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Economic Change and Restructuring

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05-06-2023

Impact of government integrity and corruption on sustainable stock market development: linear and nonlinear evidence from Pakistan

Authors: Kashif Islam, Ahmad Raza Bilal, Zeeshan Saeed, Samina Sardar, Muhammad Husnain Kamboh

Published in: Economic Change and Restructuring | Issue 4/2023

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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.

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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.

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Title: Impact of government integrity and corruption on sustainable stock market development: linear and nonlinear evidence from Pakistan
Authors: Kashif Islam
Ahmad Raza Bilal
Zeeshan Saeed
Samina Sardar
Muhammad Husnain Kamboh
Publication date: 05-06-2023
Publisher: Springer US
Published in: Economic Change and Restructuring / Issue 4/2023
Print ISSN: 1573-9414
Electronic ISSN: 1574-0277
DOI: https://doi.org/10.1007/s10644-023-09523-7

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