Abstract
The purpose of this paper is to understand the comparative symmetric and asymmetric impact of government integrity (GI) and corruption control (COC) on the sustainable stock market development (SMD) in Pakistan. The authors employed two comparative approaches ARDL and NARDL, by using the annual time-series data of last 30 years (1991–2020) of the Pakistan Stock Exchange. Both variables have shown highly significant association with SMD. This paper points at comparative findings under ARDL and NARDL frameworks. The results under ARDL Bounds tests indicate that GI and COC positively influence the pace of the equity market in Pakistan. But the asymmetric impact under NARDL indicates that the negative asymmetric cumulative dynamic multiplier (ACDM) of corruption has a strong positive impact on SMD of Pakistan with a coefficient of 1.32. The positive ACDM of COC indicates an inverse impact on the SMD, with a higher coefficient of − 2.188, that indicates partial causality. The impact of positive ACDM of GI is highly significant with a coefficient of 4.51, that indicates GI’s long-lasting impact on SMD, but the decrease in GI does not have significant decreasing impact. We concluded that higher GI reduces the equity investment barriers and promotes the local stock market by direct control of corruption.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
Bribery usually indicates money or services flowing to a public official in exchange for something. On the other hand, grafting is when public money illegally comes from an official to the other party.
The various forms of corruption vary, but can include bribery, lobbying, extortion, cronyism, nepotism, parochialism, patronage, influence peddling, graft, and embezzlement.
Economists put Frontiers between undeveloped and emerging states, slightly more credible than undeveloped countries but less favorable than emerging states. Examples include Romania, Bahrain, and Bangladesh.
Perks refers to non-wage offerings that extend beyond salary and fringe benefits to attract employees.
NARDL covers bi-directional impact between the independent variable and dependent variables.
ARDL methodology is an appropriate modification of order of ARDL Frame (p, q), that is necessary to rectify the problems of ‘endogenous repressors’ & ‘residual serial or auto correlation’ simultaneously (Pesaran and Shin, 1999). But, NARDL decomposes every series into its POSITIVE & NEGATIVE partial decomposed portions that are not I(2). The degree of persistence will correct any type of endogeneity, e.g. if the variables are I(D), the correction is better for the values of ‘d’ closer to 1.
Beta is a measure of Stock Price Volatility (SPV), w.r.t. overall stock market. Higher beta means, higher potential returns with the higher riskier security. If a stock moves less than the market, the stock’s beta will be less than 1.
The ACDMs, called asymmetric cumulative dynamic multipliers are the graphical presentations of partial Positive and Negative shocks of any IV in the model w.r.t. its impact on DV.
References
Abimbola AB, Joseph Olusegun A (2016) Appraising the exchange rate volatility, stock market performance and aggregate output Nexus in Nigeria. Bus Econ J 08(01):1–12. https://doi.org/10.4172/2151-6219.1000290
Ahmed K, Khan B, Ozturk I (2020) Dynamics between disaggregates of governance and stock market performance in selected South Asia countries. Int J Financ Econ. https://doi.org/10.1002/ijfe.1821
Ajide FM (2019) Democracy and stock market development: the case of Nigeria. J Dev Areas 53:3. https://doi.org/10.1353/jda.2019.0042
Akisik O, Gal G, Mangaliso MP (2020) ‘IFRS, FDI, economic growth and human development: the experience of Anglophone and Francophone African countries. Emerg Markets Rev 45:100725. https://doi.org/10.1016/j.ememar.2020.100725
Al-Gasaymeh A (2020) Economic freedom, country risk and cost efficiency in Jordan and the GCC countries. Global Bus Rev 21(1):1–17. https://doi.org/10.1177/0972150917749292
Ali A (2020) ‘Governance of public spending avenues by oil prices, oil revenues, and GDP in Saudi Arabia: proportionate sensitivity and trend analysis. Invest Manag Financ Innov 17(4):152–164. https://doi.org/10.21511/imfi.17(4).2020.15
Allen DE, McAleer M (2020) A nonlinear autoregressive distributed lag (NARDL) analysis of west texas intermediate oil prices and the DOW JONES index. Energies 13(15):1–11. https://doi.org/10.3390/en13154011
Alsherfawi Aljazaerli M, Sirop R and Mouselli S (2016) Corruption and stock market development: New evidence from GCC countries. Business: Theory and Practice, 17(2): 117–127. DOI: https://doi.org/10.3846/btp.2016.555
Altintas H, Yacouba K (2018) Asymmetric responses of stock prices to money supply and oil prices shocks in Turkey: new evidence from a nonlinear ARDL approach. Int J Econ Financ Issues 8(4):45–53
Asaad ZA, Marine BM (2020) Corruption, terrorism, and the stock market: the evidence from Iraq. J Asian Financ Econ Bus 7(10):629–639. https://doi.org/10.13106/jafeb.2020.vol7.no10.629
Asad M, Haider Hashmi S, Yousaf S (2016) Nexus between workers’ remittances, unemployment, labor migration and economic growth in Pakistan. Int J Organ Leadersh 5(4):360–379. https://doi.org/10.33844/ijol.2016.60188
Bhat KU et al (2018) Corporate governance and firm value: a comparative analysis of state and non-state-owned companies in the context of Pakistan. Corporate Governance (bingley) 18(6):1196–1206. https://doi.org/10.1108/CG-09-2017-0208
Boadi I, Amegbe H (2017) The link between quality of governance and stock market performance: international level evidence. Eur J Govern Econ 6(1):78–101. https://doi.org/10.17979/ejge.2017.6.1.4324
Brown RL, Durbin J, Evans JM (1975) Techniques for testing the constancy of regression relationships over time. J Royal Stat Soc: Series B Methodolog 37(2):149–163
Chaudhry IS et al (2021) Financial development and natural resources dynamics in Saudi Arabia: visiting “resource curse hypothesis” by NARDL and wavelet-based quantile-on-quantile approach. Rev Econ Dev Stud 7(1):101–117. https://doi.org/10.47067/reads.v7i1.325
Chizema A, Pogrebna G (2019) ‘The impact of government integrity and culture on corporate leadership practices: evidence from the field and the laboratory. Leadership Quarterly 30(5):101303. https://doi.org/10.1016/j.leaqua.2019.07.001
Cho JS, Greenwood-Nimmom M, Shin Y (2019) Two-step estimation of the nonlinear autoregressive distributed lag model, (2019rwp–154), pp. 1–44. Available at: https: //ideas.repec.org/p/yon/wpaper /2019 rep-154.html.
Christopoulos A, Dokas I, Spyromitros E (2022) The effect of corruption on the level of real and accrual earnings management in cases of target firms. EuroMed J Bus. https://doi.org/10.1108/EMJB-03-2022-0055
Ciftci C, Durusu-Ciftci D (2022) Economic freedom, foreign direct investment, and economic growth: role of sub-components of freedom. J Int Trade Econ Dev 31(2):233–254
Darsono S, Wong W, Nguyen T, Dewanti DS (2022) Good governance & sustainable investment: the effects of governance indicators on stock market returns. Adv Decis Sci 26(1):69–101
Duo J (2018) Government integrity and corporate investment efficiency. China J Account Res 11(3):213–232. https://doi.org/10.1016/j.cjar.2017.03.002
Elbasani A, Šabić SŠ (2018) Rule of law, corruption and democratic accountability in the course of EU enlargement. J Eur Publ Policy 25(9):1317–1335. https://doi.org/10.1080/13501763.2017.1315162
Ellahi N et al (2021) Investigating the institutional determinants of financial development: empirical evidence from SAARC countries. SAGE Open 11:2. https://doi.org/10.1177/21582440211006029
Emara N, El-Said A (2021) Financial inclusion and economic growth: the role of governance in selected MENA countries. Int Rev Econ Financ 75(99257):34–54. https://doi.org/10.1016/j.iref.2021.03.014
Hall J, Levendis J, Scarcioffolo AR (2020) The efficient corruption hypothesis and the dynamics between economic freedom, corruption, and national income. J Dev Areas 54:3. https://doi.org/10.1353/jda.2020.0031
Huberts LWJC (2018) Integrity: what it is and why it is important. Public Integrity. https://doi.org/10.1080/10999922.2018.1477404
Hussain SS, Sabir SA, Saeed Aas Meo M (2017) Impact of political stability, government effectiveness and corruption on stock markets of South Asia. Jpuhs, (December 2018), pp. 217–229
Hussein GA (2022) The relationship between banking governance indicators and the performance of Iraqi stock exchange. Am J Econ Bus Manag 5(5):69–81
Islam K, Asghar N, Bilal AR (2019) An analysis of dividend policy and stock price variations in Pakistan. E-Jurnal Manajemen Universitas Udayana 39(1):327–340
Islam K, Bilal AR (2021) Nexus between governance indicators & sustainable stock market development in Pakistan: evidence from symmetric and asymmetric analysis. Pakistan J Humanit Soc Sci 9(3):365–385
Islam K, Bilal AR, Zaidi SAH (2022) Symmetric and asymmetric nexus between economic freedom and stock market development in Pakistan. Econ Change Restruct. https://doi.org/10.1007/s10644-022-09385-5
Jareño F, Escribano A, Koczar MW (2021) Non-linear interdependencies between international stock market. Mathematics 9(1):1–21. https://doi.org/10.3390/math9010006
Khan MA, Ilyas RMA, Hashmi SH (2018) Cointegration between institutional quality and stock market development. NUML Int J Bus Manag ISSN 13(2):90–103
Khan H, Khan S, Zuojun F (2020) Institutional quality and financial development: evidence from developing and emerging economies. Global Bus Rev 585:1–13. https://doi.org/10.1177/0972150919892366
Kinsella M, Mehrbani R, Weiser W, and Daniel IW (2021) Executive actions to restore integrity and accountability in government. https://doi.org/10.22558/jieb.2019.06.32.3.1091.
Kwabi F, Boateng A, Chijoke-Mgbame M (2022) Foreign equity portfolio flow and corruption: a cross-country evidence. Int J Financ Econ 27(1):68–87
Lai KMY (2020) ‘Political institutions, stock market liquidity and firm dividend policy: some international evidence. J Contemp Account Econ 16(1):100180. https://doi.org/10.1016/j.jcae.2019.100180
Lakshmi G, Saha S, Bhattarai K (2021) Does corruption matter for stock markets? The role of heterogeneous institutions. Econ Model 94:386–400. https://doi.org/10.1016/j.econmod.2020.10.011
Malik N, Qureshi TA (2021) A study of economic, cultural, and political causes of police corruption in Pakistan. Policing J Policy Pract 15(2):1446–1462. https://doi.org/10.1093/police/paaa016
Mangal TK, Liu DY (2020) The impact of economic freedom on foreign portfolio investments. Int J Res Bus Soc (2147–4478) 9(2):213–222. https://doi.org/10.20525/irjobs.v9i2.658
Ming KLY, Jais M (2021) Impacts of macroeconomics environment and governance quality on the stock market in the fourteen developing countries. Jurnal Ekonomi Malaysia. https://doi.org/10.17576/JEM-2020-5403-10
Mugableh MI (2021) Causal links among stock market development determinants: evidence from Jordan. J Asian Financ Econ Bus 8(5):543–549. https://doi.org/10.13106/jafeb.2021.vol8.no5.0543
Mushtaq S (2017) Corruption, governance and sustainable development : a panel data analysis By Shahzad Mushtaq Supervised by : Dr. Rana Ejaz Ali Khan: A Thesis Submitted To The Department Of Department of Economics The Islamia University of Bahawalpur
Naseer M (2021) Firm, industry and macroeconomics dynamics of stock returns: a case of Pakistan on-financial sector. J Risk Financ Manag 14:5. https://doi.org/10.3390/jrfm14050190
Nguyen CP et al. (2020) Institutions, economic openness, and credit cycles: an international evidence. J Int Stud 13(04): 229–247. https://doi.org/10.14254/2071-8330.2020/13-4/16
Okere KI, Muoneke OB and Onuoha FC (2021) Symmetric and asymmetric effects of crude oil
Omodero CO (2018) Corruption and stock market performance in Nigeria. Ann Spiru Haret Univ Econ Series 18(4):23–40. https://doi.org/10.26458/1841
Onuoha OC, Okoye NJ and Chika UF (2022) Exploring the Nexus between Corruption and all share index of Nigeria Capital Market’, (January).
Pham VTH (2020) Impacts of corruption control on economic growth in relationship with stock market and trade openness. J Asian Financ Econ Bus 7(12):73–84. https://doi.org/10.13106/JAFEB.2020.VOL7.NO12.073
Phuong LCM (2020) Corruption and stock market development in EAP countries. Invest Manag Financ Innov 17(2):266–276. https://doi.org/10.21511/imfi.17(2).2020.21
Price and exchange rate on stock market performance in Nigeria: Evidence from multiple structural breaks and NARDL analysis. J Int Trade Econ Dev May).
Rahmanian Koushkaki A, Bahremandjouy S (2022) Investigating the relationship between information asymmetry and political communication with investment efficiency in Tehran stock exchange. Iran J Financ 6(3):116–141
Shaohua, (2021) Do transparency and anti-monopoly policies matter for financial development? Evidence from a panel ARDL-PMG approach. J Appl Econ 00(00):1–16. https://doi.org/10.1080/15140326.2020.1838113
Shin Y, Yu B, Greenwood-Nimmo M (2014) Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. SSRN Electron J 44:1–44. https://doi.org/10.2139/ssrn.1807745
Syed AA (2021) The asymmetric relationship between military expenditure economic growth, and industrial productivity: an empirical analysis of India, China, and Pakistan via the NARDL approach. Revista Finanzas y Política Económica 13(1):77–97
Uroos A (2022) Economic analysis of corruption: evidence from Pakistan. Trans Corp Rev 14(1):46–61. https://doi.org/10.1080/19186444.2021.1917331
Uzelac O, Davidovic M, Mijatovic MD (2020) Legal framework, political environment, and economic freedom in central and Eastern Europe: do they matter for economic growth? Post-Communist Econ 32(6):697–725. https://doi.org/10.1080/14631377.2020.1722583
Wang B, Li Y, Xuan W, Wang Y (2022) Internal control, political connection, and executive corruption. Emerg Mark Financ Trade 58(2):311–328
Zakharin S et al (2021) New economic instruments of state regulation of private savings, social security, and pension support. Journal of Optimization in Industrial Engineering 14(1):79–88. https://doi.org/10.22094/JOIE.2020.677819
Author information
Authors and Affiliations
Corresponding author
Ethics declarations
Conflict of interest
There is no conflict of interest among the authors regarding any academic or financial issues.
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
About this article
Cite this article
Islam, K., Bilal, A.R., Saeed, Z. et al. Impact of government integrity and corruption on sustainable stock market development: linear and nonlinear evidence from Pakistan. Econ Change Restruct 56, 2529–2556 (2023). https://doi.org/10.1007/s10644-023-09523-7
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10644-023-09523-7