyber Pukhtunkhwa. The instrument used in the study was the essays written by 8th class students in their annual examination. The annual examination papers in the subject of English of the sample population were collected from the school record. The errors committed by the students in the use of preposition and articles were identified and counted in frequencies while writing essays on different topics. RESULTS Table 1 Total number and percentage (%) of errors among secondary school students on the measure of prepositions and articles Variables No. of Errors percentage (%) Prepositions

201

56.94

Articles

153

43.06

Total

353

100

Table 1 show that the total no. of errors made by secondary school students was 353. Out of which (201) 56.94 % was observed in prepositions and (152) 43.06 % was observed in articles. This shows that secondary school students faced more difficulties in learning prepositions as compare to articles.

Table 2 Percentage (%) of errors among secondary school students on the measure of prepositions Types of prepositions

No. of Errors

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Prepositions of time

115

57.21

Prepositions of place

41

20.39

Prepositions of direction

45

22.39

201

100

Total

Table 2 shows that the total no. of errors made by secondary school students on the measure of prepositions was 201. Out of which (115) 57.21 % was observed in preposition of time, (41) 20.39% was observed in preposition of place and (45) 22.39 % was observed in preposition of direction. This shows that secondary school students faced more difficulties in learning prepositions of time. Table 3: Percentage (%) of types of errors among secondary school students on the measure of prepositions Types of errors

No. of Errors

percentage (%)

Omission

43

21.39

Insertion

17

8.46

141

71.15

201

100

Confusion Total

Table 3 shows that the total no. of errors made by secondary school students on the measure of prepositions was 201. It was observed that (43) 21.39 % was omission errors, (17) 8.46 % was insertion errors and (141) 71.15 % was confusion errors. This shows that secondary school students were confused while using preposition in their writings.

Table 4: Percentage (%) of errors among secondary school students on the measure of articles Types of articles

No. of Errors

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Indefinite articles Definite articles Total

127

83.56

25

16.44

152

100

Table 2 shows that the total no. of errors made by secondary school students on the measure of articles was 152. Out of which (127) 83.56 % was observes in indefinite articles and (25) 16.44 % was observed in definite articles. This shows that secondary school students faced more difficulties in learning indefinite articles. Table 5: Percentage (%) of types of errors among secondary school students on the measure of articles Types of errors

No. of Errors

percentage (%)

Omission

80

52.63

Insertion

29

19.08

Confusion

43

28.29

Total

152

100

Table 5 shows that the total no. of errors made by secondary school students on the measure of articles was 152. It was observed that (80) 52.63 % was omission errors, (29) 19.08 % was insertion errors and (43) 28.29 % was confusion errors. This shows that secondary school students omit articles in their writings. DISCUSSION This study was designed to investigate the errors of Pakistani school students in prepositions and articles. The main findings of the study were; the secondary school students faced more difficulties in learning prepositions as compare to articles, the secondary school students faced more difficulties in learning prepositions of time and were confused while using preposition in their writings. The secondary school students faced more difficulties in learning indefinite articles and they omit articles in their writings. The findings of the study that the secondary school students faced more difficulties in learning prepositions and the secondary school students faced more difficulties in learning prepositions of time and were confused while using preposition in their writings. This shows that prepositions were not properly taught when they were first introduced and there are no rules to govern their usage. These finding was supported by Cele-Murcia (2001). She observed that non native speakers of English tend to have three types of errors with prepositions: choosing the wrong preposition, omitting a needed preposition and using an extra preposition where one is not needed. However, onike(2007) observed that The overall students performance in the use of preposition was rated good and this indicates students good knowledge of prepositional rules. COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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The finding of the study that secondary school students faced difficulties in learning articles because their native language lacks the system of articles. This finding was supported by Kimizuka (1967). He observed that article usage is one of the greatest problems for the Japanese learner is vividly revealed in the high frequency of mistakes, the highest of all the structural items. RECOMMENDATIONS In the light of the findings of the study the following recommendation were made: i. All the three types of preposition should be taught systematically. ii. The articles should also be taught systematically. iii. The teacher should improve their teaching technique by preparing systematic material. iv. The learning of prepositions and articles should be sufficiently re-inforced.

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REFERENCES Broughton, Geoffrey. Christopher Brumfit., Roger Flavell., Peter Hill., & Anita Pincas. (1994). Teaching English as foreign language. New York. Routledge Kegan Paul limited. Cadling, R.B. (2001). Vocabulary and Language Teaching. New York. Longman Inc. Corder, S. P. 1967. "The significance of learners errors . International Review of Applied Linguistics 5(4) 161-169 Hasyim, sunardi (2002). Error Analysis in the teaching of English. A Biannual Publication on the Study of Language and Literature (4)1, 62-74. Retrieved from http://puslit2.petra.ac.id/ejournal/index.php/ing/article/view/15485 Kimizuka, S.(1967).Teaching English to Japanese. Los Angles: Anchor Enterprises. Onike, Rahaman..(2007). Analysis of Errors of Preposition In the Learners Use of English In Second Language Situation. Retrieved from http://searchwarp.com/swa129884.htm Olasehinde M.O. (2002): Error Analysis and Remedial Pedagogy in Babatunde S.T. and D.S Adeyanju (eds) Language, Meaning and Society: Ilorin, Itaytee Press and Publishing Co. (Nigeria) Wilkins, D.A.(1972). Linguistics in Linguage Teaching. The MIT press. Massachusetts. Rehman, Tariq.(2002). Language, Ideology and power: Language learning among the Muslims of Pakistan and north India. Karachi. Oxford university press.

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Consumer Brand Choice in a No-brand Awareness situation of low involvement Products Mohammad Ismail Soomro Assistant Professor Department of Business Administration, Shah Abdul Latif University, Khairpur, Pakistan Muhammad Masihullah Jatoi Assistant Professor (Corresponding author) Department of Business Administration, Shah Abdul Latif University, Khairpur, Pakistan Dr. Rahman Gul Gilal Assistant Professor Department of Business Administration, Shah Abdul Latif University, Khairpur, Pakistan Abstract The purpose of this paper was to examine and ranking the dominating factors influencing consumers purchasing decision in an un-awareness situation to buy a low involvement product. 204 undergraduate students or subjects were selected by convenient sampling procedure; those participated in experiment on two categories of products (pen, and sun-block) to identify the dominant reason to buy any selected brand. Non-parametric tests of Friedman and Kendall.W s rank tests were applied. The frequency tables and mean ranks of each variable showing the percentage of the respondents who rank the variable as first, second, and third reason to purchase a brand. The model identified that among from all of the six variables; the quality of a brand is the first and dominant factor to choose a brand, while price and packaging are considered as second and third reasons to make choice for a brand respectively. Key words: Low Involvement, Un-Awareness, Buying Decision, Quality, Price, and Packaging. 1.

INTRODUCTION

There are numerous reasons to buy a brand in a given situation, but our objective is only to study the behavior of the consumer regarding his or her purchasing attitude by examining the significant and dominant reasons of buying a particular product in a given situation. A lot of controversies are arising while looking into the literature regarding the consumer choice decision , whether the decisions are based on some attributes of the product like quality, price, brand credibility, or on the basis of consumer attitude and intention, advertising, group influences, innovations, and brand loyalty, or the decisions are made on the ground of brand awareness.

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The importance of the factors influencing choice has been recognized for many years by the researchers and marketers, as Brown, (1950) identifies as, Physical characteristics of the brand, User s experience with the brand, Packaging, Price, Premiums, guarantees, Habit, Recommendation by friends, Recommendation by "experts", Convenience of dealer's location, Personal salesmanship, Dealer services, Dealer prestige, Advertising and display, Special characteristics of the manufacturer, e.g., labor policy, location, etc., Novelty, Chance, Availability, Brand prestige or social acceptance. The most situations facing every business are to identify the factors determining preferences for the brands with supporting reasons which affect consumer choice . (Itamar and Nowlis, 2000), further, Wilson and Schooler (1991) are of the view that subjects who had analyzed their reasons for liking different brands of jams subsequently expressed preferences that corresponded less well to those of experts than the preferences of subjects who did not analyze the reasons for their attitudes . There are so many important elements which need to be considered to understand the consumer s buying decision making in a low involvement category of the products in an un-awareness situation. The choice is defined by different researchers in varied aspects, Flemming, (1976) viewed the choice with supporting example by saying, that the person walking down a road who hesitates at a fork in the road before choosing which route to take classically illustrates choice A consumer s attitude and purchase intention towards a brand is not only a product of their cognitive evaluations of that individual brand but are also determined by their perception of other competing brands within the consideration set. (Ronnie, Anne, and Karinna, 2006). It can be guessed that more information may confuse the consumer about the brand to be selected. Jacoby, Speller, and Berning (1974) are of the opinion that Consumers actually make poorer purchase decisions with more information . Hoyer and Brown (1990), examining the heuristic for low-involvement decision making, and found that consumers who are aware of the name of one of the brands in a product category will repeatedly choose that brand, even when it offers objectively determined lower quality. Consumers who are unfamiliar with the brand names often will experiment with and eventually settle on a brand that offers higher quality. Perhaps the simplest low-involvement decision heuristic involves the retrieval of previously formed affect associated with the product (Peter and Nord, 1982). A unique product may be sought out to restore a person's self-view as one who is different from others, such as when an anonymous art collector bids via the internet or telephone for a rare painting she wants to display in her bedroom. (Tian, Bearden, & Hunte, 2001) McAlister and Pessemier (1982) suggest that a desire for social distinction via unusual products influences new product adoption and variety-seeking behavior. (Garvin, 1987) proposes that product quality can be captured in eight dimensions: performance, features, reliability, conformance, durability, serviceability, aesthetics, and perceived quality (i.e.,

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image). Quality assessment is very critical that may be viewed from different angles, particularly the product attributes and its out look, its color and shape etc. Price declines in (Jacob, Olson, & price effects on expectations are variables.

importance and may become insignificant in its impact on quality perception Haddock,1971; Vithala ,1971). This indicates that it is probable, however, that quality perceptions are product specific (Gardner, 1970).Customers price not a function of past prices alone, but are influenced also by contextual

Group influence affects brand choice differently for different products and that brand choice congruence within groups varies significantly among test products. For products high in social involvement (e.g., cigarettes, beer), the power of group cohesiveness in predicting brand choice was greater than for products low in social involvement (e.g., deodorant) (Robert & Bruce,1970). Zeynep and Rajeev(2004) research has extended knowledge of the process by which corporate image potentially affects product evaluation, and selection experimental results help advance knowledge of the conditions that moderate the flow-through of corporate image associations to the evaluations of individual products marketed by a corporation. Consumers will interpret the organization s image as an information signal on the quality of the products or services supplied (Andreassen and Lindestad, 1998) and, due to the lack of tangible attributes for assessment, image associations will be directly transferred to the quality perception. Keller (1998) defines corporate credibility as "the extent to which consumers believe that a firm can design and deliver products and services that satisfy customer needs and wants." 2.

OBJECTIVE OF THE STUDY

The basic purpose of this research is to explore and recognize the effects of important elements affecting the consumer s preferences and relative actions to purchase and to identify major reason(s) to purchase in a given situation where the consumer has no prior knowledge about the brands under consideration set. Further; to study the consumer response in unawareness situation, to understand the consumer perception toward low involvement products, and to help managers in developing appropriate and effective marketing strategies. 3. RESEARCH QUESTIONS: 1.

How unawareness does differ from awareness of the brands?

2.

How do consumers perceive on the products of low involvement?

3.

What factors or reasons are there which persuade a consumer to choose any brand among from available brands?

4.

How do consumers make the decision to buy the brand and what are the determinants dominating consumers purchasing decision making?

4.

EXPECTED BENEFITS OF THE STUDY

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1.

To have a better understanding of unawareness on the part of consumer where he or she is going to make purchase decision.

2.

To realize how the consumer perceive on the low involvement product category, where little efforts are needed to make a purchase.

3.

To understand the factors influencing purchasing decision in a given situation.

4.

To assist the managers and marketers to know the dominant determinants of consumer decision and to develop the strategies particularly when introducing a new brand in a given market. 5.

HYPOTHESES:

H1: Uniqueness or Innovation is the dominant reason for choice of a brand. H2: Quality is the dominant reason for choice of a brand. H3:

Price is the dominant reason for choice of a brand.

H4:

Packaging or Attribute is the dominant reason for choice of a brand.

H5:

Group Influences is the dominant reason for choice of a brand.

H6:

Company Credibility is the dominant reason for choice of a brand. 6.

RESEARCH DESIGN

Overall, there were eight scenarios corresponding to the conditions of the experimental design (4 choice sets) (2 product categories conditions), where price tag was placed on every brand (option). Research framework Two product categories were used (i.e., Sun block and Pen) to measure the effect of the factor(s) influencing brand choice in a no-awareness situation. Four unknown brands of each product category were utilized where participants were completely unfamiliar with all four brands in each category, thus evaluating and choosing brands (one in each category) that are absolutely unfamiliar to them). Research Procedure 1.

Experimental sessions were conducted individually for each participant.

2.

They were read a short introduction to the experiment and then were told that they would be asked to make a choice among different brands of sun block and pen respectively.

3.

They were asked to make the choice exactly as they would if they were in the store.

4.

Participants were then led over to the brands display; the display consisted of a shelf on which the four brands of sun block and four brands of pen were positioned.

5.

After selecting a brand, participants were immediately asked to indicate which brand they have chosen.

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Each participant was asked to indicate the dominant factor(s), which have persuaded him or her to choose a particular brand. (Quality, Company Credibility, Innovation or uniqueness, Group Influences, Price, Packaging, and availability) as a first reason, the 2nd reason, and the 3rd reason respectively.

Choice alternatives were organized into two phases: initially four unknown sun-block options or brands, and then pen (ball point and fountain) brands were placed before the respondents or objects for consideration and selection of a any one most preferred brand after evaluating the features of each. In the next step the participant was asked to indicate the basic and important reason to select a particular brand, and further he or she was inquired about the second and third reason for his choice. Following the rating task, respondents were asked to make two choices (each from Sun- Block and Pen category), conditional on one of the attributes having primary importance followed by second and third. 7. DATA COLLECTION AND SAMPLING PROCEDURE For this study, the stratified probability sampling technique was used, where two academic institutions of Karachi and Khairpur have been selected as a sample frame. The sampling unit for this experiment was the MBA students of IQRA University and Shah Abdul Latif University Khairpur. The respondents were recruited on probability basis to participate in the experiment. Sample size for the study was 204, where 61 students were from IQRA University and 143 from Shah Abdul Latif University Khairpur. The respondents were informed that the choice task is involving a hypothetical purchase situation. Two product categories were used as stimuli: Sunblock, and Pen. The respondents were selected randomly from MBA classes of both universities and comprise various demographic, psychographic, and geographic groups. 7.1 Research Instruments and Statistical Tests After conducting the experiment on individual participants, in order to draw the stronger results the reliability and validity of the research instrument (interview form) was tested, for this a pretest was conducted on a small sample of 16 respondents of IQRA University and found valid and reliable for the research, then participants were interviewed formally by providing a form to get it filled to know their responses about the dominant reasons for selecting a particular brand. The study implies an objective, to examine the response of the consumers about their choice decision. The acquired data was entered into SPSS (Statistical Package for Social Sciences) software, then considering the type of data, research question, and the hypotheses Nonparametric statistical techniques of Friedman rank test and Kendall s rank tests were applied, because the ranking order indicating the first, second, and third preference of respondent for dominant reason to choose a brand in each product category of sun-block and pen (low involvement oriented category).

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8. DATA ANALYSIS AND RESULTS In this study all the hypotheses were tested, by applying Rank tests of Friedman and Kendall. W. The frequency tables of each variable showing the percentage of the respondents who rank the variable as first, second, and third reason to purchase a brand. Since the first hypothesis is; H1: Innovation or Uniqueness is the dominant reason for choice of a brand. The hypothesis is rejected on the ground that, having larger mean rank of 4.62 for sun-block and 4.47 for pen category in Friedman rank test and Kendall test results, which indicate that the consumer do not consider uniqueness or innovation as a major reason to purchase a product particularly in low involvement product category, and a situation where the consumer is totally unknown about the available brands under consideration. Table No. 1: Innovation or Uniqueness as a reason to purchase this brand in sun-block Frequency Valid

Percent

Valid Percent

Cumulative Percent

first reason

2

1.0

1.0

1.0

second reason

6

2.9

2.9

3.9

15

7.4

7.4

11.3

No consideration

181

88.7

88.7

100.0

Total

204

100.0

100.0

third reason

Table No. 2: Innovation or Uniqueness as a reason to purchase this brand in Pen Frequency Valid

Percent

Valid Percent

Cumulative Percent

first reason

1

.5

.5

.5

second reason

4

2.0

2.0

2.5

11

5.4

5.4

7.8

No consideration

188

92.2

92.2

100.0

Total

204

100.0

100.0

third reason

Likely the frequency results showing that for Innovation or Uniqueness as a reason to purchase a brand in sun-block category that only 1% respondents view uniqueness as a dominant factor in decision making, about 2.9% persons consider it as a second most important element and as third important factor is considered by 7.7% persons. The same behavior is observed in pen category, where hardly 0.5% object has rated uniqueness and innovation as most dominant factor, 2% persons view this factor as second most important element, and only 5.4% respondents see uniqueness and innovation as a third dominant factor in brand selection. H2: Quality is the dominant reason for choice of a brand.

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This hypothesis is accepted by testing the Friedman rank Test, the results for Sun-block product category indicating the ranking of Quality variable as a most dominant factor having lowest mean rank of 1.46, and likely Friedman Test results for Pen product category indicating the ranking of Quality variable as a dominant factor having lowest mean rank of 1.93. Table No. 3: Quality as a reason to purchase this brand in sun- block Frequency Valid

first reason

Valid Percent

103

50.5

62.8

62.8

second reason

47

23.0

28.7

91.5

third reason

14

6.9

8.5

100.0

164

80.4

100.0

40

19.6

204

100.0

Total Missing

Percent

Cumulative Percent

No consideration

Total

Table No. 4: Quality as a reason to purchase this brand in Pen

Frequency Valid

first reason

Valid Percent

Cumulative Percent

104

51.0

51.0

51.0

59

28.9

28.9

79.9

7

3.4

3.4

83.3

34

16.7

16.7

100.0

204

100.0

100.0

second reason third reason No consideration Total

Percent

On the other hand the importance of the quality as a key factor in decision making can be tested by having eye on simple frequency results, where 50.5% of respondents rate Quality as a first reason to purchase a brand in sun block category, and 23% as second reason, and 6.9% only as a third reason. Likely in Pen category 51.0% respondents rank Quality as a first reason, and 28.9% as second reason, and 3.4% as a third reason to purchase. H3:

Price is the dominant reason for choice of a brand.

The hypothesis is partially accepted by testing the Friedman rank test, the results for Sun-block product category indicating the ranking of Price variable as a second most dominant factor having lowest mean rank of 2.63 for sun-block category and 2.14 for pen category. Table No. 5: Price as a reason to purchase this brand in sun-block Frequency Valid

first reason

Percent 37

18.1

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Cumulative Percent 18.1

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second reason

89

43.6

43.6

61.8

third reason

19

9.3

9.3

71.1

No consideration

59

28.9

28.9

100.0

204

100.0

100.0

Total

Table No. 6: Price as a reason to purchase this brand in Pen Frequency Valid

Percent

Valid Percent

Cumulative Percent

first reason

70

34.3

34.3

34.3

second reason

84

41.2

41.2

75.5

third reason

13

6.4

6.4

81.9

No consideration

37

18.1

18.1

100.0

204

100.0

100.0

Total

Price as an influencing factor on consumer choice has been proved by frequency results as a second important reason to purchase, where only 18.1% of respondents consider the price as first reason, and 43.6%, and 9.3% as second reason and third reason respectively. H4:

Packaging or Attribute is the dominant reason for choice of a brand.

Packaging as a reason to purchase a brand is rated at third important factor or reason, which is considered as first reason only by 15.7% respondents, 12.3% as second reason, and 21.6% as third reason to buy a brand in sun-block category, likely in Pen category packaging has frequency of 8.3%, 11.3%, 15.7% as first, second, and third reason to buy which also showing that more number of persons considering packaging as third most important element in choice decision.

Table No. 7: Packaging as a reason to purchase this brand in sun-block Frequency Valid

Percent

Valid Percent

Cumulative Percent

first reason

32

15.7

15.7

15.7

second reason

25

12.3

12.3

27.9

third reason

44

21.6

21.6

49.5

No consideration

103

50.5

50.5

100.0

Total

204

100.0

100.0

Table No. 8: Packaging as a reason to purchase this brand in Pen Frequency Valid

Percent

Valid Percent

Cumulative Percent

first reason

17

8.3

8.3

8.3

second reason

23

11.3

11.3

19.6

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third reason

32

15.7

15.7

35.3

No consideration

132

64.7

64.7

100.0

Total

204

100.0

100.0

This hypothesis is rejected by testing the Friedman rank Test, the results for Sun-block product category indicating the ranking of packaging variable as a third dominant factor having mean rank of 3.65, and likely Friedman Test results for Pen product category indicating the ranking of packaging variable also as a third dominant factor at mean rank of 3.71. H5:

Group Influence is the dominant reason for choice of a brand.

The hypothesis is rejected on the ground that, having larger mean rank of 4.61 for sun-block and 4.62 for pen category in Friedman rank test and Kendall test results, which indicate that the consumer do not consider group influences as a major reason to purchase a product particularly in low involvement product category, and a situation where the consumer is totally unknown about the available brands under consideration. Table No. 9: Group Influences as a reason to purchase this brand in sun-block Frequency Valid

Percent

Valid Percent

Cumulative Percent

first reason

2

1.0

1.0

1.0

second reason

4

2.0

2.0

2.9

21

10.3

10.3

13.2

No consideration

177

86.8

86.8

100.0

Total

204

100.0

100.0

third reason

Table No. 10: Group Influences as a reason to purchase this brand in Pen Frequency Valid

third reason

Percent

Valid Percent

Cumulative Percent

3

1.5

1.5

1.5

No consideration

201

98.5

98.5

100.0

Total

204

100.0

100.0

Likely the frequency results showing that for group influences as a reason to purchase a brand in sun-block category that only 1% respondents view uniqueness as a dominant factor in decision making, about2.0% persons consider it as a second most important element and as third important factor is considered by 10.3% persons. The strongly disowned and unconsidered behavior is observed in pen category, where hardly 0. % object has rated Group influences as most dominant

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factor, also 0% persons view this factor as second most important element, and only 3.0 % respondents see Group influences as a third dominant factor in brand selection. H6: Company Credibility is the dominant reason for choice of a brand. The hypothesis is rejected on the ground that, having larger mean rank of 4.03 for sun-block and 4.14 for pen category in Friedman rank test and Kendall test results, which indicate that the consumer do not consider Company credibility as a major reason to purchase a product particularly in low involvement product category, and a situation where the consumer is totally unknown about the available brands under consideration. Table No. 11: Company Credibility as a reason to purchase this brand in sun-block Frequency Valid

Percent

Valid Percent

Cumulative Percent

first reason

29

14.2

14.2

14.2

second reason

21

10.3

10.3

24.5

third reason

23

11.3

11.3

35.8

No consideration

131

64.2

64.2

100.0

Total

204

100.0

100.0

Table No. 12: Company Credibility as a reason to purchase this brand in Pen Frequency Valid

first reason

Percent

Valid Percent

Cumulative Percent

12

5.9

5.9

5.9

9

4.4

4.4

10.3

18

8.8

8.8

19.1

No consideration

165

80.9

80.9

100.0

Total

204

100.0

100.0

second reason third reason

Frequency results showing that for Company credibility variable as a reason to purchase a brand in sun-block category that 14.2% respondents view uniqueness as a dominant factor in decision making, about 10.3 % persons consider it as a second most important element and as third important factor is considered by 11.3 % persons. The same behavior is observed in pen category, where hardly 5.9 % object has rated Company credibility as most dominant factor, 4.4% persons view this factor as second most important element, and only 8.8% respondents see Company credibility as a third dominant factor in brand selection. 9. DISCUSSIONS Either the Uniqueness or Innovation is the dominant reason for choice of a brand, or Quality, Price, Packaging or attributes, Group influences Company credibility are considered as the prime reason for brand selection in a given situation.

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A comparison of attribute ratings of the all variables (factors) have been evaluated by Friedman s and Kendall s (ranking) tests. The Friedman procedure tests the null hypothesis that multiple ordinal responses come from the same population. The null hypothesis tested trough the Friedman Chi-square test, which shows that ranks of the variables do not differ from their expected value, have been rejected at significance level of 0.05 -Table 4). This is somewhat contrary to all other National and International studies for instance; Minhas, I. Akhtar, Mubbashar and Akhter (2000) and Husain, Chaudhry, Afridi, Tomenson and Creed (2007). Table 4 Yet, with reference to the age of 21-25 years in both genders is the high risk period for; hysteria. anxiety and OCD (e.g.Table 6,7,8 & 10) except phobia, which is more prevalent among males in the age 15-20 years and among females 21-25 years (Table 9). Present results coincide with previous research on National and International samples (e.g., Ahmad, 1981; Ilyas, 2004; Mirza & Jenkins, 2004; Luni , Ansari, Jawad, Dawson & Baig, 2009; Yates, 2009). In both genders high risk period for hysteria is 15-20 years (i.e. 43%) and 21-25 years (i.e.71%). These findings are correlate with; Trivedi and Guptas (2008), Passer and Smith (2001), Springhouse (2005) and Yates (2009). With reference to the prevalence of phobia results are similar to what is often believed and pattern is seen in health care facilities such as Comer (1999). Table 6,7,8,9 10 Study also exposes that majority of the sufferers consult doctors/ physicians for their treatment of psychological problems. Almost equal ratio of males and females within population preferred to take treatment from doctors and Hakims, peer fakirs (Saints) while very less ratio of the males and females consult psychiatrists. However, none of them consulted psychologists for their psychological problems (Table 5).These findings resemble with the previous research (e.g., Passer & Smith, 2001; Ineland et al.,2008 ; Afridi, 2009 ; Blackwell, 2011; APA, 2011) that few people are willing to contact with psychiatrist for psychological problems due to lack of awareness and fear of being stigmatized. Table 5 4. Conclusion Present research indicates that a quite good no of ratio of the people within the population of Manserha district with neurotic complaints i.e., hysteria, anxiety, phobia and OCD which are affecting both men and women equally. The age of 21-25 years in both genders is the high risk period for neuroses. The treatment choices with reference to the priority of consultation are; doctors/ physicians, household remedies, Hakims, Peer Fakirs (Saints) and psychiatrists. Psychologists are not consulted for the psychological problems, may be because of non availability or due to ignorance.

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Fernando, S. M., Deane, F. P., & McLeod, H. J. (2009). Sri Lankan doctors and medical undergraduates attitudes towards mental illness. Social Psychiatry and Psychiatric Epidemiology, doi: 10.1007/s00127-009-0113-6 Foa, E. B., & Kozak, M. J. (1995). DSM-iv field trial: Obsessive compulsive disorder. Retrieved from http://www.ncbi.nlm.nih.gov/pubmed/7802127 Gadit A. A. M. ( 2006 ). Mental Health in Pakistan: Where do we stand? Journal of Pakistan Medicine. 56(5):198-9. http://www.jpma.org.pk/ full_article_text.php ? article _id=675. Gadit A. A. M. (2007). Cost implication for management of psychiatric illnesses in Pakistan: role of alternate, religious and formal practices. Journal of Medical & Biological Sciences. 1, (2),. ISSN 1934-7189 Gadit A. A. M. (2007). Mental Health Model: Comparison Between a Developed and a Developing Country, Journal of Medicine. Retrieved from www.scientificjournals.org/journals 2007/ articles/1047.htm Gliatto, M. F. (2000). Generalized anxiety disorder. The American Academy of Family Physician. Retrieved from http://www.aafp.org/afp//1591.html Hecker, J. E., & Thorpe, G. L. (2005). Introduction to clinical psychology. India: Pearson Education, Inc. Husain, N., Chaudhry I. B., Afridi M. A., Tomenson, B., & Creed, F. (2007). Life stress and depression in a tribal area of Pakistan. The British Journal of Psychiatry,190(1), 36 - 41. doi: 10.1192/bjp.bp.106.022913 Ineland, L., Jacobssson, L., Renberg, E. S., & SjoIander, P. (2008). Attitudes toward mental disorders and psychiatric treatment changes over time in a Swedish population. Nordic Journal of psychiatry, 62, 192-197. doi: 10.1080/08039480 801962855. Jenkins, R. , Meltzer, H., Bebbington, P. , Brugha, T., Farrell, M., McManus, S., & Singleton, N. (2009).The British Mental Health Survey Program: achievements and latest findings. Social Psychiatry and Psychiatric Epidemiology, 44 (11), 899-904, doi: 10.1007/s00127009-0112-7 Jha, D. N. (January 24, 2011). Stress taking toll on mental health study. The Times of India. Retrieved on January 25, 2011 from http://timesof india.indiatimes.com/city/delhi/articles how/734944.cms#ixzz1 C3 jzLoqH

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Kim, J.-M., Shin, I.-S., Yoon, J.-S., & Stewart, R. (2002), Prevalence and correlates of late-life depression compared between urban and rural populations in Korea. International Journal of Geriatric Psychiatry, 17: 409 415. doi:10.1002/gps.622 Leaf, P. J., et al. (2006). The relationship between demographic factors and attitudes toward mental health services. 15, 275-284. doi: 10.1002/1520-6629(198704)15 :20.05

In above table insignificant Chi-square value conclude that Neurosis affecting the personal life of both men and women equally in Mansehra.

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Table 5 Treatment choices Male

Female

Questions F

%age

F

%age

Doctor /Physician

57

2.4%

72

2.2%

Hakim

20

0.8%

17

0.5%

Peer Fakir

14

0.6%

9

0.3%

Household remedies

34

1.4%

21

0.6%

Psychiatrists

6

0.25%

6

0.2%

Psychologist

-

-

Above table exposes that majority of the sufferers consult doctors for the psychological treatment. Almost equal ratio of males and females within population prefer to take treatment from Doctor and Hakim, while very less ratio of the males and females consult psychiatrists. However, none of them consulted psychologists for their psychological problems. Table 6 Age wise distribution of males and females Male

Female

Ages

F

%age

Ages

F

%age

15-20

14

16.5%

15-20

27

23%

21-25

23

27%

21-25

51

44%

26-30

14

16.5%

26-30

15

13%

31-35

7

8%

31-35

5

4%%

36-40

11

13%

36-40

11

9.5%

41-45

7

8%

41-45

3

2.6%

46-50

3

3.5%

46-50

2

1.7%

51-55

3

3.5%

51-55

1

0.9%

56-60

1

1%

56-60

1

0.9%

61-65

2

2.4%

-

-

Total

85 (42%)

Total

116

80%

(58%)

Above table shows that high risk age period is 21-25 for both genders. All most 80% of the cases suffer with the neurosis before the age of 30 years in both genders.

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Table 7 Ages and Hysteria Male

Female

Ages

F

%age

Ages

F

%age

15-20

13

18%

15-20

27

25%

21-25

23

31.5%

21-25

43

40%

26-30

11

15%

26-30

15

14%

31-35

7

10%

31-35

5

4.6%

36-40

8

11%

36-40

10

4.8%

41-45

3

4%

41-45

3

2.8%

46-50

2

2.3%

46-50

2

2%

51-55

3

4%

51-55

0

0%

56-60

1

1.4%

56-60

2

2%

61-65

2

2.3%

-

-

-

Total

73

100%

Total

107

Above table shows that high risk age period for hysteria is 21-25 for both genders.

Table 8 Age and Anxiety Male

Female

Ages

F

%age

Ages

F

%age

15-20

14

17.5%

15-20

28

25%

21-25

21

26%

21-25

45

41%

26-30

13

16%

26-30

16

14.5%

31-35

7

8%

31-35

4

3.5%

36-40

10

12.5%

36-40

10

9%

41-45

7

8%

41-45

3

2.7%

46-50

2

2.5%

46-50

2

1.8%

51-55

3

3.8%

51-55

0

0%

56-60

1

1.3%

56-60

2

1.8%

61-65

2

2.5%

Total

80

Total

110

Above table shows that high risk age period for anxiety is 21-25 for both genders.

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Table 9 Age and Phobia Male

Female

Ages

F

%age

Ages

F

%age

15-20

6

31.6%

15-20

12

24.5%

21-25

2

10.5%

21-25

24

49%

26-30

4

21%

26-30

7

14%

31-35

2

10.5%

31-35

4

8%

36-40

5

26%

36-40

1

2%

41-45

1

2%

Total

49

Total

19

Above table shows that high risk age period for phobia is 21-25 for both genders.

Table 10 Age and Obsessive -Compulsive symptoms Male

Female

Ages

F

%age

Ages

F

%age

15-20

13

18%

15-20

29

30%

21-25

19

26%

21-25

35

36%

26-30

12

17%

26-30

14

14%

31-35

6

8%

31-35

5

5%

36-40

10

14%

36-40

8

8%

41-45

7

10%

41-45

3

3%

46-50

1

1.4%

46-50

2

2%

51-55

1

1.4%

51-55

0

0%

56-60

1

1.4%

56-60

1

1%

61-65

2

2.8%

-

-

Total

72

Total

97

Above table shows that high risk age period for OCD is 15-20 for males 21-25 for females.

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Comparative Effectiveness of Male and Female Teachers as Perceived by their Students Liaquat Hussain Assistant Professor IER Gomal University, KPK, Pakistan. Allah Noor khan Assistant Professor IER Gomal University, KPK, Pakistan. Professor: Dr Muhammad Shah IER Gomal University,KPK, Pakistan. Muhammad Sibtain M.Phil Scholar IER Gomal University, KPK, Pakistan

Absract The problem under study was Comparative effectiveness of Male and female teacher as perceived by their students . The null hypothesis that there is no significant difference in the teaching effectiveness of male and female teachers was tested. The random sample of 80 students was selected for the study. Questionnaire was used as a tool of data collection. The %age and tstatistic was used for the analysis of data. The results show that there is a significant difference. Male teachers are more effective than the female teachers. Keywords. Teaching Effectiveness, Male and female teachers, Co-education. 1. Introduction The problem under study was Comparative effectiveness of Male and female teacher as perceived by their students . Classroom effectiveness here means the teaching methodology, classroom interaction use of A.V Aids. Question / Answer techniques, teacher s encouragement, command over the subject, use of white board, lesson preparation, concept clarification, confidence over the subject matter, student s satisfaction, teacher behavior, classroom discipline, evaluation etc. The classroom effectiveness is the heart of every teaching programme. It has been studied that majority of the students are dissatisfied with their teachers due to different reasons. At the university level there is co-education that s why both the male and female teach the students. It is said that the male teachers teach their students effectively as compare to the female teachers. This study uncovers some of the facts about this saying. 1.1 Statement of the Problem: The problem under study was Comparative effectiveness of male and female teachers as perceived by their students . 1.2 Objectives of the Study Following were the main objectives of the study: 1. To know the classroom effectiveness of male teachers. 2. To know the classroom effectiveness of female teachers. 3. To compare the effectiveness of male and female teachers.

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1.3.Significance of the Study The study was significant because it tells clearly about the effectiveness of teachers teaching at the university level. 1.4 Limitations Following were the main limitations of the study. 1. There was no built in questionnaire to collect data from the students. 2. Unavailability of institutions where both gender teach at the school and college level. 1.5 Delimitations Following were the delimitations of the study: 1. The study was delimited to only university level. Because in own country there are separate schools and colleges for male and female. Where as there is co-education at the university level, where both male and female teachers teach the both genders. 2. The study was delimited to only 10 departments / colleges of the Gomal University. 3. The study was delimited to only 80 students of the Gomal University. 1.6 Hypothesis HO. There is no significant difference in the teaching effectiveness of male and female teachers. H1: There is a significant difference in the teaching effectiveness of male and female teachers.

2. Methodology 2.1 Population: All the students of the Gomal University D.I.Khan comprised the population of the study. 2.2 Sample Following sample was used for the purpose of data collection. A random sample of 80 students from different departments of the Gomal University was selected for the purpose of study. 2.3 Instrument Questionnaire was used as instrument for the collection of data from the students. It consists of 40 items. Questionnaire was validated by the experts view. Questionnaire consists of Strongly Agree, Agree, Undecided, Disagree and Strongly Disagree choices. This questionnaire was administered both for male and female teachers. 2.4 Procedure: First of all 10 departments / Institutions / Colleges were selected from the Gomal University. The questionnaire was distributed among the 8 students of each of these departments. Two days time as given to fill up the questionnaire. After two days questionnaires were re-collected and the data was arranged in the farm of tables. There were five choices before each question and the frequency of each choice was written before each of the question. These frequencies of choices tell clearly about the rate of effectiveness of the teachers. The t-statistics was used for the analysis of data.

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2.5 Data analysis The t-statistics was used for the purpose of data analysis. Mean, Standard Deviation, and Variance were also used for data analysis. The formula used to find the average score was the following. Average Score = SAx5 + Ax4 + Ux3 + Dx2 + SD x 1 -----------------------------------------Total Number of Responses 3. Results and Discussion. 3.1 Data Collection and Analysis Table: Showing the Mean, SD, Variance and t-value calculated at 0.05 level of significance. Variable

Total Obtained Score

Number of items

Mean

SD

Variance

Female

170.55

40

4.21

0.54

0.29

Male

178.55

40

4.43

0.40

0.16

Calculated t-value

2.075

The above table shows that the t-value 2.075 of the two independent groups is greater than the tabulated value (1.96) at the 0.05 level of significance. So the difference between the mean of the two independent groups is significant at 0.05 level of significance. The table also shows that male teachers perfumed significantly better than the female teachers. 3.2 Findings 1. The total obtained score on the questionnaire for the female teachers was 170.55. 2. The mean, standard deviation and variance of score for the female teachers was 4.21, 0.54 and 0.29 respectively. 3. The total obtained score on the questionnaire for the male teachers was 178.55. 4. The mean, standard deviation and variance of score for the male teachers was 4.43, 0.40 and 0.16 respectively. 3.3 Conclusion The t-value calculated 2.075 of the two independent groups is greater than the t-value tabulated (1.96) at the 0.05 level of significance. So the difference between the mean of the two independent groups is significant at 0.05 levels. So the null hypothesis that there is no significant difference in the teaching effectiveness of the male and female teachers is hereby rejected. Since 1960 s, Student Evaluation of Teachers has being practiced as criteria for deciding promotion, tenure, wages, and administrative decisions. Although it is not practiced in our country Pakistan, yet it started in American system, gradually, the process has been adapted by many other countries and most importantly recommended as one of the effective measures for quality control by Indian policy makers also. However, implementation of the policy often calls for investigation whether it is suffering from subjectivity. In this regard, gender offers an attention because of unequal distribution in educational setup regarding teacher gender and high attrition rate of female students. Whenever gender bias exists, it is found that male students rate female instructors critically while female students show no gender bias. Teaching in higher COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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classes is overrepresented by male teachers and thereby, considered as male occupation. Thus female teachers are rated strictly because they are they are trying to fit in non-traditional field. Therefore, female instructors are rated leniently when exclusively possess feminine stereotyped characteristics affectionate, sympathetic, sensitive to the needs of others, understanding, compassionate, warm, gentle . These findings could be clarified by experiments conducted by Basow and Silberg (1987) says lower ratings to female teachers on items related to female stereotypes. Again, an attitude among the students has to be developed through their parenting that it is quality of teaching is important not the teacher gender and gender variable is important. 4. Recommendations i. Male teachers should be appointed at the university level in Pakistan, because they are more effective than the female teachers. ii. In the universities where there are both male and female teachers students are more satisfied with the teaching of male teachers, so subjects of high complexity may be assigned to the male teachers. iii. As the female teachers hesitate to teach the male student classes and feel shyness, so they do not feel ease in teaching and also the students are not satisfied up to maximum level as compared to male teachers, so grouping is the best solution for this problem.

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References Browne and Mitsos, (1998) Browne, K. & Mitsos, E. (1998) Gender differences in education: the achievement of boys, Sociology Review, September, pp. 27-31. Goodlad J.J. (1983) A place called School New York: McGraw HillCompany. (earsly, C. (1982). Personal Communication Alexandria: Hum R.R.O. dadaus, F.G. et-al. (1989) Teach them Well New York: Harper Row, Publishers Cage, N.L; and Berliner, D.C. (1988) Educational Psychology Boston: Houghton Mifflin Company. Chauhan, S.5. (1979). Innovations in Teaching-Learning Process New Delhi: Vikas Publishing House Pvt. Ltd. Duke, D.L. (1990). Teaching: An Introduction. New York Mc Graw-Hall Publishing Company. SPSS Application Guide, Graduate pack 9.0 for windows, p.89-172. Biehler, R.F; and Snowman, J. (1986), Psychology Applied to Teaching. Boston: Houghton Mifflin Company.

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A COMPARATIVE STUDY OF THE ATTITUDES OF STUDENTS TOWARDS TEACHING OF ENGLISH POEMS THROUGH TRADITIONAL METHOD AND GROUP WORK ACTIVITIES AT HIGH AND HIGHER SECONDARY LEVEL

ALLAH NOOR KHAN ASSISSTANT PROFESSOR IN INSTITUTE OF EDUCATION & RESEARCH GOMAL UNIVERSITY D.I.KHAN, PAKISTAN DR. MUHAMMAD SHAH INSTITUTE OF EDUCATION & RESEARCH GOMAL UNIVERSITY D.I.KHAN, PAKISTAN DR.AISHA BIBI EX.DEAN OF ARTS GOMAL UNIVERSITY D.I.KHAN, PAKISTAN (NOW PROFESSOR IN FOUNDATION UNIVERSITY ISLAMABAD PAKISTAN) DR.UMAR ALI KHAN DIRECTOR INSTITUTE OF EDUCATION & RESEARCH GOMAL UNIVERSITY D.I.KHAN, PAKISTAN

Abstract The research paper is a study about the Attitudes of the Students towards Traditional Method versus Group Work Activities at Secondary and Higher Secondary level. The main objective of the study was to find out the better suitable teaching method for teaching poems which appeals to the students. The study first compared the effects of two given methods on the ability of the students to appreciate the theme, music and imagery of the poem. Then the study worked on finding the attitude of students of the experimental group towards group activities. In this experimental study, selection of school and sections were randomly done using the new draw method technique. Similarly one group was randomly selected as the experimental and the other as control. Each group was consisted of thirty students. Two teachers with the same educational qualification and socio-economic background, one was randomly assigned to the experimental and the other to teach the control group. An attitude scale was developed to find the attitudes of the experimental group towards group work activities. The findings of the study were that the students of the groups learnt comparatively better than the students who had been taught through traditional method. The students of the group also showed positive attitude towards the group activities. The study recommends that the concept of group work may be implemented in secondary and higher secondary schools for teaching English poems. Key Words: Group work, Traditional method, Attitude, English poems, Secondary and Higher Secondary Stage

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1. Introduction It is widely acknowledged that English is the language of the world. It is the language of International trade, commerce, chat and diplomacy across the world. The world has taken the shape of Global Village . The influence of U.K and U.S.A has given the English language an international status. According to Mueen (1992, pp.7-9), English is used as an official language in Pakistan as 80% of correspondence is carried out in English and it needs to be fostered as means of education, communication and practical tool. Despite hectic efforts of the educational planners, it is quite obvious that the standard of English, in general and specifically at Secondary and Higher Secondary level, is fast deteriorating. The students at Secondary level partially possess reading and writing skills. The inadequacy of competence germinates further problems at the later stages, which become very difficult to overcome. Poems are also part of curriculum and these are chosen for the enjoyment of the students to break the monotony of their regular classes. The students want something different, something new, stimulating and interesting. Unlike the other literary genres; novels, drama or short stories, poems are brief and do not take much time. Students, in order to enjoy poetry, must be able to comprehend it. They can only comprehend it if their needs are kept in mind. Therefore, texts chosen for the early stages must be fairly simple. It should be appropriate to the age, interests and goals of the students. Certain texts will be appealing to younger children, others to teen-agers and more complex texts to mature students at the graduate or university level. Poetry should be taught to the students in such a manner that the students may be able to know about the theme of the poem, to appreciate the music of the poem and to be clear about the imageries used in the poem. Teaching of poems needs special techniques because the poetry is a form of art, which uses words instead of colors and other material. But poets do not simply communicate simple thoughts; they want to communicate their complex experiences. This is a very difficult task and it requires hard work. If we want to enjoy poetry, we must learn to understand the various ways in which words are used to recreate an experience. Methodology of teaching poems may be based on the traditional method or the teacher centered role, when the teacher is seen as the pivot in the classroom, in charge of all activities and ensuring that all classroom communication goes through him/her. Thus in classroom difficult, detailed and unfamiliar text conveyed through linguistic subtlety of the language, turns the teaching of poetry into a tiresome process of explanation by the teacher, or even of translation, in which the greater proportion of time available is devoted to a step by step interpretative exercise led by the teacher. The teacher at a more advanced level may resort to analytical criticism using high flown or bombastic vocabulary which discourages students from analyzing their own responses to criticism, leading to lack of interest and under estimation of literary texts. This study was undertaken to see whether students like Group Work activities at Secondary and Higher Secondary level. 1.1 Definition of terms. i. Group Work: Two or more persons working together and interacting with one another .It may be called collaborative learning or sharing of views or experiences or in other words students centered role when the students are seen as the pivot of the classroom. ii. Traditional Method: The teacher centered role when the teacher is seen as the pivot in the classroom, in charge of all activities and ensuring that all class room communication goes through him or the deductive method of teaching.

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iii.

Poem: Piece of creative writing in verse form, especially one expressing deep feeling or noble thought in beautiful language, composed with the desire to communicate an expression, piece of prose-writing in elevated style. iv. Secondary Stage: 9th and 10th class students v. Higher Secondary Stage:11th and 12th class students vi. Theme: The central or the main idea of the poem. vii. Diction: Choice and use of words; style or manner of speaking or writing. viii. Imagery: The use of images; simile, metaphor or use of figures of speech that bring pictures to the mind. ix. Music: Art of making pleasing combination of sounds in rhythm, harmony and counterpoint. x. Appreciation: Judgment, valuation, proper understanding and recognition. 2. Importance of Group Work Beckman and Associates, (1990) speak on its importance in the following words, Students learn best when they are actively involved in the process. Researchers report that, regardless of the subject matter, students working in small groups tend to learn more of what is taught and retain it longer than when the same content is presented in other instructional formats. Students who work in collaborative groups also appear more satisfied with their classes. (Beckman, 1990; Chickering and Gamson, 1991; Collier, 1980; Cooper and Associates, 1990; Goodsell, Maher, Tinto, and Associates, 1992; Johnson, Johnson, and Smith, 1991; Kohn, 1986) Various names have been given to this form of teaching, and there are some distinctions among these: cooperative learning, collaborative learning, collective learning, learning communities, peer teaching, peer learning, reciprocal learning, team learning, study circles, study groups, and work groups. But all in all, there are three general types of group work: informal learning groups, formal learning groups, and study teams (Johnson, Johnson, and Smith, 1991). 2.1.1 Informal Learning Group These are ad hoc temporary clustering of students within a single class session. Informal learning groups can be initiated, for example, by asking students to turn to a neighbor and spend two minutes discussing a question you have posed. You can also form groups of three to five to solve a problem or pose a question. You can organize informal groups at any time in a class of any size to check on students' understanding of the material, to give students an opportunity to apply what they are learning, or to provide a change of pace. 2.1.2 Formal Learning group These are the teams established to complete a specific task, such as performance of a lab experiment, writing a report, carrying out a project, or preparation a position paper. These groups may complete their work in a single class session or over several weeks. Typically, students work together until the task is finished, and their project is graded. 2.1.3 Study Teams These are long-term groups (usually existing over the course of a semester) with stable membership whose primary responsibility is to provide members with support, encouragement, and assistance in completing course requirements and assignments. Study teams also inform their COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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members about lectures and assignments when someone has missed a session. The larger the class and the more complex the subject matter, the more valuable study teams can be. 2.2 Procedure for Starting Group Work a) Introduction: First take time to introduce the members of the team. Groups work best if people know each others' names and a bit of their background and experience, especially about those parts that are related to the task at hand. b) Be sure to include everyone when considering ideas about how to proceed as a group. Some may never have participated in a small group in an academic setting. Others may have ideas about what works well. Allow time for students to express their inexperience and hesitations as well as their experience with group activities. c) Most groups select a leader early on, especially if the work is a long-term project. Other options for leadership in long-term projects include taking turns for different works or different phases of the work. d) Everyone needs to discuss and clarify the goals of the group's work. Go around the group and hear everyone's ideas (before discussing them) or encourage divergent thinking by brainstorming. If you miss this step, trouble may develop part way through the project. Even though time is scarce and you may have a big project ahead of you, groups may take some time to settle in to work. If you anticipate this, you may not be too impatient with the time it takes to get started. e) Break up big jobs into smaller pieces. Allocate responsibility for different parts of the group activities to different individuals or teams. Do not forget to account for assembling pieces into final form. f) Groups work best if everyone has a chance to make strong contributions to the discussion at meetings and to the work of the group-project. g) At the beginning of each meeting, decide what you expect to have accomplished by the end of the meeting. h) Someone (probably not the leader) should write all ideas, as they are suggested, on the board or on large sheets of paper. Designate a recorder of the group's decisions. Allocate responsibility for group process (especially if you do not have a fixed leader) such as a time manager for meetings and someone who periodically says that it is time to see how things are going. i) Save some time toward the end of the first meeting (and periodically as the group continues) to check in with each other as to how the process is working. 2.3 Skills for success in Group Many students have never worked in collaborative learning groups and may need practice in such skills as active and tolerant listening, helping one another in mastering contents, giving and receiving constructive criticism, and managing disagreements. Discuss these skills with your students and model and reinforce them during class. Some faculty use various exercises that help students gain skills in working in groups (Cooper, 1990; Johnson, Johnson, and Smith, 1991)

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2.4 Planning for Group According to Kohn (1986), the students in a group must perceive that they sink or swim together, that each member is responsible to and dependent on all the others, and that one cannot succeed unless all in the group gain success. Knowing that peers are relying on you is a powerful motivator for group work strategies for promoting interdependence include specifying common rewards for the group, encouraging students to divide up the labor, and formulating tasks that compel students to reach a consensus. (Johnson, Johnson, and Smith, 1991) 2.2.2 2.5 Relevancy of Group Work According to Goodsell, Maher, Tinto and Associates (1992, pp.75-79) that Students must perceive the group tasks as integral to the course objectives, not just busywork. Some faculty believes that groups succeed best with tasks involving judgment. As reported by Johnson, Johnson, and Smith (1991), for example, in an engineering class, a faculty member gives groups a problem to solve: Determine whether the city should purchase twenty-five or fifty buses. Each group prepares a report, and a representative from each group is randomly selected to present the group's solution. The approaches used by the various groups are compared and discussed by the entire class. 2.5.1 Suitable Assignments As students become more knowledgeable, increase the level of difficulty. For example, a faculty member teaching research method begins by having students simply recognize various research designs and sampling procedures. Later, team members generate their own research designs. At the end of the term, each team prepares a proposal for a research project and submits it to another team for evaluation. (Cooper and Associates, 1990) 2.5.2 Assign Group Tasks That Allow for a Fair Division of Labor Tiberius (1990) says try to structure the tasks so that each group member can make an equal contribution. For example, one faculty member asks groups to write a report on alternative energy sources. Each member of the group is responsible for research on one source, and then all the members work together to incorporate the individual contributions into the final report. Another faculty member asks groups to prepare a "medieval newspaper." Students research aspects of life in the Middle Ages, and each student contribute one major article for the newspaper, which includes news stories, feature stories, and editorials. Students conduct their research independently and use group meetings to share information, edit articles, do proof-readings and design the pages. 2.5.3 Set-up Competitions among Groups Students, working in groups, design and build a small-scale model of a structure such as a bridge or column. They predict how their model will behave when loaded, and then each model is loaded to failure. Prizes are awarded to the groups in various categories: best predictions of behavior, most efficient structure, and best aesthetics. (Dale, 1965) 2.5.4 Process of Group Formation Some faculties prefer randomly assigning students to groups to maximize their heterogeneity: a mix of males and females, talkative and reticent students, the cynical and the optimistic. Some faculty let students choose with whom they want to work, although this runs the risk that groups will socialize too much and that students will self-segregate (Cooper, 1990). Self-selected groups seem to work best in small classes, for classes of majors who already know one another, or in small residential colleges (Walvoord, 1986). Still other instructors prefer to form the groups

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themselves, taking into account students' prior achievement, and levels of preparation, work habits, ethnicity, and gender. They argue for making sure that members of each group are exclusively graded students or exclusively pass/ not pass students and that well-prepared students be placed in groups with other well-prepared students. Other faculty, however, try to sprinkle the more able students evenly among the groups (Walvoord, 1986). A middle ground, proposed by Walvoord (1986), is to ask students to express a preference, if they wish, then make the assignments yourself. You could, for example, ask students to write down the names of three students with whom they would most like to work. 2.5.5 Be Conscious of Group Size In general, groups of four or five members work best. Larger groups decrease each member's opportunity to participate actively. The less skillful the group members, the smaller the groups should be. The shorter amount of time available, the smaller the groups should be. (Cooper, 1990; Johnson, Johnson, and Smith, 1991) 2.5.6 Keep Groups Together When a group is not working well, avoid breaking it up, even if the group requests it. The addition of the floundering group's members to ongoing groups may throw off their group process, and the bailed-out troubled group does not learn to cope with its unproductive interactions. (Walvoord, 1986) 2.5.7 Help Groups Plan How to Proceed Ask each group to devise a plan of action: who will be doing what and when. Review the groups' written plans or meet with each group to discuss its plan. 2.5.8 Regularly Check in With the Groups If the task spans over several weeks, you will want to establish checkpoints with the groups. Ask groups to turn in outlines or drafts or to meet with you. 2.5.9 Provide Mechanisms for Groups to Deal with Uncooperative Members Walvoord (1986) recommends telling the class that after the group task is completed, each student will submit to the instructor an anonymous assessment of the participation of the other group members: who did extra work and who shirked work. If several people indicate that an individual did less than a fair share, that person could receive a lower grade than the rest of the group. This system works, says Walvoord, if groups have a chance in the middle of the project to discuss whether any members are not doing their share. Members who are perceived as shirkers then have an opportunity to make amends. Keep the groups at small size; in small group every member has work to do. The chance of shirking is less. Make it clear that each group must find its own way to handle unproductive group behavior. Allow the groups, by majority vote, to dismiss a member who is not carrying a fair share. Students who are dropped from a group must persuade the group to reconsider, find acceptance in another group, or take a failing grade for the project. Perhaps the best way to assure comparable effort among all group members is to design activities in which there is a clear division of labor and each student must contribute if the group is to reach its goal. (Walvoord, 1986) 2.5.10 Ensure that Individual Student Performance is assessed and that the Groups know how their Members are doing COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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Groups need to know who requires more assistance in completing the assignment, and members should know they cannot let others do all the work while they sit always to ensure that students are held accountable include giving spot quizzes to be completed individually and calling on individual students to present their groups progress. (Johnson, Johnson, and Smith, 1991) 2.5.11 Evaluate the Effectiveness of Their Group Once or twice during the group work task, ask group members to discuss two questions: What action has each member taken that was helpful for the group? What action could each member take to make the group even better? At the end of the project, ask students to complete a brief evaluation form on the effectiveness of the group and its members. The form could include items about the group's overall accomplishments, the student's own role, and suggestions for changes in future group work. (Johnson, Johnson, and Smith, 1991; Walvoord, 1986) have developed a form that can be used for an interim or final evaluation. 2.5.12 Decide How To Grade Members of the Group Some faculties assign all students in the group the same grade on the group task. Grading students individually, they argue, inevitably leads to competition within the group and thus subverts the benefits of group work. Other faculties grade the contribution of each student on the basis of individual test scores or the group's evaluation of each member's work. If you assign the same grade to the entire group, the grade should not account for more than a small part of a student's grade in the class. (Cooper and Associates, 1990; Johnson, Johnson, and Smith, 1991) 2.5.13 Students Won't Want to Work In Groups Some students may object, in part because most of their education has been based on individual effort, and they may feel uncomfortable helping others or seeking help. The best advice is to explain your rationale, design well-structured meaningful tasks, and give students clear directions, set expectations for how team members are to contribute and interact, and invite students to try it. (Cooper and Associates, 1990) 2.6 Explain How Study Teams Work Study teams can work in a number of ways. In one model, all students read the assignments but each member agrees to provide to the group in-depth coverage of a particular segment of the material and to answer as fully as possible whatever questions other members of the study team might raise. In this model, then, each member agrees to study all the material yet each also tries to become an "expert" in a certain area of the material. In another model, the teams' activities vary from meeting to meeting. For example, at one meeting, teams might review class notes to see whether there is agreement on the most important points of the lecture or discussion. In another session, teams might go over a class quiz or test to ensure that all team members clearly understand each of the questions, especially those that were answered incorrectly by one or more members. Another session might be devoted to reviewing problem sets or exchanging drafts of written papers for peer editing. In a third model, the main agenda for each study team session is to set study questions. Early on in term, the study questions are provided by the professor or graduate student instructors. After three or four weeks, each team member must bring a study question related to the week's lecture material to the team meeting. The questions structure the discussion and are modified, discarded, or replaced by the group as the session proceeds. At the session's end, the study questions that the

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group chooses as the most valuable are turned in for review by the instructor. You can let students decide for themselves how to structure their study teams, or you can offer advice and suggestions. (Gusky, 1988; Johnson, Johnson, and Smith, 1991; Light, 1992; "Study Groups Pay Off," 1991) 2.6.1 If Study teams are Optional, offer Students Extra Credit for Participation For example, students who are members of an official study team might get bonus points for each assignment, based on the average grade received by the individual group members. 2.6.2 Let student know what their responsibilities are as a study team member Students who participate in study teams agree to do the following: Prepare before the study team meeting (for example, do all the required reading or problem sets) Complete any tasks that the group assigns to its members Attend all meetings and arrive on time Actively participate during the sessions in ways that further the work of the group Help promote one another's learning and success Provide assistance, support, and encouragement to group members Be involved in periodic self-assessments to determine whether the study team is working successfully (Is too much work being required? Is the time in study team meetings well spent?) In addition, let students know that they can improve the effectiveness of their study teams by making sure each session has a clearly articulated agenda and purpose. They can also work more efficiently if all logistical arrangements are set for the semester: meeting time, length and location. 2.6.3. Help students locate meeting rooms Arrange with your department or campus room scheduler to make available small meeting rooms for study teams. If appropriate, consider using group rooms in the residence halls. 2.6.4 Limit groups to no more than six students Groups larger than six have several drawbacks: it is too easy for students to become passive observers rather than active participants; students may not get the opportunity to speak frequently since there are so many people; students' sense of community and responsibility may be less intense in larger groups. 2.6.5. Let students select their own study teams unless you have a large class Since the groups are designed to last the term and will meet outside the class, give students the opportunity to form groups of three to six members. Arrange one or two open groups for students who do not know others in the class. If students will be selecting their own groups, offer several small group activities during the first three weeks of class and rotate the membership of these ad hoc groups so that students can get to know one another's interests and capabilities before forming study teams. See "Personalizing the Large Lecture," "Supplements and Alternatives to Lecturing," "Encouraging Student Participation in Discussion," and "The First Day of Class" for ideas on small group activities and how to help students get to know one another.

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If your class is very large and letting students select their own groups seems too difficult, have students sign up for teams scheduled to meet at particular times. This means that students will form groups based solely on when they can regularly attend a study team meeting. Try to form the groups by sections rather than for the large lecture class overall. Students in the same section are more likely to know each other and feel a sense of responsibility for their study team. (Walvoord, 1986) 2.6.6 Use a portion of class time for arranging study groups Announce that study groups will be set up during the third or fourth week of the course. At that time, hand out a description of study teams and students' responsibilities, and let students talk among themselves to form groups or to sign up for scheduled time slots. Suggest that all members of the study team exchange phone numbers. Encourage the study teams to select one person as the convener who will let all members know where the group is to meet. 3. Traditional Method McGreal (1989) describes the role of English teacher in the Traditional method as: In the traditional classroom, the teacher takes the role of the great leader, Importer of knowledge and as the center of all the activities. But this role is not suitable for English as foreign language (EFL) teachers who are teaching skills. This skill-based orientation implies a different role for the teacher. Active participation by the learner is essential. This can be done by employing group work activities in the classroom. In order to promote this, the teacher must not become less active in the classroom, but rather less the centre of activity. Certainly, a teacher who is monitoring, controlling, encouraging and participating in the different classroom groups will be even more active than the traditional teacher. The teacher's role must be modified to become more managerial and supervisory. Teachers need to be more flexible in their attitudes towards how learning is achieved. The view of Hussain (1989) and Sarwar (1983, pp.9-10) about the textbooks of English taught in Pakistani schools is: The material is based on the grammar translation method. The reading passages are written by Pakistani authors with a few poems by British/U.S poets the mechanical exercises, the literary base, the unattractive getup combine to make the book difficult and irrelevant . According to Siddiqui (1990, p.176), most of the teachers are engaged in teaching as they were taught by their teachers with help of traditional method which in other words adaptation of Grammar Translation method where: Every difficult word is explained; every line is read aloud by the teacher followed by its translation into the mother tongue. The whole classroom time is consumed in teaching all textbooks from cover to cover and explaining them. The students in fact do nothing except listen to the teacher s monologue and later learn the notes from the helping books to pass the examination. As Wordsworth (1802) did in his sonnet Composed upon Westminster Bridge in the below stanza, (History of English Literature): Never did sun more beautifully steep In his first splendor, valley, rock, or hill; Never saw, I never felt, calm so deep!

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The river glideth at his own sweet will! Dear God! The very houses seem asleep; And all that mighty heart is lying still! Every poet gives his own individualistic touch to his work. The traditional method or translation method cannot come up to the expectation of the students. Some time the students commit blunders in translating from Urdu to English. Urdu Sentence: Mera Dil Bagh Bagh Ho Gaya. For example: My heart became garden and garden. (In correct) I was overjoyed (correct) Mara Hatho Kay Tota Urghay(Urdu Sentence) The parrots of my hands flew away (in correct) I was at my wits end. (Correct) This shows that the translation method is not up to the mark and the pupils due the wrong teaching of this difficult language adopt a wrong habit by wrong method. 4. How to Teach Poetry Effectively The basic objective of teaching poetry is to get pleasure in learning and appreciating poems. The teacher should concentrate on those aspects of poetry, which evoke the response of pleasure rather than the more formal or academic ones. In order to appreciate the poem in its true sense, the students must know the poetic devices and the theme of the poem .The theme is the idea, perception, or impression that the poem conveys. The students would be able to enjoy poetry in a befitting manner if they are taught with the musical quality and other essential aspects of poetry i.e. diction, tone, symbolism and other poetic devices. 4.1.1 Diction The poetry is a form of art which uses words instead of colours and other material. But poets do not simply communicate thoughts; they want to communicate complex experiences. The students should understand the various ways in which words are used to recreate an experience. Words have denotative and connotative meanings. 4.1.2 Tone A Poet keeps a certain tone in his poem. One can see his tone paying attention to the rhythm, rhyme and symbolism. If the poet is sad, the rhythm may be slow; if happy, it may be fast. Some words are gentle in sound, others are mellifluous, some are sharp and some are flat. The words used in The Daffodils are gentle, mellifluous and smooth. The rhyme, rhythm, alliteration, assonance and onomatopoeia have all contributed to creating this positive effect. I wandered lonely as a cloud That floats on high over vales and hills. When all at once I saw a crowd A host of golden daffodils Besides the lake, beneath the trees

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Fluttering and dancing in the breeze. (The Daffodils) by William Wordsworth. 1800, Course Book of 9th class) 4.1.3 Symbolism Symbolism in general means the presentation of objects, moods and ideas through the medium of emblems or symbols. It is a conscious and deliberate technique of the use symbols in art and literature. Generally, symbols represent conceptions or ideas through things which can be seen or feel through the senses. Yeat s poetry (1920) is replete with symbols. He has been called the chief representative of the symbolist movement in English literature .Symbols are not only denotative but also connotative and evocative. For example, the word (rose) not only denotes a flower but it also evokes images of beauty and love. The symbols make the language rich and expressive. (Cazamian s History of English Literature, 1970) 4.2 The Devices used for Musical Quality of the Poem 4.2.1 Consonance It is occurred when the final consonantal groupings are the same. For instance, in end/blind and will/hall, the final consonant in the first case are n and d and they occur in both the words. In will and hall the l is common. 4.2.2 Assonance It is said to occur when the words have vowel sounds in common. For instance, in same/late the common vowel sound is rendered as ai in phonic transcription, this creates a certain chiming, an internal music and is used as a poetic device. 4.2.3 Alliteration The repetition at close intervals of the initial consonant sounds of accented syllables or important words (for example, map-moon, kill-code, preach- approve). Important words and accented syllables beginning with vowels may also be said to alliterate with each other in as much as they all have the same lack of an initial consonant sound (for example, "Inebriate of air am I") Five miles meandering with a mazy motion. 4.3 The use of Figurative Language in Poetry The poets take the help of figurative language in order to convey his idea in a more befitting manner. The word (dog) literally means an animal. The dogs are considered servile, low and faithful. Thus human societies have seen certain qualities in the animal and have come to look down upon it or like it. These human values have given a connotative meaning of the word. The literal language is language used precisely or denotatively. The figurative language, on the one hand, is language used in the connotative sense. The figurative language, therefore, uses comparisons and contrasts to help the reader to understand what is meant. 5 Methodology According to Oxford Advanced Learner s Dictionary of Current English (1985, p.20), Attitude is manner of placing or holding the body, way of feeling, thinking or behaving . Thorn dike; and Hagen (1977, p.395), Attitudes relate to tendencies to favor or reject particular groups of individuals, sets of ideas or social institutions The objective of attitude scale was to measure the attitude of experimental group towards group activities.

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5.1.1 Preparation and Validation of the Attitude Scale Two techniques are used for attitude assessment, according to Thorn dike; and Hagen (1977). 5.1.2 Attitude Mapping It is used to see what the range and scope of attitude is in some group or groups. It is in the various public opinion surveys. 5.1.3 Attitude measurement It is used for getting a score having adequate reliability that can represent the intensity of each person s sentiments toward or against the attitude object e.g. the attitude of the students towards group work activities used for English poems teaching -. These are forms i.e Likert scale, semantic differential etc. 5.1.4 Preparation The researcher started by assembling a catalogue of statements covering possible views on the target concept. These statements were selected from reading, from associates and from the recesses of a person s own consciousness. These statements were clear and brief, presented a single idea and focused on feeling rather than fact, attitude rather than information. These statements ranged from the most positive and favourable to the most negative and unfavourable and covering various subjects of the attitude domain. The advisor s consultation was taken at each step. On the basis of judges rating, a reasonably brief set of statements was selected which had clear meaning representing all degrees of intensity of pro and anti views and covering the main facets of the domain. 5.1.5 Validation The selected items were reviewed and rated by a team of experts at the Institute of Education and Research, Gomal University, Dera Ismail Khan. Attitude scale having 14 items with three responses, Yes, Undecided and No. The experts provided valuable guidance and assistance in each item construction and improvement of sentence structure of the scale. A reliable instrument with 8 items was finally selected for administration. The Cronbach alpha of the scale was 0.79.

Analyzing of Attitude Scale for measuring the attitude of the Experimental Group towards Group Activities. Table 1 Students like to work in a group Number of students

Yes responses

Percentage

No responses

Percentage

Un decided

Percentage

30

20

66.66%

6

20%

4

13.33%

Table-1 indicates that 66.66 percent of the students like group activities, 20 percent students do not like to work in group form and 13.33 percent of the students can not decide whether they like to work in a group or not.

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Table 2 Easiness to work in a group Number of students

Yes responses

Percentage

No responses

Percentage

Un decided

Percentage

30

24

80%

4

13.33%

2

6.66%

Table 2 indicates that 80% of the students feel easy to work in a group and they understand the material in a better way. 13.33 percent of the students do not feel easy to work in a group. Only 6.66 percent students cannot decide whether they feel easy to work in a group or not. Table 3 Positive impact on the ability of the students to appreciate poems in group work

Number of students

Yes responses

Percentage

No responses

Percentage

Un decided

Percentage

30

23

76.66%

7

23.33%

0

0%

Table 3 indicates that 76.66 percent of the students are in favor in-group work and they understand comparatively better while working in groups in appreciating the poem. While 23.33 percent of the students do not feel better to do work in-group.

Table 4 Students want to see their own group on the top Number of students

Yes responses

Percentage

No responses

Percentage

Un decided

Percentage

30

30

100%

0

0%

0

0%

Table -4 indicates that 100% of the students are in the favour to bring their groups at the top position in the class.

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Table 5 Dull students also can improve with the help of group activities Number of students

Yes responses

Percentage

No responses

Percentage

Un decided

Percentage

30

21

70%

3

10%

6

20%

Table-5 indicates that 70 percent of the students are of the opinion that dull students also can improve themselves with the help of group activities. Out of them, 10% students view that the dull students can not improve working in groups where as 20% students can not decide whether the dull students can improve themselves with the help of group activities or not. Table 6 The poetic devices can be improved with the help of group activities in appreciating a poem Themes

Number of student

30

Music

Imagery

Yes

%

Yes

%

yes

%

25

83.30%

24

80%

27

90%

Table -6 Indicates that 83.30 percent of the students have the opinion that the theme of the poem can be understood in a better way by working in groups. 80 percent students are in the favor of group activities to understand the music of the poem in a better way. Similarly 90 percent students are in the favor of to continue work in-group form in comprehending the imagery of the poem.

Table 7 Effective way of appreciating poems Deductive approach

Text book method

Through Group work

Number of student

Yes

%

Yes

%

Yes

%

30

5

16.66%

3

10%

22

73.3%

Table-7 shows that 16.66 percent of students are in the favor of deductive approach and they support that it is the better way of appreciating the poems. Only 10 percent students are in the

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favor of the view that text book method is effective while 73.3 percent students favor the group work activities and declare it better way of learning poems. Table 8 Time wasted in a group Number of students

Yes responses

Percentage

No responses

Percentage

Un decided

Percentage

30

4

13.33%

24

80%

2

6.66%

Table-8 indicates that 13.33 percent students are in the favor of the statement that time is wasted in a group. 6.66 percent students are undecided whether the time is wasted in a group or not while 80 percent students are having the opposite opinion that there is no wastage of time in-group work activities. 6. Results and Discussion: i. According to the result of the attitude scale of table-1, 66.66% students like to work in group while only 20 %of the students are not in the favor of the group work activities and 13.33 % are in a fix whether group work is better or not. Thus the finding is that the group activities are better and these are according to the students aptitude. ii. Keeping in view the result of the attitude scale of table-2, 80 % of the students feel easy to work in group where as 13.33 % do not feel easy to work in group. There are 6.66 % who are undecided whether they feel easy or not. Thus the finding of the attitude scale is that the students feel easy in-group work activities. iii. 3.The table No-3 in respect of better effect of group work activities on the appreciation of the poems indicates that 76.66 % of the students favor that group activities has a positive effect on the ability of the students to appreciate the poem and 23.33% do not favour the group activities. Thus the finding is that group activities have comparatively better effect on the ability of the students to appreciate the poems. iv. According to table-4, 100% want to see their own group on the top. v. 70% of students think that the dull students can improve themselves by working in a group. Thus the finding is that group activities have comparatively positive effect on the ability of the students to improve themselves. (Table-5) vi. 6.83.30% of the students think that the theme of the poem can be grasped properly in a befitting manner through group work activities. Where as 80% hold the opinion that music of the poem can be better appreciated through group work activities. Similarly 90% have the opinion that the appreciation of the imagery of the poem can be handled effectively. Thus the finding is that group activities have positive effect on the appreciation of the theme, music and imagery of the poem. (Table-6) vii. % of the students are in favor of the view that the traditional approach is the better way of appreciating the poem. Whereas73.30 % of the students thinks that group work activities are the better way of leaning poems. (Table-7) COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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viii.

8.80 % of the students are not in favor of the statement that working in-group results in the waste of time. Only 13.33% consider it wastage of time and 6.66 % cannot decide whether the time is wasted in a group or not. (Table 8) ix. The study is also supported by the study of Bibi, A. with respect to teaching English Grammar with the help of group work activities. The conclusion regarding the attitude of the students towards group activities is that most of the students (66.66 percent) want group work activities and they feel easy to do work ingroup. The group work activities play positive effect on the ability of the students to appreciate the theme of the poem, to appreciate the music of the poem and appreciate the imagery of the poem. According to the attitude scale, it is easy to work in a group, it makes us learn better, improves the dull students and group work activities can improve their appreciation of the poem its theme, its music and its imagery. a. Majority of the students hold the opinion that teaching of English poems through group work activities is better way of learning poems as compared to the deductive approach and teaching poems through traditional method. b. 100 % students, according to attitude scale, hold the opinion that time is not wasted by working in a group rather it is utilized in its true sense. 7. Recommendations

The Government should not only encourage teaching with the help of group work activities at Secondary and Higher Secondary level but should take some initiatives for its compulsory implementation in the secondary and higher secondary level schools with special reference to teaching of poems. Group work may be safely used for the preparation presentation, practice and production stage i. The concept of group work may be implemented in the pre-service training of teachers so that they may be able to teach English poems through group work activities. The teachers who are already engaged in teaching may be encouraged to use group-work activities in their classrooms in teaching English poems. Techniques of dividing the class into groups, providing different group work activities according to the needs of the given poem and keeping the students busy may be taught to the existing teachers of English through refresher courses. ii. The teachers may be encouraged to apply the group work technique for the teaching of English and especially the poems, during their practical skill in teaching. This practice may enable them to use this technique while they go to the field. iii. Teaching of English poems needs that students must know the various aspects of poems like poetic devices, figures of speech, poetic diction, tone and symbolism. Without knowing these aspects, the students would not be in a position to appreciate the theme of the poem, its music and imagery. Mere translation does not convey the message of the poet or the artistic quality of the poet or the entertainment, which the poet wants to give to its readers. Translation in Urdu spoils the essence and spirit of the poem so it is recommended that poems may be taught through group work activities keeping in view the specific objectives of the poetry. iv. The study may prove helpful to the bureaus of curriculum and the curriculum wing of the Ministry of Education, Islamabad in planning of curriculum development in suggesting COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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the group work activities for effective teaching of English and with special reference to English poems. The study may be extended to the other classes of the elementary and graduate stage, the students of English medium schools and to the different areas of the country.

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References Beckman, M. (1990). Collaborative Learning: Preparation for the Workplace and Democracy, San Francisco: Jossey Bass Publishers. Best, J.W & Kohn, J.V. (1986). Research in Education (5th Ed.), London: Prentice-Hall. Bibi, A. (2002). The Comparative Effectiveness of Teaching English Grammar With the Help of Text Book and by Using Group Work Activities, (Unpublished Ph.D thesis). Islamabad: Allama Iqbal Open University. Chickering, Gamson, Collier, Cooper & Associates (1991). Tools for Teaching, San Francisco: Barabra-Gross Davis Jossey-Bass publishers. Chickering, A.W. & Gamson, Z.F. (1991). Applying the Seven Principles for Good Practice in Undergraduate Education, New Directions for Teaching and Learning, San Francisco: Jossey Boss. Cooper, J. (1990). Cooperative Learning of College Teaching Tips from the Trenches, Teaching Professor . Cooper, J. & Associates (1990). Cooperative Learning and College Instruction, California: Long Beach: Institute for Teaching and Learning, State University. Collier, K.G. (1980). Peer Group Learning Higher Education: The Development of Higher-Order Skills, Studies in Higher Education. Cronbach, L. J. (1970). Essential of Psychological Testing, New York: Harper and Low Publisher. Dale, J. (January, 1965). Working With Groups in the English Classroom, The English Journal. LIV: 39-41 Goodsell, A., Maher, M., Tinto, V. and Associates (1992). Collaborative Learning, A Source Book for Higher Education. University Park National Center on Postsecondary Teaching Learning and Assessment, Pennsylvania State University, Gusky, T.R. (1988). Improving Student Learning in College Classrooms, Spring Field.III Thomas. Hornby, A.S. (1995). Oxford Advanced Learner s Dictionary of Current English, Great Britain: University Press Oxford. Hussain, M. (2000). A Comparative Study of Teaching Poems through two Different Methods at Secondary Level, Dera Ismail Khan: (Unpublished, M.Ed thesis), Gomal University. Hussain, A. & Sarwar, Z. (1989). The English Language Teaching Scene in Pakistan: Problems and Prospects. SPELT, 4/3. Johnson, Johnson, & Smith, (1991) Tools for Teaching, San Francisco: Barbara Gross, JosseyBass Publishers Kohn, A. (1986). The Case Against Competition, Boston: Houghton: Mifflin. Likert, Rensis. (1932). "A Technique for the Measurement of Attitudes". Archives of Psychology 140: 1 55. McGreal, R. (1989). Coping with Large Classes, English Teaching Forum 27/2.

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Mueen, A. (1992). English Language Teaching in Pakistan, Islamabad: National Book Foundation. Sarwar (1983). Classroom Techniques, English Language Teaching (1983), Islamabad: University Grants Commission. Siddiqui, S.K. (1990). Literature Teaching in Pakistan, Journal of Elementary Education 1/1. Singh, T. (1991). History of English Literature, India (Bareilly): Student Store Tiberius, R.G. (1990). Small Group Teaching: A Trouble-Shooting Guide, Toronto: Ontario Institute for Studies in Education Press. Thorndike, R.L. & Hagen, E.P. (1977). Measurement and Evaluation in Psychology of Teaching and Teacher Education, New York: John Wiley and Sons. Tinto, V. & Associates (1992). Collaborative Learning: A Source Book for Higher Education, University Park: National Center on Post secondary Teaching, Learning, and Assessment, Pennsylvania State University. Walvoord, B. F. (1986). Helping Students Write Well: A Guide for Teacher in All Disciplines (2nd Ed.), New York: Modern Language Association.

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Effect of Computer Assisted Instructions on Academic Achievement and Classroom Interaction of Secondary School Students. Liaquat Hussain Assistant Professor IER Gomal University, KPK, PAKISTAN. Professor: Dr Muhammad Shah IER Gomal University,KPK, PAKISTAN. Allah Noor Khan Assistant Professor IER Gomal University, KPK, PAKISTAN.

Abstract The problem under study was Effect of computer assisted instructions on the academic achievement and classroom interaction of secondary school students . All the 9th grade students of Government High and Higher Secondary Schools of Dera Ismail Khan City were taken as the population of the study. A sample of 80 students was selected for experiment. The sample was divided into groups, experimental group (those taught by computer assisted instructions) and control group (those taught by traditional method) .Two achievement tests ( pre test + post test) were used as tool for data collection. Time was observed by the researcher himself. The two hypotheses were tested. One hypothesis was for achievement and the second for time schedule. The results show that the experimental group performed significantly better than the control group. Keywords. Academic achievement, Classroom interaction, Computer assisted instructions, pretest, posttest. 1. Intoduction It is the age of science and technology. Our dependency on the science and technology has been very much increased. Science is taken from Latin world scientia which means to know. Science develops the principles, laws, rules and regulations that are based on facts. Scientists always keep on collecting data through observation, and experiments. Today we are enjoying the benefits of science. Science makes our life very comfortable. Science benefited us in agriculture, transportation, exploration and all other fields of life. Most of the benefits of science are due to physics, which is the most beneficent and ever developing field of science. Physics make our life very easy and comfortable. Physics brought such wonderful changes in the social life of human being that could not be thought in past. The energy plays a vital role in the human life. The physics had made possible to achieve energy not only from the coal, petrol etc but it has also extracted energy from the core of the atom. It is due to physics that developments in the field of energy are being made and new weapons are being developed which put the word in a new era, which is truly called the era of computer and technology (Khatak 2007). Keeping in view the importance of physics, the achievement of the students in the subject is not up to the mark. There may be many reasons for that but the experts suggest that the main reason of it is that the physics is taught with the traditional lecture method and new methods of teaching are totally rejected. COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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The problem of teaching of physics can be solved by adopting and practicing the computer assisted instructions method of teaching physics. The multimedia slides, presentations and the use of computer programs may be able to motivate students, develop interest in them, and stress them hooked until they may be able to solve the problems in the field of physics. This study is undertaken to see whether the computer assisted instructions method of teaching physics by using the computer programs, slides, projectors, CD s , and tutorials has a positive effect on the academic achievement and the interests of the secondary school students. So the need is to find the comparative effectiveness of teaching physics with the help of traditional lecture method and by using the computer assisted instructions method. 1.1 Statement of the Problem The problem under study was to find the effect of computer assisted instructions on academic achievement and classroom interaction of secondary school students.

1.2 Objectives of the Study i.

To find the students academic achievement through lecture method and through Computer Assisted Instructions method.

ii.

To find the students classroom interaction in lecture method and through Computer Assisted Instructions method.

1.3 Significance of the Study This study was significant due to the following reasons:i.

Traditional method of teaching is being practiced throughout the Pakistan at the secondary level. More time, energy and effort is exercised in lecturing the student s and memorizing the concepts. The student s interest and concept formation is totally neglected. The study may prove helpful in bringing positive change in the classroom. The physics teachers at the secondary level can utilize the computer assisted Instructions in their lessons. In this way the students interests can be developed in the lesson and the achievement can become better due to mentally involvement of the students in the lesson.

ii.

Computer Assisted Instructions are given due importance in the foreign countries and work has been done in it, but in Pakistan unfortunately due to lack of resources and expertise for the use of computer in classrooms, there is a lack of research in this field. Therefore this study is a unique type of effort in Pakistan and will bring a new positive change in Pakistani schools if implemented.

iii.

Although science demands for the problem solving, discovery approach and practical work in the classroom, but this is either totally rejected or not done with such zeal and devotion. This research will float the findings that may prove fruitful for science teachers and may mold their teaching techniques and approaches towards a positive direction , (Waheed & Rasheed , 1993).

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1.4 Limitations of the Study Due to non availability of standardized achievement tests in the subject of physics at secondary level, the researcher himself developed and validated the academic achievement test (pre-test and post-test) to measure the academic achievement before and after the experiment. 1.5 Delimitations of the Study The study was delimited to: i.

The only University Wensam College, Dera Ismail Khan.

ii.

Only 9th Grade students of University Wensam College.

iii.

Only the subject of Physics at the Secondary level.

iv.

Only 26 topics of the 9th grade physics.

Variables Independent variables: Two methods of teaching i.e. Computer Assisted Instructions method and traditional Lecture method. Dependent variables: Scores of achievement test (post-test), scores of the interest s inventory. Controlled variables: Teacher, time, sex, contents, classroom conditions Uncontrolled variables: Student s physical age, mental age, socio-economic status, attitudes. 1.5 Hypothesis of the Study In order to investigate the problem the following null hypothesis were tested. i.

There is no significant difference of overall academic achievement of the two groups taught physics by traditional lecture method and those taught by Computer Assisted Instructions.

ii.

There is no significant difference in time taken by the teacher, teacher + students, and students of the two groups taught physics by lecture method and those taught by Computer Assisted Instructions.

2 Review of Related Literature Teaching has become a science, there are many aspects and areas which has to be considered to make it more effective e.g. age and ability of the children, methodology of teaching, resource material used etc. similarly to run a good school thorough planning has to be done, one has to devise a sound school policy, a balanced curriculum, an effective way of teaching and a good evaluation method ( Mansoor, 2000). We all do use various methods and strategies to help us

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and remember new information or skill. Some of these methods are more effective than the others for learning and remembering new information ( Siddiqui, 2005). According to ( Tishna, 1997) every activity takes place through proper method and technique, therefore a teacher should also teach his lesson through proper method. 2.1 Effective Teaching and Students achievement A great deal of research has been conducted into the nature of effective teaching, and much has been learned. Educational researchers have concluded, for example, that a systematic approach to providing instruction greatly improves students achievement. These researchers also state that teachers can learn the specific components of an effective, systematic approach to providing instruction and can modify and thereby enhance their teaching behavior ( Siddiqui, 2005). Sindelar, espin, Smith, and Harriman add that the more time an actively engaged educator spends in the instructional process, the more positive students behavior and achievement will be. Nowacek, McKinney, and Hallahan indicate that teacher-directed, activities provide for an effective educational experience that is more likely to improve student achievement. Higher level of students achievement occur because teachers, using a systematic approach, are more organized, have clearer expectations, maintain students attention and interest and provide immediate feedback (Siddiqui, 2005). According to (Waheed, 1993) generally we take Physics, Chemistry, and Biology as science but according to the new division of science all those subjects which lead towards the truth are science 3. Methodology 3.1

Population

All the 9th grade students of Government High and Higher Secondary Schools of Dera Ismail Khan City were taken as the population of the study. 3.2

Sample

In this experimental study, only one school University Wensam College, Dera Ismail Khan was selected out of the six Government High and Higher Secondary Schools of the Dera Ismail Khan city. The school was selected on random basis using draw method technique. 80 students of the two 9th grade sections ( C and D) were selected as the sample of the study. These 80 students were divided into two groups on the basis of pre-test and matched pair sampling. One group was randomly assigned as the experimental group and the other as control group. 3.3

Instrument

Following instruments were used for the study. i.

Teacher made objective type achievement test (pre-test) to divide the sample into two equal groups.

ii.

Teacher made objective type achievement test (post-test) to check the achievement of both the experimental and control groups after experiment.

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3.4.

Time Observation Schedule.

Observation schedule for determining the proportionate amount of time taken by the students, students+teacher and teacher in each group. 3.4

Procedure

3.5

Administration of pre-test

The pre-test was given to the sample of 80 students of 9th grade. The all other conditions of time, weather, like and dislike were same for all the students. Instructions for the test solving were given equally for all the students. 3.6 pre-test scoring and grouping. After administration of the pre-test, the test was marked. Each true item of the test was given one mark. After marking the tests of all the 80 students, the grouping of the students was being made. Grouping was in such a way that the students having equal marks were paired, and in this way the whole sample was divided into pairs of two. After grouping, one student from each pair was assigned to the experimental group and other to the control group on random basis, so that both the groups are equal before the treatment (experiment). 3.7

Treatment

After forming two equivalent groups, the two groups were taught by the two teachers of the school having same qualification, teaching experience, age and reputation at the school. Both the groups were given the same experiences except for the method of teaching. The experimental group was taught by the Computer Assisted Instruction method and the control group was taught by the traditional Lecture method. Duration of the teaching was one month with one period on daily basis in both the groups. 3.8

Administration and scoring of post-test

At the end of the treatment, the post test was being given to the students of both the experimental and control groups. Instructions, time, environment and all other factors of the test administration were kept same for both the groups, so that the internal or external factors may not effect the academic achievement. After collecting the answer scripts, theses were marked and the scores were tabulated for the purpose of analysis. Presentation and Analysis of Data Table1: Showing the mean pre-test, post-test score of the control and experimental groups

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Table 1 shows that the mean, standard deviation and the variance of the control and experimental groups are 17.37997, 1.568112, 2.458974 and 17.34682, 1.64687, 2.712179 respectively. The computed z-value of the two independent groups 0.0838 is less than the tabulated value (1.96) at 0.05 level of significance. So the difference between the mean of two groups is not significant at 0.05 level of significance. The not significant z-value shows that both the experimental and control groups were equivalent before starting the experiment. Table2: Showing the mean post-test score of the control and experimental group Variable

Total obtained score

Number of students

CG

2080

40

EG

2683

40

Mean

SD

Variance

47.37043

20.69436

428.2564

63.21231

20.28058

411.3019

Computed Z-value 4.580815

Table 2 shows that the mean, standard deviation and variance of the control and experimental groups are 47.37043, 20.69436, 428.2564 and 63.21231,20.28058,411.3019 respectively. The computed z-value 4.580815 of the two independent groups is greater than the tabulated value (1.96) at the 0.05 level of significance. so the difference between the means of the two independent groups is significant at 0.05 level of significance. The table also shows that the experimental group performed significantly better than the control group in overall academic achievement of the students. Table 3: Showing the proportionate amount of time taken by the teacher, teacher + student and students in the experimental and control groups. Group

Experimental

Control

Days

20

20

Total Time

Time taken by Teacher

Time taken by

Time taken by

Teacher+student

Student

13.33 Hrs

Hours

%age

Hours

%age

Hours

%age

3.0

22.5

3.33

24.9

7.0

52.6

13.33 Hrs

5.0

37.5

4.33

32.4

4.0

30.1

The above table shows that the percentage of time taken by the teacher, teacher+students and students in the experimental and control groups is 22.5%, 24.9%,52.6% and 37.5%,32.4%,30.15. It indicates that 15% ( 37.5-22.50 and 7.5%(32.4-24.9) more time is taken by teacher and teacher+students respectively in the control group than the experimental group. Whereas 22.5%(52.6-30.1) more time is taken by the students in the experimental group as compared to the control group.

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4.

Results and Discussion i.

In the pre-test the mean, standard deviation and the variance of the control and experimental groups are 17.37997, 1.568112,2.458974 and 17.34682, 1.64687, 2.712179 respectively. The computed z-value of the two independent groups 0.0838 is less than the tabulated value (1.96) at 0.05 level of significance. So the difference between the mean of two groups is not significant at 0.05 level of significance. The not significant z-value shows that both the experimental and control groups were equivalent before starting the experiment.

ii.

In the post-test the mean, standard deviation and variance of the control and experimental groups are 47.37043, 20.69436, 428.2564 and 63.21231,20.28058,411.3019 respectively. The computed z-value 4.580815 of the two independent groups is greater than the tabulated value (1.96) at the 0.05 level of significance. So the difference between the means of the two independent groups is significant at 0.05 level of significance. This also shows that the experimental group performed significantly better than the control group in overall academic achievement of the students.

iii.

The percentage of time taken by the teacher, teacher+students and students in the experimental and control groups is 22.5%, 24.9%,52.6% and 37.5%,32.4%,30.15. It indicates that 15% ( 37.5-22.50 and 7.5%(32.4-24.9) more time is taken by teacher and teacher+students respectively in the control group than the experimental group. Whereas 22.5%(52.6-30.1) more time is taken by the students in the experimental group as compared to the control group.

4.1 Conclusions The findings of the study led to the following conclusions. i.

Teaching physics to the 9th grade students using the computer assisted instructions has positive effect on the academic achievement of students as compared to the traditional lecture method of teaching, so the first null hypothesis is rejected.

ii.

The percentage of time taken by the teacher, teacher+students and students in the experimental and control groups is 22.5%, 24.9%,52.6% and 37.5%,32.4%,30.15. It indicates that 15% ( 37.5-22.50 and 7.5%(32.4-24.9) more time is taken by teacher and teacher+students respectively in the control group than the experimental group. Whereas 22.5%(52.6-30.1) more time is taken by the students in the experimental group as compared to the control group. so the second null hypothesis was rejected.

4.2 Discussion CAI in its any form provides chances for learning by doing. Learning by doing is more effective than learning by watching the teacher. Also in CAI program, students are more interested ( Iqbal, p.142).BDrill and practice promotes the acquisition of knowledge or skill (Digital, 1984.p.23). Discovery learning encourage participation, arouse awareness and interest ( Bichler and Snowman, 1986). CAI programs motivate the students and arouse their interest in teaching learning process ( Iqbal, p.24). The learning time is reduced when compared to regular classes (Ellington and et-al, 1993). Gerard ( 1967) lists CAI potential

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advantages as better and faster learning, learning at the students own pace, and better instruction because of expert authors, eliminating routine drudgery for the teacher, and thereby allowing her more time for true teaching ( Margolin and Misch, 1970, Gerard1967, Filep, 1967). The result of the present study are in line with the researches in this field. 5. Recommendations Following recommendations are made in the light of the conclusions. 1. The physics teachers at secondary level may use the computer assisted instructions method of teaching, can utilize the computer packages/programs in this way they can made their teaching more effective as compared to the traditional lecture method. 2. Secondary school teachers should not be limited to only traditional lecture method in science subjects. 3. The science teachers should provide maximum amount of time to the students in daily class period to think upon and clear the science concepts concerning the areas of discovery learning, problem solving, drill and practice and tutorials.

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References Waheed T & Rasheed K (1993) Lahore, p.2-15.

Teaching of Science

, Ilmi kitab khana , Urdu bazaar

Siddiqui M.H (2005) , Techniques of Classroom teaching, volume 1, APH Publishing corporation, offset printers, New Delhi-110002, p.1-54. Mansoor N (2000), Guidelines to Teaching, Publication Cell Pakistan Educational Foundation, G-9 Markaz, Islamabad, p.14-135. Tishna A (1997), Curriculum and Teaching, volume 1, Yousaf Mukhtar Printing Press Lahore, p.135-246. Iqbal J (1999), Allied Material on Computer in Education, Allama Iqbal open University, S.T Printers, Islamabad, p.128-300. Iqbal J (1999), Computer in Education, Allama Iqbal open University, Islamabad, p.15-124. Ellington,

H. et-al (1993). Handbook of Educational Technology London: Kagan page Ltd.

Iqbal, M.J. (1998), Computer Assisted Instructions in Pakistan Jounal of Distance Education. Islamabad: Allama Iqbal Open University. Woodhouse,D. Computers: Premise and Challenges in Education. McDoughall, A. (1986) Melbourne: Blackwell Scientific Publication. Rodgers J.L. (1970) Reports from Industry in Margolin , J.B. and Mish, M.R.editors, Computer in Classroom, S.Partan Book. Ney York

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Understanding Barriers to Intrapreneurship in Work and Social Affairs Governmental Organization (A Case Study in Iran) Habibollah Salarzehi (Corresponding Author) Assistant Professor, Faculty of Management and Accounting, University of Sistan and Baluchestan, Zahedan, Iran Amir Forouharfar Masters Student of Entrepreneurship, Faculty of entrepreneurship, University of Sistan and Baluchestan, Zahedan, Iran

Abstract Many studies have been carried out on the barriers to intrapreneurship or corporate entrepreneurship, but a few ones have prioritized these studied barriers to the domestic atmosphere of Eastern countries. Therefore, as a case study, Work and Social Affairs Organization in Iran has been chosen. This organization is in charge of promoting and paving the way for entrepreneurship in Iran. Based on the size of the organization, a sample of 15 employees in this organization in its Fars Province branch has been chosen .They answered to the questionnaires which had the list of barriers. Since they are familiar with the barriers to intrapreneurship in the atmosphere of Iran, the frequency of their answers (stated barriers) were shown in a final bar chart. Based on this study the tension between the values of the intrapreneur and its organization, is the principal barrier to intrapreneuship in Iran. Key Words: Entrepreneurship, Intrapreneurship, Corporate Entrepreneurship, Barrier 1. Introduction In 1985 Pinchot[33] coined the term "intrapreneurship", short for intra-corporate entrepreneurship, which describes the practice of entrepreneurship within organisations.Sathe[37]defined corporate entrepreneurship as a process of organizational renewal. Other researchers have conceptualized corporate entrepreneurship as embodying entrepreneurial efforts that require organizational sanctions and resource commitments for the purpose of carrying out innovative activities in the form of product, process, and organizational innovations[13],[3]. If we want to have prosperous and successful companies, especially the large ones, we need to know the general and idiosyncratic barriers to our companies. In this study, the general barriers have been the main place of attention for this study. We need to know them, to be able to face them scientifically. The main way for understanding these barriers is to know firstly those important factors on fostering intrapreneurship and then to study the obstacles on the way of these fostering factors of intrapreneurship.Therefore, the necessary requisites for intrapreneurship have been studied in different intrapreneurship literature.Since,logically what ever blocks the way of these requisites formation could be the potential barrier to intrapreneurship,the requisites have library studied and brought in the literature review.

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Policy makers in different countries are trying to implement policies that facilitate the direction of intrapreneurship as one of the key elements of economic progress. In Iran as a developing country, almost we have the same difficulties, but with special deviations from the global difficulties. Experience shows that successful countries have paid enough attention to entrepreneurship in technology, marketing, organizational aspects, etc.They have welcomed change .Since logical change is the threshold to innovation [39]. What concerns here is the entrepreneurship in the framework of the corporation, the action which is called Corporate Entrepreneurship of Intrapreneurship.Leader of the organizations respect the people who have thoughts, because they are the very beginning of innovation which leads to entrepreneurship. Knowing the barriers to intrapreneurship, could help the policymakers of the companies and the country to face these barriers with wide open eyes and get ready to wipe or to moderate the effect of the barriers, and open a new horizon before their company and consequently, their country[8],[11],[28]. This study's main goal is to understand the frequency of some of the common barriers with intrapreneurship according to an official organization for the promotion of entrepreneurship in Iran, as a case study, Work and Social Affairs Organization has been chosen. Therefore, the study has a localized perspective. By knowing the localized barriers to intrapreneurship, we can pave the way for the innovation and reach to superiority to our rivals. As Meg and Roberts [27] believe, in a world of constant change, products in the world marketplace derive less and less of their value from production labor or capital goods and more and more from the quality of thought and innovation imparted to the products. Concerning the triadic relationship among innovator-intrapreneur, organization-management, and market environment, Piatier [32] categorized barriers between organization and market environment as exogenous barriers, while those between innovator-intrapreneur and organization-management he termed endogenous barriers. Therefore, both the exogenous and the endogenous barriers have been studied here.

2. Literature Review The literature about barriers to intrapreneurship has been reviewed in two levels: endogenous and exogenous.

2.1Endogenous Barriers 2.1.1Barriers to Intra-Organizational Innovation Innovation starts by the perception of the opportunity.Adonies [1] believes, unless opportunities and events perceived and acted upon by the members of the organizations, entrepreneurship will not take place. Entrepreneurial firms create mechanisms that focus the attention of the organizational members on innovative opportunities and generate behaviors that support entrepreneurial venturing. Some organizational variables which seems to be instrumental in the creation of attention to innovative opportunities and generation of entrepreneurial organizational behaviors are :entrepreneurial strategy, organizational culture, organizational structure, resource COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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availability, reward systems, management support, and risk taking [1].On the other hand to have innovation within the large companies, definitely we need individual entrepreneurs who work together.So,the attention on the individual characters of these entrepreneurs, who collectively make the intrapreneurship is worthy of attention. What facilitates the formation of entrepreneurs could have some impact on corporate entrepreneurship. Recent research on entrepreneurs, have focused on their personal traits [7], [41], [17]. Hornsby, et al. [21] point out that there are distinctive characteristics which define potential entrepreneurial behavior, such as risk-taking propensity, desire for autonomy, need for achievement, goal orientation, and internal locus of control. Adonis [1], believes, although the suggested individual characteristics by Hornsby et al. [21] are notions, with empirical basis in the CE literature, they nevertheless furnish useful guidelines to avoid incompatibility between the individual and the organization. If we understand these individual characteristics, we could help them to foster in the people which could lead to intrapreneurship.On the other hand to put this innovation, as an innovative project, into action we must overcome significant organizational obstacles and build a support network with management representatives, before finally being unveiled to face the inevitable criticism and (hopefully, eventually) acceptance. This body of literature appears to (a) adopt the perspective of the necessity of overcoming (1) resistance from upper management and (2) barriers of corporate procedures and inflexibility, and to (b) advocate initiation of innovative endeavors through empowerment of individuals at various organizational levels and roles[18].Resistance to change is one of the main internal barriers to intrapreneurship.some organizations block the way of innovation completely and some others partially.Devarajan et al.[14]believe ,many mature organizations, unwilling to alter the status quo, tend to create focused initiatives that are mandated to identify and exploit new opportunities. While such focused initiatives may stimulate innovation, the very nature of their design erects barriers between the existing organization and the innovation effort. Sometimes this resistance is individual. Individuals often resist change because they have already invested a great deal of time and energy in mastering a certain job, and fear that their investment will be wasted [6]. According to Moerdyk and Fone [30], resistance to change can generally be judged in terms of three different factors - the individual s self interest, his / her personality structure, and the social psychology of persuasion. Change is also resisted because the future is unknown and failure could potentially cause risk to personal status and esteem, meaning that innovation could threaten existing power structures and relations [19]. Insert Figure 8 here Simplified schematic of origion of innovation barriers[27]. 2.1.2 Individual and Organizational Barriers Individual and organizational factors are related to intrapreneurship, besides the environmental ones [10], [4], [23], [24]. Individual propensity to act entrepreneurially is a function of motivation [26], [29]. Lack of effective individual training for some of the employees which could act intrapreneurially could be another barrier. Zimmerman [42] suggests that high potential individuals should receive training concerning the CE process, including an introduction to the CE, background on the company s successes and failures in CE, training on opportunity recognition/creation and creativity, common barriers to CE, and finally an overview of how corporate entrepreneurs can launch their initiatives at the company.

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Organizational context, could lead to intrapreneurship [4], [31], [15], [20]. Traditional bureaucratic structure could be a barrier to the previously mentioned propensity, since they have up-down dictates of programs. Herbert [18] mentions that corporate entrepreneurship programs are usually built around bottom-up processes. Moreover, formality in relationships significantly decreases the possibility of any interactions by forming a gap between the corporation and its entrepreneurship goals and there is an inverse relationship between complexity (complexity of communications inside organization both in vertical and horizontal directions) and corporate entrepreneurship [13], [22]. Roberts [35] identified important organizational policies and attitudes that tend toward defeating entrepreneurial efforts; these include: bias against younger personnel taking on venture responsibility, less encouragement of and less latitude for independent action, difficulty in securing capital support, and lower sponsorship. According to Fry[16], there are four clusters of factors which help to explain why large organizations have trouble becoming and staying intrapreneurial and why they have trouble regaining a level of intrapreneurship once it is lost:(a) resistance to change,(b)inherent nature of large organizations,(c) lack of entrepreneurial talent,and explains that on the whole, one finds very few entrepreneurs in large organizations, as typically they are not attracted to large organizations because of (d)inappropriate compensation methods. Fry [16] states that,"Even though monetary rewards may not be especially important to entrepreneurial individuals, some mechanism of rewarding innovation must be evident if innovation is to continue." Mintzberg [26] believed that continuing innovation is best met through the structural "type" he termed the "Adhocracy". In fact, he notes that all other organizational forms are either passé or simply current, but that the Adhocracy "is clearly tomorrow's" structure [18].Inappropriate organizational culture is another endogenous barrier. In his study of Singapore middle managers, Tan [38] found that organizational culture, flexibility, and sponsorship influenced middle managers to become internal corporate entrepreneurs. Boksjo and Delin [5] identified the origins of the barriers to be the differences in mental attitudes, behavior, and styles accumulated from organizational culture. Meg and Roberts [27] mentions such organizational culture as barrier in some" behavioral and organizational culture-based barriers" to innovation[34],[36] such as,(a)the proposed innovation poses a threat to individual positions and the existing power structure;(b)a high individual risk exists of being blamed for possible failure of the innovation attempt;and(c)a reluctance exists to enter new fields or new businesses due to unfamiliarity.Therefore, these fears("threat barrier", "risk barrier , and "reluctance barrier") reflect an underlying tendency to fight to remain the same. Other subtle barriers result from tension between organization and entrepreneur's values and needs at different stages of entrepreneur's growth pattern [27] as summarized in figure2. Insert Figure 9 here.Conceptual illustration of barriers resulting from tension between organization and entrepreneur's values and needs at different stages of entrepreneur's growth pattern [27]. 2.2Exogenous Barriers Environmental factors, such as customers,suppliers,competitors and institutional bodies with which the organization interacts, influence the behavior of the individual in the

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organization.Ghoshal and Nohria[1]; and Birkinshaw[4] argue that the behaviors of the individuals are formed by other factors more than just the administrative ones. Governmental regulations can be stumbling blocks to entrepreneurship [2].Martin [25], mentions supportiveness of relevant government policies as one of the criteria for evaluating innovation. Most researchers either explicitly or implicitly agree that the following environmental categories of factors influence the entrepreneurial process [9]: (a) Political factors (e.g., legal restrictions, quality of law enforcement, political stability, and currency stability), (b) market forces (e.g., structure of the industry, technology regime, potential barriers to entry, market size, and population demographics), and (c) resources (e.g., availability of investment capital, labor market including skill availability, transportation infrastructure, and complementary technology). Domestic or rural culture could be another exogenous barrier.Winogrodzka [40], states that the main barrier of entrepreneurship development in rural areas is miss adapting the revitalizations' programs to the specific cultural conditions. Most of the industrial towns, with most of the factories in Iran are in the suburbs or outskirts of cities, and have villagers as workers. 3. Conceptual Framework Looking at only the major components, one can formulate a conceptual model describing the interrelationships among exogenous and endogenous barriers (Figure 3). According to the conceptual framework, most of the barriers are the endogenous ones, since the inappropriate organizational culture, strategy, management, values, policies, structure, compensation methods, etc., which are to some extent in management control could have more sever impact on intrapreneurship than the exogenous barriers, which are completely or mostly out of management control .Definitely, more flexibility could be implemented in the organization than the environment. 4. Methodology 15 questionnaires were distributed among the employees of Work and Social Affaires Organization, which is a governmental organization in Iran for the promotion of entrepreneurship. The demographical data have been shown in table1 . The prioritized list of barriers to intrapreneurship was compiled and simplified, as summarized in conceptual framework. This list was the basis of questions on barriers. Then 30 questionnaires were filled and the reliability of the questionnaire was calculated by Cronbach's Coefficient in SPSS, which was 0.7137, and more than 0.7, so it was acceptable. The omission of none of the questions helped the increase of the coefficient, so no question was omitted. Insert Table 1 here .Demographical data of the respondents. The questionnaires were collected and analyzed by SPSS.As mentioned before, this study's main goal is to understand the frequency of barriers to intrapreneurship in Iran's atmosphere.So, the frequency of the respondents answers, were derived and shown in figure 4. Insert Figure 4 here.Frequency of barriers according to respondents.

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5. Conclusion Figure 4, shows the frequency of the barriers in Iranian organizations according to the respondents. Therefore, the most important barrier for intrapreneurship in Iran, according to the respondents is the tension between the values of the individual intrapreneurs and the organization's values.The other frequent barrier is the domestic culture in Iran, which is not appropriate for intrapreneurship.Other barriers, to some extent have near frequencies. The result is interesting, since culture and values are interrelated concepts, and both of them are strong barriers to intrapreneurship in a country like Iran. It is noteworthy to mention that the present study is a survey and hence reflexes the idea of those who are in charge of intrapreneurship in that country. Definitely, there could be some other domestic barriers, which the writers of the present study did not focus on. Barriers like, economic problems , sanctions, low education about intrapreneurship,lack of job security,etc.,which need the investigation of the future researchers to define the barriers to intrapreneurship more locally .To overcome the cultural and value-based barriers, we recommend that each large firm in Iran, make an Intrapreneurship Committee to travel to successful countries' intrapreneurial firms and get familiar to the organizational culture in these firms , and after coming back to Iran, hold some sessions with the top management to redefine the cultural norms of the organization,and accommodate the norms with local conditions and try to make the values of organization as close as possible to the values of prospective intrapreneurs .The other cultural variable, which is hard or impossible to change for the organization is the domestic culture of the country. It is agreeable for those firms that want to overcome this barrier, to change their head office to another country, to be able to deal with international environment and culture which promotes competition and intrapreneurship, more easily.

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References [1]Adonis, M. (2003). .The relationship between corporate entrepreneurship, market orientation, organizational flexibility and job satisfaction. University of Pretoria: Ph.D Dissertation. [2]Barth, J. R., Yago G., & Zeidman B. (2006).Barriers to entrepreneurship in emerging domestic markets: analysis and recommendations, in Adonis, M. (2003).The relationship between corporate entrepreneurship, market orientation, organizational flexibility and job satisfaction. University of Pretoria: Ph.D Dissertation. [3]Bagherianejad, J. (2006).Cultivating technological innovations in Middle Eastern countries: factors affecting firms technological innovations in Iran. Cross Cultural Management: an International Journal, 13(4), 361-380. [4]Birkinshaw, J. (1999).The determinants and consequences of subsidiary initiative in multinational corporations .Entrepreneurship: Theory & Practice, 24, 1. [5]Boksjo, L., & Delin G. (1991). Fostering innovation and corporate entrepreneurs: implication for organizational policy and action, Chapter 18, pp. 235-244, in D. V. Gibson (ed.), Technology Companies and Global Markets, Programs, Policies, and Strategies to Accelerate Innovation and Entrepreneurship. Rowman & Littlefield Publishers, Inc. [6]Bridge, S., O'Neil, K., & Crombie, S. (1998). Understanding enterprise, entrepreneurship and small business. London: Macmillan: Business Press. [7]Brockhaus, R.H. (1982).The psychology of entrepreneurship.In Kent, C., Sexton, D. &Vesper, K. (Eds).Encyclopedia of Entrepreneurship. Englewood Cliffs, NJ: Prentice Hall. [8]Carey, W. D., M. Michaelis, & Collier D. W. (1973). Barriers to innovation in industry: opportunities for public policy changes. Arthur D. Little, Inc. and Industrial Research Institute, Inc., report prepared for the National Science Foundation, NSF-748 and C725. [9]Collins J.C., Locke A.E., &Shane S. (2003).Entrepreneurial motivation. Human Resource Management Review, 13, 257 279. [10]Covin, J.G., & Slevin, D.P. (1991).A conceptual model of entrepreneurship as firm behavior. Entrepreneurship and Practice, 16(1), 7-25. [11]Covin, J.G.& Miles,P.M.(1999).Corporate entrepreneurship and the pursuit of competitive advantage.In Adonis, M.(2003).The relationship between corporate entrepreneurship, market orientation, organizational flexibility and job satisfaction. University of Pretoria: Ph.D Dissertation. [12]Daryani, M.A. (2004) .Efforts in Iran to encourage creative entrepreneurship. Study Meeting on Creative Entrepreneurship, Taipei, Republic of China, May 2004, Asian Productively Organization (APO). [13]Dehghan, N., & Haghighi, M. (2007).Corporate entrepreneurship in Iran and development of a model for the economic and social environment in Iran.

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[14]Devarajan T. P., Ramachandran K., & Ray S. (2006).Corporate entrepreneurship: How? Vikalpa, 31(1). [15]Feldmann, H. (2006). Hayek's theory of evolution: a critique of the critiques. In J. G. Backhaus (Ed.), Entrepreneurship, money and coordination (pp. 1-46). Cheltenham, LJK: Edward Elgar. [16]Fry, F.L. (1993). Entrepreneurship: a planning approach. Minneapolis: West Publishing Company. [17]Gartner, W.B. (1988).Who is an entrepreneur? is the wrong question.American Journal of Small Business, 12(4), 11-32. [18]Herbert, T. & Brazeal, D. (1997).The future of the corporation: corporate entrepreneurship on the fly. Adonis, M. (2003).The relationship between corporate entrepreneurship, market orientation, organizational flexibility and job satisfaction. University of Pretoria: Ph.D Dissertation. [19]Hill, A.M. (2003).The development of an instrument to measure intrapreneurship: Entrepreneurship within the corporation setting. Rhodes University: Dissertation (MA). [20]Hisrich, R. D., & Peters, M. P. (1992). Entrepreneurship: starting, developing and managing a new enterprise. Illinois: Irwin. [21]Hornsby, J.S, Naffziger, D.W., Kuratko, D., &Montagno, R. (1993). An interaction model of the corporate entrepreneurship process. Entrepreneurship Theory and Practice, 17(2), 29-37. [22]Hornsby, J.S. & Kuratko, D.F. & Zahra, S.A. (2002).Middle managers, perception of the internal environment for corporate entrepreneurship: Assessing a measurement scale. Journal of Business Venturing, 17 (3), 253-273. [23]Kane, T. (2007) .Economic freedom in five regions. In 2007 Index of Economic Freedom, Chapter 4, the Heritage Foundation Publishers and the Wall Street Journal Publishers, pp. 57 72. [24]Klapper L., Laeven L., & entrepreneurship.www.nber.org/papers/w10380

Rajan

R.

(?).Barriers

to

[25]Martin, M. J. C. (1984).Managing technological innovation and entrepreneurship. Reston Publishing Company Inc. [26]McCleland (1967); Kets de Vrice. (1977). In Adonis, M. (2003).The relationship between corporate entrepreneurship, market orientation, organizational flexibility and job satisfaction. University of Pretoria: Ph.D Dissertation. [27]Meg J.C.S.; & Roberts E.B. (1996). Understanding barriers to innovation and intrapreneurship in an R&D organization. [28]Michalski, T. (2006).Radical innovation through corporate entrepreneurship from a competence-based strategic management perspective. International Journal of Management Practice, 2 (1), 22-41. COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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[29]Mintzberg, H. (1983). Structure in Fives: Designing Effective Organizations .Englewood Cliffs, N.J.: Prentice-Hall. [30]Moerdyk, A. P., & Fone, J. (1987). Resistance to change Why change is resisted. IPM Journal, 6(8), 14-17.

its origins and management. Part I

[31]Morris, M.H. & Kuratko, D.F. (2002).Corporate entrepreneurship.New York: Harcout College Publishers. [32]Piatier, A. (1984). Barriers to innovation: a study carried out for the Commission of the European Communities, Directorate-General Information Market and Innovation. Frances Pinter and London & Dover, NH. [33]Pinchot, G. (1985). Intrapreneuring-why you don't have to leave the corporation to become an entrepreneur. New York: Harper & Row. [34]Rappa, M. A. (1993). Obstacles to systemic innovation: an illustration from semiconductor manufacturing technology, Sloan WP #3605-93, Alfred P. Sloan School of Management,Massachusetts Institute of Technology, Cambridge, MA, 31 August 1993. [35]Roberts, E. B. (1968). Entrepreneurship and technology: a basic study of innovators; how to keep and capitalize on their talents. Research Management, 11 (4), 249-266. [36]Rogers, E. M. (1983). Diffusion of innovations, 3rd. edition. New York: Free Press. [37]Sathe, V. (1989). Fostering entrepreneurship in the large diversified firm. Organizational Dynamics. 18(1), 20-32. [38]Tan, W.L. (2003). Corporate entrepreneurship and innovation: key thrusts in the knowledgebased economy, in Tan Wee Liang (ed) Entrepreneurship and Innovation in the Knowledgebased Economy: Challenges and Strategies. Asian Productivity Organization, Tokyo, pp.39-46. [39]Winkler, N. (2002). Ringing the changes. People Dynamics, 1, 16-9. [40]Winogrodzka A., (1997).Social-cultural barriers of entrepreneurship on rural areas. Poland: Catholic University of Lublin. [41]Wortman, M.S. (1986).A unified framework research typologies, and research prospectuses for the interface between entrepreneurship and small business. In D.L Sexton & R.W.Smiltor (Eds.).The art and science of entrepreneurship. (pp 273-332)Cambridge,MA:Ballinger. [42]Zimmerman J.(2010).Corporate entrepreneurship at GE and Intel. 2010 EABR & ETLC Conference Proceedings Dublin, Ireland.

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Figure 10. Simplified schematic of origion of innovation barriers[27].

Figure 2.Conceptual illustration of barriers resulting from tension between organization and entrepreneur's values and needs at different stages of entrepreneur's growth pattern [27].

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Endogenous Barriers

Exogenous Barriers 1. Environmental Factors Customers Suppliers Competitors 2. Governmental Regulations

3. Domestic Culture

Barriers to Intrapreneurship

1.Intra-Organizational Innovation Barriers Lack of opportunity perception Insufficient intrapreneurs Organizational obstacles Resistance to change Tension between intrapreneurs'an d organization's values

2. Organizational Barriers Bureaucratic structure Organizational policies Nature of large organizations Inappropriate compensation methods Organizational culture

Figure 3.Both endogenous/internal barriers and exogenous/external barriers are in work to block intrapreneurship.

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Figure 4.Frequency of barriers according to respondents.

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Demographical Characteristics Valid Male

Frequency

Percent

Valid Percent

Cumulative Percent

13

86.7

86.7

86.7

2

13.3

13.3

100.0

15

100.0

100.0

3

2

13.3

13.3

13.3

4

1

6.7

6.7

20.0

5

4

26.7

26.7

46.7

8

3

20.0

20.0

66.7

9

1

6.7

6.7

73.3

10

1

6.7

6.7

80.0

11

1

6.7

6.7

86.7

12

1

6.7

6.7

93.3

15

1

6.7

6.7

100.0

100.0

100.0

13

Sex Female

2 Total

Experience

Total

15

25

1

6.7

6.7

6.7

27

1

6.7

6.7

13.3

28

2

13.3

13.3

26.7

29

2

13.3

13.3

40.0

30

1

6.7

6.7

46.7

32

1

6.7

6.7

53.3

33

1

6.7

6.7

60.0

35

1

6.7

6.7

66.7

Age

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Educational background

36

2

13.3

13.3

80.0

40

1

6.7

6.7

86.7

43

1

6.7

6.7

93.3

49

1

6.7

6.7

100.0

Total

15

100.0

100.0

Diploma

3

20.0

20.0

20.0

Associate

7

46.7

46.7

66.7

Bachelor

4

26.7

26.7

93.3

Masters

1

6.7

6.7

100.0

Total

15

100.0

100.0

Table 1.Demographical data of the respondents.

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Post purchase antecedents: Interplay between buyer regret, social classes and product types. Afzaal Ali Department of Management Sciences, International Islamic University Islamabad,Pakistan Dr. Muhammad Ismail. Ramay Associate Professor Department of Management Sciences, International Islamic University Islamabad,Pakistan Abstract The objective of this paper was to investigate the regret of buyer s in three categories of products; Specialty, shopping and convenience products on the basis of their income, and the second objective was to find out that which profession s people (Low- level occupation s, Middle-level professional s and Upper- level professional s), feel more or less regret in which product category after making their purchase decision. The analysis was based on a survey of different locations of Islamabad and Rawalpindi. And one-way ANOVA was used for the analysis. The researcher used the area sampling technique for collecting data and the sample size was of 225 people. Results showed that there were significant differences in the regret of specialty and convenience products but not for the shopping products among buyers on the basis of their income. On the other hand it was found that regret varies among different professional s people in three categories of products. In Pakistan marketers of different companies can use this information in enhancing their knowledge about the regret of different types of buyers in different categories of product. Keywords: Regret, shopping products, speciality products, , convenience products, Car, Home

1.0. Introduction: When we go through the different stages of life, such as attended a different college, married someone else, chosen a different career, and deciding about a wrong product. Altogether these situations, we at times experience inevitable losses of life. As a result we grieve; grieving involves both anger and depression (Roese & Summerville 2005). To avoid regret usually people use two main strategies. Firstly people may prefer to choose substitutes of a product which will protect them from feedback on rejected alternatives. Secondly after making purchase decisions, people may avoid from the information which might point out that if they had decided differently, they would have obtained higher outcomes (Fastener, 1957). Regrets about what one has failed to do or what one has done are common. It has been defined as the negative cognitively-based emotion that we experience when realizing or imagining that our present situation would have been better had we acted differently (Zeelenberg, 1999) Inman et al. (1997) argued that performance information about the choices that were considered but not chosen have a considerable impact on post-choice assessment. The postchoice assessment is based on the sum of three components. These are expected performance, disappointment and regret. Because of excessive media, consumers are increasingly faced with information overloads and it s difficult to process all the available information of a product or

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service, before making a choice. Therefore after making a decision Individuals often receive unexpected outcomes regarding some brands (Taylor & Brown, 1988). According to Inman & Zeelenberg (2002) previously available information or experience provides fundamental reasons for decisions. After making a purchase decision if someone found enough motivation towards switching, then consumers feel less regret after finding negative performance of a chosen alternative (Inman & Zeelenberg, 2002). A person s behavior and attitudes reflects his social class. Social classes are hierarchically, relatively homogeneous, and enduring divisions in a society . In a social class, members shares similar behavior, interest and values. There is no single variable which can determine a person s social class; rather it is the combination of number of variables such as, income, occupation, wealth, education (Kotler & Scheff, 1997). Gilbert & Kahl (1982) identify nine variables that have emerged as most important in determining social class. These include economic variables (occupation, income and wealth), interaction variables (personal prestige, association and socialization) and political variables (power, class consciousness, mobility). The effects of social class can be felt anywhere. Almost every aspect of society is influenced in some manner by social class. People's social class will affect the way that they live their lives. Working class people and professional people may have very different leisure activities. Here in Pakistan we can also divide social classes into three different categories such as, an upper class, a middle class and a working or lower class. Now in this study we want to find out whether in Pakistan buyer regret differ according to different social classes. Along this we will also try to find out whether buyer regret among different categories of products such as convenience, shopping, specialty differs or not. Therefore in this paper researchers investigated regret of buyer s in three categories of products; Specialty, shopping and convenience products on the basis of their income, and secondly researchers investigated that which profession s people; Lowlevel occupation s, Middle- level professionals, and Upper- level professional s feel more or less regret in which product category after making their purchase decision. 2.0. Literature review: When people choose between decision alternatives they often consider how they will feel about the outcomes of each of the alternatives. People consider both negative feelings, such as regret and disappointment, and positive ones, such as rejoicing and elation (Tsiros, 1998). Regret and disappointment are mostly considered within the fields of decision making and emotions. And each area makes its own particular contribution to knowledge of the interplay between emotions and behavior (Van Dijk & Zeelenberg 2002). Regret is a counterfactual emotion. People experience regret when they think about what might have happened if they had made a different choice. When the comparison between the actual choice and its counterfactual alternative favors the foregone choice people experience regret. In contrast, when this comparison favors the actual choice over the counterfactual one, people experience rejoicing (Zeelenberg et al. 2002) The more the buyers search for information and seriously consider alternatives, the more they experience regret. And if once a purchase decision is made by a person then he does not disperse the influence of consumers' pre purchase activities but to suffer and continuing to stimulate feelings of regret. Buyers who switch brands experience more regret than buyers who did not switch brands (Keaveney, Huber & Herrmann, 2007). According to Newman & Westbrook (1978) dissatisfaction with the purchase decision process for major house- hold appliances occurs because of consumers' previous experiences for that product and the plans for information search activates such as visiting stores, reading, buying guides, and talking with other consumers. COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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Rada (1998) reported different variables through we can distinguish people according to their way of making purchase decision. These variables include age, sex, education and social position. People who consider product a necessity, they see the price and uses the product until it is worn out. While people from a secure social background considered the brand names for reasons of prestige and social distinction and they enjoys the act of shopping. Whereas, Holt (1998) suggested different cultural level of consumption preferences, between classes of American society; Individuals with low cultural capital (lower class) were primarily concerned with utilitarian characteristics of a home and its furnishings. Individuals with high cultural capital (higher class) were focused on expressive taste and quality considerations. Generally, in overall consumer market, associating brands and products with different values could generate stronger perceptions of status and pleasure (Kim, 2005). Martineau (1958) argued that the kinds of things a person will or will not buy are strongly related his class membership, and also whether he is mobile or stable. He added that the individual's consumption patterns actually symbolize his class position, a more significant determinant of his buying behavior than just income. According to Wright (2000) consumers preferences of certain products is not because of multi-cultural societies and global markets but mostly due to his childhood secrets, his private indulgences, aspirations and cultural capital. It occurs especially in those societies where upward social mobility is taking significant groups of people away from their roots. Warner (1941) has described a six-class system; the Upper- Upper, Lower-Upper, UpperMiddle, Lower-Middle, Upper-Lower, Lower Lower cited by Coleman (1983). Upper-class held strongest desire for prestige brands i.e. spending with good taste . Middle-class was focused on buying what is popular . While Lower-class focus lies on evaluation of how well products work (Coleman, 1983). Dholakia (2001) reported that in low purchase involvement a consumer may not evaluate while in high involvement they strongly evaluate the products to each other. As people involvement, cost, perceived differences (Kotler & Armstrong, 1998) and people perception of buying and consuming goods differ according to their social classes and product types. So researcher made two assumptions. Firstly buyer regret varies among different product types on the basis of people s income; secondly buyer regret varies among professional s people of different social classes in the same categories of products. 2.1. Theoretical frame work:

Buyer Regret

People Professions

Product Types

Low- level occupation s people: Daily wages, unskilled labor Middle-level professional s people: Teachers, government, private servants Upper-level professional s people: Professors, doctors, businessmen

Convenience products: Toothpaste, soap Shopping products: Clothing, footwear Specialty products: Car, home

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2.2. Research hypothesis: H1# Buyer regret varies in three different product types on the basis of their income. H2# Buyer regret varies among professional s people of different social classes in the same categories of products. 3.0. Methodology: 3.1. Subject: Researcher collected data from different location of Islamabad and Rawalpindi such as Rahat bakers, Bata shoes, Service shoes, Ghakar plaza and our target population was those people who came there for shopping and entertainment. The researchers divided products into three categories like convenience products, shopping products and specialty products. From convenience products category, two product toothpaste and soap were selected. Likewise, from shopping products category clothing and footwear were selected. While specialty products category included car and home. The research team used convenient sampling technique for the collection of data from respondents, and the sample size consisted of two hundred and fifty respondents. 3.2. Procedure: Questionnaire was self administered. The researchers personally visited above mentioned places and filled the questionnaires themselves from the respondents. Out of 250 questionnaires, twenty five were omitted from our data analysis due to incomplete or missing information. A final response rate was 90 per cent. The resulting respondent profile was consider to be encompassing and fairly well distributed. Table I provides a summary of the respondents demographics 3.3. Instrument: Researcher used The regret experience measure (REM) model for measuring the regret. This model was developed by Creyer and Ross (1999). For measuring the social class Coleman and Rainwater (1978) described the The American class structure cited by Coleman (1983). With the help of this American class structure the researcher divided people into three types of occupational level i.e. low- level occupation s people, middle-level professional s people and the upper-level professional s people. Low- level occupation s people were daily wages and unskilled labor. Middle-level professional s people included teachers, government, semi government and private servants. While upper- level professional s people comprised of professors, doctors and businessmen. In product type researcher take three types of products convenience, shopping and specialty products. Demographic information regarding student s characteristics was also obtained. To measuring the Post purchase antecedents: interplay between buyer regret, social classes and product types . The researcher used the 5-point Likert scale in this study. Questions were based on a five-point Likert scale with response options ranging from strongly disagree to strongly agree.

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4.0. Data analysis and results: Income less than 10,000 between10,000 to 50,000

Frequency

%

75 120

33.33 53.33

More than 50,000 30 Education Matric 75 FA to BA 23 MA to PhD 127 Occupation daily wages , unskilled 75 labors govt, semi govt private 105 servants, teachers professors, doctors, 45 business men Table I. Respondents demographic profile

13.33 33.33 10 56.67 33.33 46.67 20

One way ANOVA Sum of Squares

df

Mean Square

regret of specialty product

Between Groups

14.150

2

7.075

Within Groups

34.917

223

0.401

regret of shopping product

Between Groups

0.600

2

0.300

Within Groups

47.500

223

0.546

regret of convenience product

Between Groups

21.054

2

10.527

Within Groups

30.013

223

0.345

F

Sig.

17.628

.000

.549

.579

30.516

.000

Table II.

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A one-way ANOVA was used for the analysis. And hypothesis 1 is strongly supported for the specialty and convenience products but not for the shopping products. One-way ANOVA revealed that there were significant differences found in the regret of specialty products (F {2, 223} = 17.628, p < .000) and convenience products (F {2, 223} =30.516, p.579) in the regret of shopping products among different categories of buyers.

N regret of specialty products

regret of shopping products

regret of convenience products

daily wages , unskilled labors govt, semi govt private servants, teachers professors, doctors, business men daily wages , unskilled labors govt, semi govt, private servants, teachers professors, doctors, business men daily wages , unskilled labors govt, semi govt, private servants, teachers professors, doctors, business men

Mean

Std. Deviation

Std. Error

75

3.1667

.50855

.09285

105

3.7381

.70051

.10809

45

3.6667

.94972

.22385

75

4.5333

.37293

105

3.6905

.91478

.14115

45

3.8333

.51450

.12127

75

4.5333

.34072

.06221

105

3.5952

.74549

.11503

45

3.5556

.98352

.23182

.06809

Table III. Mean scores and buyer regret of different professional s people in different product categories

Our second hypothesis was that buyer regret varies among professional s people of different social classes. A mean analysis was uses to explore the differences of regret among different professional s people in three categories of products. In first category low level occupation s people were close to (mean=3.1667) neutral, when they were asked about their regret toward specialty products i.e. Car and Home. While on the other hand middle level (mean=3.7381) and upper level professional s people (mean=3.6667) were closed to agree. It mean that they felt regret after purchasing a car or home. In shopping product i.e. Clothing and Footwear low level occupation s people showed a high level of regret after the purchased of product and they were (mean=4.5333) closed to strongly agree. While middle and upper level professional people felt regret but not significant. And finally in the last category low level occupational people felt

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significant regret (mean=4.5333) in convenience products i.e. Toothpastes and Soaps and they were closed to strongly agree. On the other hand middle level (mean=3.5952) and upper level professional people (mean=3.5556) felt regret but not significantly. 5.0. Discussion and managerial implications: This research examines how the regret of buyer s varies in three categories of products i.e. specialty, shopping and convenience products on the basis of their income and secondly which profession people feels more or less regret in which product category after making their purchase decision. One-way ANOVA revealed that there were significant differences in the regret of specialty products and convenience products among different buyers on the basis of their income. On the other hand there were no significant differences in the regret of shopping products among different buyers. People from every income group frequently purchases convenience products in his/her daily life. And as the importance of convenience products varies according to people income level i.e. for low income level person, convenience products are more importance as compare to high income group of between 10,000-50,000 Rs. and above 50,000 Rs. So according to the result of this study regret varies in convenience product after consumers purchase. Similarly according to the study result regret also varies in specialty products i.e. after the purchase of home or car. Mostly low income people i.e. below 10,000 Rs, they said that they cannot afford to purchase a car or a home because of their weak financial conditions. On the other hand people with income level between 10,000-50,000 Rs and above 50,000 Rs have high purchasing power and they can easily buy a car or home, still regret varies between these two groups. And finally the study results shows that regret in shopping products does not varies among these three types of income groups. Our second hypothesis was that buyer regret varies among professional s people of different social classes in three categories of products. In specialty products middle level and upper level professional s people felt regret after the purchases of a car and home. While people those have low level occupations were neutral about the regret of specialty products. The reason is that most of the low level occupation s people cannot afford to purchase a car or home because of their poor financial condition. That s why they remain neutral about this question. In shopping products i.e. clothing and footwear low level occupation s people felt significant regret. While middle and upper level professional people felt regret but not significant. The reason is that low level occupation s people do not frequently purchase the shopping products because of their poor economic conditions and less shopping experience. And often when they try to buy a good brand of shopping products for their use and satisfaction then they feel significant regret. Since they had little experience of shopping and made less bargaining with salesperson. Therefore, after some time when they used products they felt regret because according to them they did not make good shopping. While the reason of low regret in middle and upper level professional people is that they had high shopping experiences as well as they made high bargaining with salespersons. Finally, in the last category again low level occupational people felt significant regret after the purchased of convenience products i.e. Toothpastes and Soaps. On the other hand middle level and upper level professional people felt regret but not significantly. The reason is that low level occupation s people were more concerned about the price and quantity of a product rather than its quality. And they frequently switch the brands because of low prices and for more quantity. Therefore, due to high frequency of brand switching they time and again felt significant regret. While the price and quantity do not matter more for middle level and upper level professional people so these two categories people do not feel regret in convenience products category.

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This study aims to provide insights that explore and describe the regret of buyer s in three categories of products, and secondly that which profession s people feel more or less regret in which product category after making their purchase decision. In Pakistan marketers of different companies can use this information in enhancing their knowledge about the regret of different types of buyers in different categories of product since post purchase dissonance affects one s future purchases. Furthermore, businesses should avoid from deceptive product advertising. Because when consumers find that what a business claim in its advertising is not present in actual product, then obviously they feel regret of their purchase, and in future there is a possibility of brand switching from these consumers. Marketers/ managers may also use this information for effectively targeting people and making marketing campaigns according to people professions 5.1. Limitation and future research directions: The first limitation of this study was that the researchers selected only three categories of product i.e. specialty, shopping and convenience products and didn t include the unsought product (Insurance, Blood donation). The reason was that in Pakistan very few people used these services and due to the shortage of time and cost it was difficult for researchers to locate them easily. For future point of view one can consider unsought product in order to find out different type of people post purchase dissonance. The second assumption was that researchers choose only two products from each category of product. Future researches may include more products from these four categories of product. Thirdly because of low geographical coverage and small sample size, future researches may be conducted with more geographical coverage and large sample size.

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References Coleman, R. P. (1983). The Continuing Significance of Social Class to Marketing. The Journal of Consumer Research, 10, (3), 265-280. Connolly, T and Zeelenberg, M. (2002). Regret and decision making. Current Directions in Psychological Science, 11, 212 216. Creyer, E. H. and Ross, W. T. (1999). The Development and Use of a Regret Experience Measure to Examine the Effects of Outcome Feedback on Regret and Subsequent Choice; Marketing Letters, 10(4), 379-392. Dholakia, U. M. (2001). A motivational process model of product involvement and consumer risk perception European journal of marketing, 35(11/12). Dijk, W.W and Zeelenberg, M. (2002). Investigating the Appraisal Patterns of Regret and Disappointment. Motivation and Emotion, 26(4). Holt, D.B. (1998). Does cultural capital structure American consumption? Journal of consumer research, 25, 1-25. Inman, J.J & Zeelenberg, M. (2002). Regret in Repeat Purchase versus Switching Decisions: The Attenuating Role of Decision Justifiability. The Journal of Consumer Research, 29(1), 116-128. Inman, J. J., Dyer, J. S. and Jia, J. (1997). A Generalized Utility Model of Disappointment and Regret Effects on Post-Choice Valuation. Marketing science, 16(2), 97-111. Keaveney, S. M., Huber, F and Herrmann, A. (2007). A model of buyer regret: Selected prepurchase and post-purchase antecedents with consequences for the brand and the channel, Journal of Business Research, 60, 1207 1215. Kim, H. S. (2005). Consumer profiles of apparel product involvement and values, Journal of Fashion Marketing and Management, 9(2), 207-220. Kotler, P. and Armstrong, G. (1998). Principles of marketing, - Prentice hall. Kotler, P. and Scheff, j. (1997). Standing Room Only: Strategies for Marketing the Performing Arts . Published by Harvard Business Press, PP- 72. Martineau, P. (1958). Social Classes and Spending behavior The Journal of Marketing, 23(2), 121-130. Rada, V. D. (1998). A single consumer or different types of consumer: an analysis of social types according to their consumer habits. British Food Journal, 100(7), 326 336. Roese, N. J and Summerville, A. (2005). What We Regret Most . . . and Why. Society for Personality and Social Psychology, 31(9), 1273-1285. Shani, Y., Tykocinski, O.E and Zeelenberg, M. (2008). when ignorance is not bliss: How feelings of discomfort promote the search for negative information. Journal of Economic Psychology, 29, 643 653. Taylor, S. E and Brown, J. D. (1988). Illusion and Well-Being: A Social Psychological Perspective on Mental Health. Psyehologlcal Bulletin, 103(2), 193-210. Tsiros, M. (1998) .Effect of Regret on Post-choice Valuation: The Case of More Than Two Alternatives. Organizational Behavior and Human Decision Processes, 76(1), 48 69. Westbrook, R. A. and Newman, J. W. (1978). An Analysis of Shopper Dissatisfaction for Major Household Appliances. Journal of Marketing Research, 15(3), 456-466. Wright, L.T., Nancarrow, C. and Brace, L. (2000). Researching taste: layers of analysis. British Food Journal, 102 (5/6), 429-440. # MCB University Press, 0007-070X. Zeelenberg, M. (1999). The use of crying over spilled milk: a note on the rationality and functionality of regret. Philosoph Psychol, 12(3), 25 40. COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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Zeelenberg, M., Bos, K. V. D., Dijk, E. V and Pieters, R. (2002). The Inaction Effect in the Psychology of Regret. Journal of Personality and Social Psychology, 82(3), 314 327.

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Determinants of consumer intention towards bargain in the retail market. Some facts from a developing country.

Afzaal Ali Department of Management Sciences, International Islamic University Islamabad,Pakistan

Dr. Muhammad Ismail. Ramay Associate Professor Department of Management Sciences, International Islamic University Islamabad,Pakistan

Abstract This study was conducted to investigate the hypothesized relationship of customers intention to bargain with level of awareness about marketplace and trust in seller. The second but the significant objective of this research paper was to ascertain the moderating effect of salespersons behavior in between level of awareness about marketplace and trust in seller. The frame of the study includes all buyers who purchased a second hand car. Data was collected from two hundred and seventy respondents, and due to time and cost consideration convenience random sampling was used. Correlation and regression analysis was used to find out the impact of determinants of consumer intention towards bargain. All the established research hypothesized relationships were confirmed and that customer s intentions to bargain are influenced by awareness about marketplace and trust in seller. And last two hypotheses confirmed the moderating effect of salesperson behavior to enhance the customers intention to bargain in the retail market of Pakistan. Keywords: Bargaining, Intention towards Bargain, Salespersons Behavior, Trust in Seller, Marketplace s Awareness, Automobile, Pakistan. 1. Introduction and background In a business-to-business context the development and maintenance of relationships between buyers and suppliers has gained attention from marketing scholars and practitioners. A number of researchers reported that there is a classic move from discrete to relational exchange (Gronroos, 1994). Instead of building transaction based relationship, now the concept of long term relationship with customers is quickly becoming common (Bauer, Baunchalk, Ingram, & laforge 1998). Therefore the growing significant importance of relationship marketing has forced many businesses to adopt the concept of long term relationship rather than the transaction based relationship, when do business with their potential exchange stakeholders (Sheth, 1996). Specifically, in the 1990s, one of the most extensively addressed trends in the marketing field has been labeled relationship marketing. Whereas there are incompatible explanations of what exactly relationship marketing is, the common subject matter is that the stress has moved from temporary, transactional exchanges to long-standing, more collaborative relationships (e.g., Doney & Cannon, 1997; Geyskens et al. 1999; Jap, 1999).

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To comprehend relationship marketing there is a need to distinction between a discrete transaction and a relational exchange. Discrete transaction has a distinct beginning, a little period, and a sharp ending by performance, while a relational exchange lasts longer and traces back to previous agreements, reflecting an ongoing process (Morgan & Hunt, 1994). Longer interactions between buyer and supplier offer them opportunities to evaluate one another attitudes and behavioral patterns. Moreover, if their behavioral patterns are well-matched, both buyer and supplier are more willingly to invest in relationship-specific assets, and therefore get deeper over and above expand the scale of the exchange (Anderson & Weitz, 1992; Haugland, 1999). Another motive following the advancement of relational exchange arises from the necessity of making a premeditated collaboration in order to get and uphold competitive advantage (Aijo, 1996). Reichheld and Sasser (1990) made a research on nine selected service firms and found that 5% increase in customer retention mean, 25% to 125% increase in the profitability of an organization. In addition, it has been argued that cost that the cost of retaining a loyal customer is approximately one fifth that of acquiring a new one (Kotler, Bowen, & Makens, 1996). These findings signify the importance of building long-term relationships with customers to improve the profitability of businesses. Customer-oriented selling is a viable option for businesses aiming to develop lasting customer relationships. An important attribute of customer-oriented selling is use of the marketing concept within the seller- buyer relationship (Saxe & Weitz 1982). Differentiated products and services are available to consumers for a small price variation. However, way of dealing along with low prices also formed a consumer purchase behavior (Andaleeb & Anwar, 1996). Due to globalization, and availability of national and international products and services, consumers now have more choices. This will create more competition among the sellers and of course, changing the behavior of consumers. That s why developing and maintaining relationships between buyers and sellers have gained attention from researchers and marketing practitioners (Terawatanavong et al., 2007). Though customer- oriented selling improves buyer-seller relationships (Williams & Attaway, 1996), yet to establish and maintain relationships with customers, customer-oriented salespeople require stronger skills (Flaherty, Dahlstrom, & Skinner 1999; Williams & Attaway 1996). Besides, some certain personal salesperson factors influence salespersons commitment to customer-oriented selling (Flaherty et al. 1999). Some researchers have described the importance of relationship marketing and the vital role that retailer awareness plays in the development of buyer-seller relationships (Harris, Mowen & Brown, 2005). According to Mallalieu, L., & Nakamoto, K. (2008), the critical thing for a retailer is to identify customer s needs and then offer the suitable products or services in order to satisfy them. Besides, salespeople s and retailers must follow the customer oriented approach and improved customer dealing. In order to achieve this, salespeople s should identify the new sales and promotion techniques, which cover different potentials segments of the customers. It is noted that dealing plays vital role upon customers than low prices. Furthermore, in many parts of the world, especially in Asian countries, negotiations are still a very common practice among consumers (Lee, 2000). Customers demand more quality products with additional services on low prices. They bargain heavily, which finally influence the profitability of a seller (Reilly & Brown, 2003). From the previous one decade, Pakistan has opened her economy to international and global investors. Although, like many other less developed nations this country has a large market for international companies. But there is a lack of understanding about the Pakistani market. Especially, nothing is known about selling and retail patterns in this country. Besides what consumers perceive about this industry and how they behave while shopping, this chapter is absent from the literature. This research paper is a footstep in the way of exploring such behavior COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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in Pakistan. Therefore, this study was conducted to investigate the hypothesized relationship of customers intention to bargain with level of awareness about marketplace and trust in seller. The second but the significant objective of this research paper was to ascertain the moderating effect of salespersons behavior in between level of awareness about marketplace and trust in seller. 2.0. Literature review: With rising turmoil in the market, businesses evidently have to retreat from transaction oriented ideology of temporary, discrete exchanges, and begin the development and continuation of lifelong relationships between businesses and their clients (Ganesan, 1994; Sheth & Parvatiyar, 1995). This is because of an amplified recognition of the importance of customer relationship marketing to the performance of a business plus customer satisfaction and retention strategies (Byrne., Brandt & Port, 1993). This move is a result of research directed towards relationship marketing than transaction oriented marketing. In investigative the marketing approaches linked with long-standing relationships, the activities of the salesperson as a boundary spanning agent are consider as important in improving enduring relationships (Grewal & Sharma, 1991). Marketers and practitioners both exalt the advantage of developing long-term and equally beneficial relations with buyers. The upshot of sturdy buyer-seller relationships that have been examined normally reflect enviable buyer perceptions of their relationships with sellers, for instance satisfaction (Cannon & Perreault 1999; Dorsch, Swanson, & Kelley 1998), buyer intentions to remain in a relationship (Morgan & Hunt 1994), and a buyer s long-term orientation in a relationship (Ganesan, 1994), According to Bester (1993), in many markets, as for instance in the retail business, simply sellers posted products prices and the consumer or buyer has little power on how much he has to pay. In some other markets, products prices are decided by mutual understanding, in order that both the seller and the buyer take an active part in setting the price. According to Evans and Beltramini (1987), bargaining is an exchange activity which consent to the opportunity of common benefits, and is one of the major persuader at work in buying and selling dealing course (Webster, 1981 cited in Neslin & Greenhalgh, 1983). Negotiations are not only widespread between retailers, wholesalers and manufacturers (Stern et al., 1996, p. 10), but are also frequent in customer marketing. For consumer purchases of homes and home repairs, automobiles, home appliances, improvements, and used items, most of the time negotiable prices are involved; fees for professional services are also at times to be discussed (Maynes, 1976). Like according to one study, 35 percent of the retail merchants of durable goods in the USA are willing to negotiate prices with consumers (Schouten, 1987). Though, in many under developed countries, bargaining or negotiations in retail buying are especially extensively recognized, and are still common in many types of retail business (Kaynak, 1988) In social science literature ample evidence exists to claim that economic exchanges are not devoid of social influences and are embedded in social context. Researchers in different social science disciplines have considered trust to also be a vital component for sound interpersonal relations (Rempel et al. 1985). In the perspective of socio-economic situations, together with those inside businesses and those between buyers and sellers, trust is associated with high positive valence and is considered influential in plummeting ambiguity in societal and financial interactions. Furthermore, in marketing literature, the rising rivulet of relationship marketing text believes trust to be the keystone of enduring affairs between buyers and sellers (Spekman, 1988). When consumers do not have enough knowledge about market or products, certainly they can either be very uncertain to bequeath trust, and in order to compensate for their lack of knowledge, they openly trust the seller with anticipation that this will oblige the seller to give in return (Andaleeb & Anwar, 1996). COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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No doubt, salespersons have defining role in facilitating marketing exchanges, and during this process their success significantly depends on their ability to upsurge long-term relationships with customers (Crosby., Evans & Cowles, 1990). According to Solomon et al., (1985), relational selling behavior refers to a behavioral tendency exhibited by some sales representatives to cultivate the buyer-seller relationship and see to its maintenance and growth . However, strong and long-term relations are built around trust at the core, and in the marketing literature this view is gaining support. Such as, Hawes, Mast, and Swan (1989) argued that salespersons career success is greatly based on his or her ability to earn trust from customers. Furthermore, Razzaque (2002) conducted a research in the context of Bangladesh, reveals that togetherness is the most important value dimension affecting retail salespersons performance. Salespeople who value, sense of belonging, filial piety and security appear to be better performers. Furthermore, the importance of personal interaction in creating satisfied customers is also recognized the services literature (Parasuraman, Zeithaml & Berry 1985; Solomon et al. 1985). Besides, salespersons play a vital role in facilitating trade activities. A crucial element of a salesperson s role is to recognize customers needs and then provide the appropriate product or service. Besides, not only salespeople must be able to recognize customers needs but respond to them with selling behaviors that consumers believe that salesperson is truly customer oriented (Mallalieu & Nakamoto, 2008). Salespeople often perform the role of "relationship manager", as they involved in the marketing of complex services. It is, relatively, the excellence of the nature of relationship between the seller and the buyers that establishes the possibility of continued transaction between those parties someday. In addition, relational selling behaviors such as mutual disclosure, cooperative intentions, and intensive follow up contact generally produce a strong seller- buyer bond (Crosby, Evans & Cowles, 1990). 2.1. Theoretical Framework: Salespersons Behavior Level of Awareness about Marketplace Customer s Intention to bargain Trust in Seller

2.2. Research hypotheses: H1: Higher level of awareness about marketplace is related with the higher level of consumers intention to bargain. H2: Lower level of trust in seller is related with the higher level of consumers intention to bargain. H3: Salespersons behavior moderating the relationship between awareness about marketplace and consumers intention to bargain. H4: Salespersons behavior moderating the relationship between trust in seller and consumers intention to bargain. 3.0. Methodology: The frame of the study includes all buyers who purchased a second hand car. In order to locate these respondents, researchers visited ten second hand car dealers showrooms situated at Taxila, COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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Rawalpindi and Islamabad. Name and location of selected showrooms 1. Malik Car Dealer Rawalpindi 2. Pakistan Motors Rawalpindi Rawalpindi 3. New horizon car dealer Rawalpindi 4. New Punjab Motors Rawalpindi 5. Taxila Motors Taxila 6. Sheikh Brother s car dealer Taxila 7. Unique Motors Taxila Taxila 8. Khan Brother s car dealer Islamabad 9. Pearl car dealer Islamabad 10. Islamabad old Motors Islamabad Almost, researchers spent a full week to collect data from respondents. Before the disbursement of these questionnaires to respondents, the research team explained the purpose of this visit and then briefed each individual respondent about the concept of purchase intention, salesperson behavior and trust in seller etc. Data was collected from two hundred and seventy respondents, and due to time and cost consideration convenience random sampling was used. Out of two hundred and seventy questionnaires, fifteen were omitted as these respondents did not complete their questionnaires. Therefore, the response rate was 94.4 percent. The resulting respondent profile was consider to be encircling and practically well distributed. A preliminary version of the questionnaire was first developed in English, and then the research team translated this questionnaire into the local language Urdu so that the respondents could understand the each item. At the time of entering data into Statistical Package for Social Sciences (SPSS), the two versions of the questionnaires were compared. Table I provides a summary of the respondents demographics. To measure the variable of consumers intention to bargain , research team used the instrument developed by Lee (2000). Likewise, to measure salespersons behavior , an instrument consisted of six items was adopted from the study of Saxe and Weitz (1982). While for measuring the variable of awareness about market place , five items instrument of Andaleeb and Anwar (1996) was used. The trust variable was measured through six items adopted from the study of Doney and Cannon (1997). All of these used instruments were widely used in subsequent studies across different countries and were classified as five Point Likert-Scales ranging from "strongly disagree" to "strongly agree". Frequency % Gender Male 245 96.1 Female 10 3.9 Age Less than 30 150 58.8 30-50 95 37.3 Above 50 10 3.9 Marital Status Married 165 64.7 Unmarried 90 35.3 Education Level O level/SC 55 21.6

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A level/HSC/diploma Graduate Postgraduate Family Income Level Less than 25,000 25,000-50,000 50,001-75,000 75,001-100,000 Above 100,000

40 110 50

15.7 43.1 19.6

175 70 10 0 0

68.6 27.5 3.9 0.0 0.0

Table I. Respondents demographic profile

4.0. Data analysis and results: 4.1. Reliability analysis: Out of two hundred and seventy questionnaires, two hundred and fifty five were selected to investigate the hypothesized relationship between the dependent and independents variables. Prior to further data collection, each variable was assessed using the efficiency coefficient . A total of twenty seven questionnaires were circulated among respondents , collected, and then analyzed, so that the reliability of the instrument can be checked. Table II showed the reliability analysis of each variable. Total variance explained No. of Items Cronbach Alpha Intention to bargain 03 0.870 Salespersons Behavior 06 0.701 Trust in Seller 06 0.830 Table II. Reliability Analysis Awareness about Marketplace 05 0.747 Correlation is used to measure the association among variables after keeping in view the nature of relationship. Table III designate the strength of relationship among the dependent and independent variables of the study. Table 2 indicates that: There exist a positive and significant relationship between the awareness about marketplace and consumers intention to bargain (r=0.575, p 1 reflect increasing return to scale and 1+ 2+ 3+ 4 + 5+ 6 + 7+ 8 = 1 the result will be constant return to scale. 5. RESULTS AND DISCUSSION 5.1 Distribution of Livestock Population in the Study Area Table I explains distribution of livestock population in the study area. Data shows that farmers kept livestock in varying numbers. Buffaloes, cattle, goats, sheep and asses were raised in the study area. In study area cattle were 44.26% followed by buffalo (31.19%), goats (16.83%), sheep (6.14%), asses (0.89%) and (0.69%). Table I Distribution of livestock population in the study area Herd Size (Species Type) Buffalo Cattle Goat Sheep Asses Camel Total

No 315 447 170 62 9 7 1010

Percentage 31.19 44.26 16.83 6.14 0.89 0.69 100.00

Source: Field Survey

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5.2 Costs and Revenue of Milk Production Livestock in the study area were mainly kept for milk production and production of young. Table shows that the average per buffalo cost of milk production in district DI Khan reveals that total cost per buffalo has been Rs. 14015.20. The major cost items are dry fodder (Rs 3532.6), green fodder (2897.2), concentrate/oilseed cake (Rs 5809.4), hired labor (308.9), permanent labor (Rs 222.5), Medicine and vaccination (Rs 637.7) fees by VOA/SA (Rs 347.9) and other cost ( Rs. 259). Table II

Cost per Buffalo

Variables

Unit

Quantity

Price/Unit

Amount

Dry fodder Green fodder Con/oil seed cake Hired Labor Permanent Labor Med and Vacc Fee by VOA/SA Other Total

Kg Kg Kg No No Rs. Rs. Rs. Rs.

712.7 918.2 285.4 2.1 1.5 -----

3.6 2.3 15.6 150.0 150.0 -----

3532.6 2897.2 5809.4 308.9 222.5 637.7 347.9 259 14015.20

5.3 Average Revenue from milk per buffalo The farmers of the area received average revenues of Rs. 9089.70 from milk production per buffaloe per year. Table III Average Revenue from milk per buffalo Variables Quantity of milk Price/Kg Value of Milk

Unit Kg Rs. Rs.

Value 575.32 40.13 23105.44

Average Revenue

Rs.

9089.70

5.4 Results of Cobb-Douglas production Function and Economies of Scale The results of Cobb-Douglas production function (Table IV) suggests that buffalo milk yield is more sensitive to change in herd size, one percent increase in herd size creates approximately 0.65 percent increase in milk yield, other things being constant. labor, Concentrate significantly contribute in milk yield while, Green fodder, dry foder, health, building and utensil contributes but insignificantly. This indicates that increase in milk is higher than the increase in inputs. The sum of the elasticity 1.84 indicates that farmers in the study area were operating in the increasing return to scale regions. It is concluded that buffalos farming in the study area is a profitable enterprise. Table IV Results of Cobb-Douglas Production function A Milk yield t- value

5.621

HS

GF

DF

Conc

L

H

B

U

Scale

0.657

-0.452

0.307

0.22

0.553

0.323

0.215

0.017

1.84

4.694

1.015

0.937

2.035

2.577

0.822

1.431

.349

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5. CONCLUSION AND RECOMMENDATIONS In Khyber Pakhtunkhwa the farmers subsist on livestock farming, including Buffaloe, cattle, sheep, goats, camel and horses. Cow and buffalo are traditionally utilized for milk, mutton, skin and wool production. Buffaloe was fed on number of fodder and feed resources to meet the nutritional requirements. Buffaloe in the study area were mainly kept for milk production. On the cost side, labour and fodder were the main cost constituents. It is concluded that buffalo farming in the study area is a profitable enterprise. It is suggested on the basis of above finding that only few farmers were keeping crossbred animals. The availability of improved breeds should be enhanced in the relevancy of the area and awareness campaign should be launched regarding the artificial insemination approach. There is a need for establishing modern milk processing and packaging facilities based on advanced technology to convert abundantly available raw milk ( surplus in winter specially) into high value added dairy products.

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References Ahmad, M. 1993. Economics of milk production at various levels of livestock holding in Okara District. MSc Hons Thesis, Univ of Agric; Faisalabad, Pakistan. pp 1-6. Ahmad, M. 1993. Economics of milk production at various levels of livestock holding in Okara District. MSc Hons. Thesis, Univ of Agric; Faisalabad, Pakistan pp 1-4. Ahmad, M. and S. Qureshi 1999. Recent evidence on farm size and land productivity: implications for Public Policy. The Pak. Dev. Rev. 38:1135-1153 Cobb, C. W. and P. H. Douglas .1928 A theory of production. The Amer. Econ. Supplement, pp. 139-165.

Rev.

Farrell, J.M. 1957. The measurement of productive efficiency. J. Royal Stats 506, 120, Part III: pp 253-290. FAO. 2007. Report on world milk day. Food and Agriculture Organization of the United Nations, Rome. Italy. pp 10-17. Garcia, P., D. L. Neff and C. H. Nelson. 1993. Technical efficiency: A comparison of production frontier methods. J. Agric. Econ. 44: 479-489. Govt. of Pakistan. 2006. District Livestock Census 2006. pp 34-50. Govt. of Pakistan. 2007. Agricultural Statistics of Pakistan. Ministry of Food, Agric. and Livest. Econ. Wing, Islamabad, Pakistan. pp 50-67. Parvez, A., H. and J.B. Boer. 1985. Economic analysis of on-farm livestock trial. Working paper No. 63, WINROCK, Int. Morrilton AR. 72110, USA. pp 15-20. Sadiq, G, M. Ishaq and S.H. Sadozai. 2003. Estimation of cost and revenue and analysis of different factor effecting on livestock production. Sarhad. J. Agric. 194: 579-584. Shafiq, M. and T. Rehman 2000. The extent of resource use inefficiencies in cotton production in Pakistan s Punjab: An application of data envelopment analysis. Agric. Econ. 22:321-330 Sugiyanto. 1983. A production for sheep and goat enterprises in west Javanese farming system . working paper No.15 . Brawijaya Univ. Malang, East Java, Indonisia. pp 7-18. Vira, V. and K. Narnicka .2003. Semi-subsistence farming in lativia: Its production function and what will be the impact of proposed EU support. Stockholm School of Econ. in Riga. Working papers 2003:14 49.

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ASSESSMENT OF THE CAUSATIVE FACTORS THAT MOTIVATE PLAYERS TOWARDS PARTICIPATION IN SPORTS ACTIVITIES A CASE STUDY Mohibullah Khan Marwat10 Director Sport, Gomal University Dera Ismail Khan Dr. Salahuddin Khan Assistant Professor/Chairman Department of Sports Sciences & Physical Education Gomal University, Dera Ismail Khan Professor Dr. Muhammad Shah Institute of Education & Research Gomal University, Dera Ismail Khan

Abstract Motivating factor for involving in or initiating any activity is the driving force that causes a person to act or move. In the field of sports motivating factor has got paramount significance in maintaining and improving the level of participation in sports activities. Motive is somewhat psychological phenomenon which is generated as a result of the intention, need, interest or desire of a person. Once motive is determined, the providers have got no difficulty in improving the level of participation in sports activities. This study is an effort to determine the motivating factors of the student players in the local community. Data from a randomly selected sample of 225 student players of Football, Cricket, Volleyball and Table Tennis from six male colleges was collected through a scale comprising of 30 different items. The study reveals that attainment of health & fitness, fun and relief of the mental tension were the top three motives for participation in sports. Findings of this study have got close proximity with the findings of the studies already conducted in the same area. It is hoped that this work will definitely help the sports organizers in planning and improving the level of participation in sports activities. Key Words: Motives, Fitness, Evaluation, Participation in Sports

1.

Introduction

Evaluating motives for participation in sports has been an important area in connection with enhancing the volume of participation and rendering the programme more interesting and more productive. As endorsed by (Ashford, Biddle, & Goudas, 1993), investigating the diversities in motivation of participation may shed light on the underlying reasons of why children or adolescents take part in various forms of physical activity or sports. Therefore, determining these

10

This work is a part of my PhD thesis

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motives could assist in planning, promoting, and maintaining people's participation in physical activities. This study has been an effort to evaluate the situation and to answer some of the basic questions like, what are the main motives that persuade the people to participate in sports? Is it the real spirit of play or some other reasons that cause a person to participate in sports? In other words, the study was aimed at to answer the question as to why do we take part in sports? Majority of the sports sociologists have done considerable work in the same direction. Most of this literature shows that children participate in sports and physical activities for clearly identifiable reasons, including skill acquisition and mastery, achievement and status, competition, energy release, sheer enjoyment or having fun, challenge, friendship or affiliation, and physical fitness (Gill et al., 1983; Wankel & Kreisel, 1984; Gould et al., 1985; Klint & Weiss, 1986; Wang & Wiese-Bjornstal, 1996). In general youngsters are found to have a variety of motives such as fun, fitness, competence, and skill improvement (Sit & Linder, 2004). The same viewpoint has also been supported by Crone-Grant DM and Smith RA. (1999) who found that adults exercise for a sense of achievement, skill development and to spend luxury time on themselves away from daily responsibilities. Available literature indicates that notable diversity exists in the motives of sports participants. In the circumstances, it is a bit difficult assignment on part of the sports organizers to arrange sport activities that promptly serve need, interest, desire and choice of majority of the participants. Indeed, the optimal motivation for participation in (and adherence to) physical activity is most likely to occur when the providers are able to identify and address the needs of the participants (Ashford et al., 1993). This is what the researcher wanted to do as a result f the conduct of this study. 2.

Methodological procedure

A scale having 30 items encircling different aspects of the problem was developed in consultation with the experts in the field of sports, (Annexure A ). Responses with reference to the motivating factor were collected on a five point Likert scale (Likert, 1932) ranging from strongly agree to strongly disagree. With the help of the team managers, respondents were briefed about the purpose of the study and different aspects of the scale were explained to them. The scale was translated into Urdu, so that it was made easy for them to understand and respond accordingly. Language and format of the scale was made quite simple and easily understandable. Prior to the distribution of the scale among the respondents, they were asked to return the filled-in scale before the end of their respective tournaments. Respondents were required to complete the stemstatement; "I participate in sport because , indicating their preferences from 1 (strongly disagree) to 5 (strongly agree). At the end of competition, the filled-in scale was collected back from the respondents and thus 100 % response was collected. 3. Results and discussion The study indicates that the motive of the attainment of fitness and health was on top amongst other probable factors. It reflects the sense of awareness of the educated youth in connection with the outcomes of participation in sports with reference to promotion of fitness and health. Bradley, Kolt, and Williams (2005) also support the same stance, they maintain that physical fitness and COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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health were the top motives identified by senior athletes. Attainment of fun and entertainment comes next among the motives for participation in sports. It too indicates humour sense of the students about the role of play in having enjoyment. A qualitative study of participation In physical activity in Australia found similar motivating factors such as, enjoyment and socializing with friends and similar barriers including time constraints and negative pressure from peers. Relief of the mental tension and worries, personal identity of the participants and promotion of the team spirit are the next motivational factors revealed through this study. Thrill and excitement of the play, , interest of participation in sports, active practical life, personal honour and improving efficiency of the body have been the next five motivating factors that have attracted response of the players in the order of priority. A study conducted by Resnick, Palmer, Jenkins, & Spellbring (2000) indicated that staying in shape, good health, psychological well-being, enjoyment, decreasing stress, or losing weight were all benefits that were important to participants and in which they expected to gain improvements. Typically, two or more factors combine to draw young people into organized sports programs. These reasons may include to have fun; develop skills; feel the excitement and challenges of competition; be with friends; and obtain fitness, achievement and status (Siegenthaler, & Gonzalez, 1997). Close proximity with little variation can be noted among the findings of the present study and findings of the work done by Stier (1997), who claims that it should be recognized that people play for a variety of reasons. Some of the reasons include, but are not limited to, the following: (1) fun, (2) socialization, (3) stress management, (4) association with friends, (5) desire to win or achieve, (6) desire for competition, (7) need to belong, (8) striving for physical fitness and general well being, (9) prestige, as well as (10) attempting to increase one's self-concept within one's social group. In light of the work done so for in connection with the problem in question, related literature reveals that there are a number of common rather universal motives for participation in sports. Findings of this study also endorse the motives that have frequently been revealed from time to time in different studies. Gould and Horn (1984) indicated that young athletes had several motives for their sport participation: fun, improved skill or fitness level, perceived excitement, to be together with or make new friends, and winning or perceived success. While these are their most frequent motives, young athletes frequently have more than one motive for their participation . 4.

Conclusion

As a result of this study it has been noticed that in our community the top ten motivating factors for participation in sports are very encouraging and positive from the view point of the outcomes of sports and recreational activities. It indicates that educated community of the young players have got very clear and promising standpoint regarding the outcomes of sport activities. The same motivating factors and reasons for participation in sports and other recreational activities have also been pointed out in a number of studies conducted in the past. Findings of the in-hand study closely corroborate with the findings of the studies conducted by Bradley, Kolt, and Williams, 2005; and Sit & Linder, 2004. This study has been amongst the pioneer studies conducted with reference to motives behind participation in sports activities in Pakistan and there exists broader scope for further work in this regard. COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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References Adamson, B., & Wade, K. (1986) Predictors of sport and exercise participation among health science students. Australian Journal of Science and Medicine in Sport, 18, 4, 3-10. Ashford, B., Biddle, S., & Goudas, M. (1993) Participation in community sports centres: Motives and predictors of enjoyment. Journal of Sports Science, 11,3, 249-256 Bradley, K., Kolt, G., Williams, M. (2005) Motives for participating in international level masters athletics. New Zeland Journal of Sports Medicine, 3,1, 4-12. Brodkin, P., & Weiss, M.R. (1990) Developmental differences in motivation for participation in competitive swimming. Journal of Sport and Exercise Psychology, 12, 248-263. Crone-Grant DM and Smith RA. (1999) Broadening horizons: a qualitative inquiry on the experience of patients on an exercise prescription scheme. J Sports Sci 17:12. Gill, D., Gross, J., & Huddleston, S. (1983). Participation motivation in youth sports. International Journal of Sports Psychology, 14, 1, 11-14. Gould, D., & Horn, T, (1984). Participation motivation in young athletes. In J,M, Silva., & R.S, Weinberg (Eds,), Psychological foundations of sport (pp. 359-370). Champaign, IL: Human Kinetics. Gould, D., Feltz, D., Weiss, M.R. (1985 a,b). Reasons for attrition in competitive youth swimming. Journal of Sport Behavior, 5, 155-165. Klint, K.A., & Weiss, M.R. (1986). Dropping in and dropping out: Participation motives of current and former youth gymnasts. Canadian Journal of Applied Sports Sciences, 11, 2, 109114. Likert, R. (1932). A technique for the measurement of attitudes. Archives of Psychology. 140, 553. O'Dea JA. (2003) Why do kids eat healthful food? Perceived benefits of and barriers to healthful eating and physical activity among children and adolescents. J Am Diet Assoc. 103, 497 504. Siegenthaler, K. L., & Gonzalez, G. (1997). Youth Sports as Serious Leisure. Journal of Sport & Social Issues, 21, 3, 298-314. Sit, H.P., & Lindner, K. (2004). Motivational orientations in youth sport participation: Using Achievement Goal Theory and Reversal Theory. Personality and Individual Differences, 38, 605618. Stier, Jr., W. F. (1997). Establishing a Marketing Plan for Physical Education, Sport and Recreation. International Conference on "Alianza Estrategica Para La Education Ffsica, El Deporte Y La Rccreacion" [Seminary-Workshop: "Strategic Alliance for Physical Education, Sport and Recreation], October 7,1997, Mexico City.

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Wang, J., & Wiese-Bjornstal, D.M. (1996) The relationship of school type and gender to motives for sport participation among youth in the People's Republic of China. International Journal of Sport Psychology, 28, 1, 13-24. Wankel, L.M., & Kreisel, S.J. (1985). Factors underlying enjoyment of youth sports: Sport and age group comparisons. Journal of Sport Psychology, 7, 1, 51-64.

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Table 1

Response of the 225 respondents showing top ten motives behind their participation in sports in order of priority.

Priority Order 1 2 3 4 5 6 7 8 9 10

Motivating Factor Health & Fitness Fun & Entertainment Relief of the mental tension Personal Identity Team spirit Thrill & excitement Interest in sports Active life Personal honour Efficiency of body

Strongly Agree 88 % 81 %

Agree

Undecided

Disagree

12 % 10 %

0 08 %

0 01 %

Strongly Disagree 0 0

79 %

15 %

04 %

02 %

0

77 % 72 % 67 % 64 % 62 % 58 % 55 %

13 % 20 % 24 % 22 % 26 % 23 % 28 %

08 % 06 % 07 % 09 % 06 % 12 % 14 %

02% 02 % 03 % 05 % 06 % 07 % 03 %

0 0 0 0 0 0 0

Among the top ten motives for participation, overwhelming majority of the respondents has kept the objective of fitness on top in the order of priority. Fun and entertainment, relief, personal identity and team spirit have been placed at second, third, fourth and fifth position respectively. In addition to the above, thrill and excitement, interest in sports, active practical, enhancement of efficiency of the body and personal honour have also been amongst the factors that accordingly motivated and attracted the respondents to participate in sports.

This study has found that majority of the youth participate in sports for fitness rather than for any other reason. The same findings have also been endorsed by (Adamson & Wade, 1986; Ashford et al., 1993; Brodkin & Weiss, 1990) These findings corroborate previous studies that have revealed that health and fitness are the main incentives for adult s involvement in physical activity .

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(ANNEXURE A) Respondents are required to fill the scale and complete the stem statement I participate in sports because ................ SN o 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Motive

Strongly Agree

Agree

UnDisagree Strongly decided Disagree

I like to win. I like to do something I m good at. I like rewards. I like to be important.

NAME of Student _______________________________

COLLEGE _________________________

GAME/EVENT ____________________________

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Job design and job performance relationship: A study of Pakistan Public Sector employees.

Dr. M. Safdar Rehman IPMA-CP , PhD. Director (Human Resources), Super Solutions Consultancy, Canada Abstract This study applies the concept of job performance and job satisfaction based on early principles of job design in solving employees perception of job retention, using employees of Pakistan s public sector regulatory authorities for examination. For more than two decades, research and practice in the field of job design has been dominated by two theoretical frameworks, exhibiting strong convergence in terms of the characteristics of individual jobs likely to impact on employee job performance and job satisfaction and the underlying mechanisms that lead to these relationships The results from 568 valid samples collected from employees of public sector regulatory authorities reveal that the adoption of job design in public sector raises job performance and reduces employees feeling of job turnout through enhancing their job satisfaction. Therefore, this paper seeks to examine the relationship between the four variables. Practice of job design as a mean to enhance job performance and to address issues related to employees job retention and job satisfaction significant results have been obtained. Keywords: Job design; job performance; job satisfaction; job retention; public sector regulatory authorities. 1.Introduction First-generation job design theory focusing on individuals was proposed by Viteles (1950) in the early literature. His core objective was to adopt the methods of job rotation and job enlargement to resolve issues related to the reduction of employee morale and Job performance due to job monotony and boredom from job specialization. Furthermore, Walker and Guest (1952) opined that, if an employee s job characteristics are repetitious, requiring minimal working techniques and devoid of the right to choose his/her working methods, the employee will consider his/her job monotonous and boring, thereby causing diminishing morale and productivity. Yoder et al. (1958) revealed that job rotation was a means to reduce employees monotony, boredom and fatigue, which was a result of organizations mass production and job specialization in the past years. Lindbeck and Snower (2000) also noticed that conventional organizations demanded highly simplified and specialized techniques from their employees in order to support standardized production procedures. Job design has generated a lot of interest in recent decades (Fried & Ferris, 1987; Parker, Wall, & Cordery 2001). A basic principle in job design research is that stimulating jobs are associated with motivating psychological states that contribute to favourable attitudinal and behavioural work outcomes (Morgeson & Campion, 2003; Parker & Wall, 1998). Much of the current research on job design has been based on the Job Characteristics Model (JCM), ( Hackman & Oldham, 1976, 1980). The JCM focuses on five core job characteristics (skill variety, task identity, tasks significance, autonomy, and job feedback) that contribute to job stimulation, and consequently to three critical psychological states (experienced meaningfulness, experienced

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responsibility, and knowledge of results), which, in turn, positively affect individual job satisfaction and job performance. In addition, three factors are proposed to moderate these relationships: individual growth need strength (GNS), knowledge and skills, and context satisfaction with respect to supervisors, peers, compensation, and job security. However, job design research has revealed mixed results on the relation between stimulating job characteristics and job outcomes such as job performance, turnover, and absenteeism (Fried, 1991; Fried & Ferris, 1987; Kopelman, 1985; Oldham, 1996; Parker et al., 2001). These inconsistent findings suggest that context may play an important role in moderating employee reactions (Johns, 2006; Rousseau & Fried, 2001). For more than two decades, research and practice in the field of job design has been dominated by two theoretical frameworks, the Job Characteristics Model (Hackman & Oldham, 1976, 1980) and Socio-technical Systems Theory (Pasmore, 1988). These two perspectives exhibit strong convergence, both in terms of the characteristics of individual jobs likely to impact on employee job satisfaction and job performance, and the underlying mechanisms that lead to these relationships (Lawler, 1992). In particular, employee control (autonomy) over aspects of the job (e.g., timing, methods) is identified as the job characteristic of primary significance, a prediction that has strongly influenced programmes of job redesign spawned by both theoretical traditions (Cummings, 1978; Holman & Wall, 2002; Kelly, 1978; Oldham, 1996; Pasmore, Francis, Haldeman & Shani, 1982; Rousseau, 1977; Susman, 1976; Wall & Jackson, 1995). Scholars have begun to explain results by observing that job design theory and research suffer from a lack of systematic attention to context, the situational opportunities and constraints that affect attitudes and behaviours (Johns, 2006). Indeed, several scholars have recommended that researchers systematically incorporate contextual factors into job design theory and research (Kelly, 1992; Liden, Wayne, & Sparrowe, 2000; Parker et al., 2001; Rousseau & Fried, 2001; Torraco, 2005; Wall, Cordery, & Clegg, 2002). Several scholars have examined how incorporating various contextual factors such as technology, operational and environmental uncertainty, information technology, group norms and group characteristics, and social interactions and relationships may advance the understanding of job design (Andreou & Boone, 2002; Campion, Papper, & Medsker, 1996; Grant, Campbell, Chen, Cottone, Lapedis, & Lee, 2007; Kelly, 1992; Liden et al., 2000; Morgeson & Humphrey, 2006; Parker &Wall, 1998; Parker et al., 2001;Wall et al., 2002). Hypothesis development Hypothesis 1: Job design is positively related to the job performance. Hypothesis 2: Job satisfaction is positively related to the job performance. Hypothesis 3: Job retention is positively related to the job performance. Method Sample and procedures

Employees from Pakistan s public sector regulatory authorities dealing with the telecommunications, oil & gas, power, media, corporate, capital and banking sectors were used as samples for this research. For the tangible research work, information regarding regulatory COPY RIGHT © 2011 Institute of Interdisciplinary Business Research

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authorities, organizations being controlled number of employees and employee data was collected through a questionnaire from the officers / officials of targeted organizations. These officers / officials were requested to respond to all questions up to the best of their knowledge with reference to the working practices implemented in their organizations. The survey questionnaire contains five sections. The first section comprises the name, designation, organization, department and grade, second section contained demographic questions relating to gender, age, education, length of service, job status, job category, job level, mode of appointment and recruitment matter dealt by HR or other section. The third section of the questionnaire, which was in two parts, was designed to capture the general purpose of the position and summary of the job responsibility. The remaining portion included questions on 5 point likert scale concerning job design, job performance, job satisfaction and job retention. Before sending the questionnaires to the targeted organizations a pilot survey was conducted in three organizations from the selected sectors so that validity of the formulated questions could be checked. The employees were asked to rate statements about questions in a likert scale from 1 to 5, where 1 means that respondent strongly disagree with the statement; and 5 indicates the strongly agreement with the statement. The master questionnaire for the pilot survey included 45 questions and 10 background questions; the respondents were also asked to evaluate the wording and the understanding of the statements and the length and the depth of the questionnaire. A pilot study was carried out among 45 employees from Pakistan Telecom Authority, National Electric Power Regulatory Authority and Securities and Exchange Commission of Pakistan in order to test the questionnaire. Several employees highlighted the relevance of the questionnaire, as it is able to capture many different sides of being an employee. After the results were obtained from the questionnaire, an in-depth interview was held with these employees. As a consequence, the wording and essence of some questions were changed. The pilot study helped to revise the questionnaire and prepare it for the final survey. The questions are largely based on extensive study of literature review. The wording is adapted to the English linguistics and Pakistani cultural context. The results showed that only two questions from job design portions and one from job performance portion were ambiguous for the employees. To eliminate this problem these questions were rephrased after getting information from those employees. Data of employee demographics is depicted in table 1

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Table 1 Demographics % ( N= 568 ) Variables Gender

Age

Educational Level

Job Status

Job Category

Job Level

Mode of appointment Number of years In present Organization Recruitment Matters dealt by

Male Female Below 25 years 25-35 years 35-45 years 45-55 years 55-60 Above 60 PhD Masters Degree B.Sc. Engineering Graduation Intermediate Matriculation Permanent Contractual Deputation Daily wagers Technical Managerial/Admin Any other Top Middle Supervisor Non-managerial Direct Promotion Deputation Less than 1 1 2 3 5 6 10 Over 10 HR Department Any other

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Percentage (%) 74.1 25.9 21.0 47.0 16.7 12.7 2.5 0.2 1.2 66.4 5.6 18.3 6.9 1.6 64.6 31.0 2.8 1.6 28.7 47.5 23.8 4.9 44.9 23.2 26.9 67.6 28.2 4.2 12.7 26.1 32.9 10.2 18.1 77.5 22.5

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Measures

Established scales were used in measuring all of the constructs. The projected Cronbach alpha value of this research ranged from 0.72 to 0.78. DeVellis (1991) indicated that the Cronbach alpha values for this study fall in the acceptable range. However, the Cronbach alpha value of 0.57 for measuring job retention probably low. But Nunnally (1967) recommended that minimally acceptable reliability for preliminary research should be in the range of 0.5 to 0.6 and therefore the reliability of this study should be acceptable. Measurement of Job design. Job design was measured with 5 items on a 5-point likert scale, respondents were asked to respond to the different aspects of their jobs like creativity, working style, interference, superior support and suggestion to superiors. The measure has good reliability properties. Cronbach s alpha value was .78 Measurement of Job performance In this study, job performance was measured in two dimensions. Operational performance and financial performance. Operational performance was defined in terms of employee retention, achievement of the goals of organization, employee productivity and objectivity of performance evaluation system. Financial performance was measured in terms of monetary and non-monetary benefits of the employees. Job performance was measured with 6 items on a 5-point likert scale, respondents were asked to respond to the different aspects of their jobs like performance enhancement on job, objective achievement, consistency with the goals of the organization, objectivity of the performance evaluation system, monetary and non-monetary benefits. The measure has good reliability properties. Cronbach s alpha value was .77 Measurement of Job satisfaction Job satisfaction was assessed from the respondents indicated the degree to which they were satisfied with the six factors inner satisfaction, respect, sense of fulfilment, peer support, cared by the organization. A five point likert scale was used. 1(strongly disagree), 2(disagree), 3(neither agree nor disagree), 4(agree) and 5(strongly agree). Cronbach s alpha was calculated to test the reliability of the data and was found to be .72 Measurement of Job Retention Retention was measured with 6 items, respondents were asked to respond, on a 5-point likert scale, 1(strongly disagree), 2(disagree), 3(neither agree nor disagree), 4(agree) and 5(strongly agree). The measure has moderate reliability properties. Cronbach s alpha value was .57

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Results

Table 2 below details the average value of variables, standard deviations and correlation analysis between variables, which work out the following. Job design has a value of M = 3.63 while job performance has a value of M =3.68 which are closer to each others. Also, the two variables of job design and job performance present a highly significant positive correlation. This supports hypothesis 1, which says that the Job design is positively related to the job performance. These two constructs are highly related and harmonizing to the whole management system. The relationship between job satisfaction and job performance constructs is also positive and highly significant. Therefore, in the correlation analysis, hypothesis 2 is also supported. Table 2 Descriptive statistics and correlations for all variables. Variables

Mean

SD

JD

JP

1 Job Design

3.63

0.71

2 Job Performance

3.68

0.65

.528(**)

3 Job Satisfaction

3.71

0.57

.479(**)

.518(**)

4 Job Retention

3.17

0.59

.329(**)

.230(**)

JStn

JRtn

.340(**)

** Correlation is significant at the 0.01 level (2-tailed). N=568

As for the job retention and job performance constructs, it was revealed that job retention is positively related to job performance but the value of r= .23 was not as high as in the case of job design r=.53 and job satisfaction r=.52. However, hypothesis 2 is also supported. In order to support the hypothesis made by this study on job performance, a further step is taken to test the hypothesis by regression analysis. The study seeks to apply job design, job satisfaction and job retention in determining whether these three variables have predictive strength on job performance. Table 3 presents a linear regression analysis using job performance as dependent variables. Results indicate that the R2 for independent variables is 0.979 and correlation is also highly significant, therefore job design exerts more degree of influence on the dependent variable. As for the job satisfaction construct, it exerts less degree of influence on the dependent variable whereas job retention exerts medium degree of influence on the dependent variable but achieving a significantly positive correlation. Job satisfaction is not indicating an important prediction variable as compare to the other two variables.

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Table 3

Regression analyses of all variables.

Independent variable Job design Job satisfaction Job retention Total R2 Adjusted R2 F Sig.

Sig. .538 .074 .383 .979 .979 8970 .000

R2 .979

.000 .024 .000

Dependent variable: Job performance As indicated above, Job design effects positively with Job performance, Beta value was found 0.538 which is a strong effect size. It explained 53.8 percent of the total variance. The overall pvalue of model is