IJBM Volume 4 Issue 1 2020
IJBM Volume 4 Issue 1 2020
IJBM Volume 4 Issue 1 2020
INTRODUCTION
Iqra Journal of Business & Management is a peer reviewed journal initiated by the Business
Administration Department, Iqra National University, Peshawar, Pakistan in year 2017. The aim of
the journal is to publish latest research related to the field of management, business administration,
marketing, finance, entrepreneurship and so on. The main contributors of the journal are academics,
researchers, practitioners, consultants, and undergraduate and postgraduate students. The journal
has a diverse advisory board consist of experts from developed countries as well as well-known
universities at national level. The journal provides a platform for sharing diverse research work in
the field and aims to reduce the gap between the industry and academia. The journal is abstracted
and indexed in high ranking abstracting and indexing agencies. The journal does not charge any fee
to authors and is freely available to the readers through its web site.
• General management
• General administration
• Accounting and finance
• Human Resource Management
• Marketing and supply chain management
• Strategic Management
• Operations Management
• Entrepreneurship
• Corporate Social Responsibility
• Public Sector Management
• Organizational Behavior
• Business Ethics
• Research methods
The development of journal required a lot of hard work and I appreciate the work of managing
editor, co-managing editor and associate editors. On behalf of Iqra Journal of Business &
Management, I am thankful to the university administration for its support of this effort. I am
thankful to the Chancellor, INU Obaid ur Rehman, and all the academic and administrative staff in
supporting this research endeavour.
Chief Editor
Managing Editor
Dr. Muhammad Farooq Jan
Co-Managing Editor
Dr. Sheraz Ahmed
Associate Editors
Raza Ahmed Khan
Zaighum Abbas
TABLE OF CONTENTS
Vice Chancellor
Iqra National University, Peshawar
Page|1
Abid Ahmad1
PhD Scholar, Islamia College Peshawar
Lecturer, CECOS University, Peshawar
[email protected]
ABSTRACT
Purpose of this study was to assess the influence of Relational Coordination (RC) on
employees’ Job Embeddedness (JE), while conceptualizing RC as a reflective latent construct.
Using quota sampling technique, data was gathered from healthcare professionals in Peshawar,
Pakistan. Partial Least Square Structural Equation Modeling (PLS-SEM) was employed for data
analysis. Results showed that RC is positively associated with both on-the-job (ONJE) and off-the-
job embeddedness (OFJE). The findings suggest that, in addition to quality and efficiency
outcomes, RC can enhance JE as well, and it is an important antecedent of JE. Thus, in healthcare
institution, leaders and managers should strive to increase RC among employees to realize benefits
associated with both RC and JE. The study efficaciously employed PLS-SEM in a new context as
previous studies have not investigated RC→JE using PLS-SEM, particularly in healthcare context.
1
Corresponding author
INTRODUCTION
Effective healthcare provision is largely dependent upon collaboration and coordination among
healthcare professionals. Task interdependency, uncertainty and time constraints are integral parts
of work processes in healthcare settings (Gittell et al., 2018), which necessitate high degree of
collaboration and coordination on part of care providers. Relational Coordination (RC) among
healthcare professional is found to be determinent to quality and efficiency outcomes (Gittell, 2003;
Gittell, Weinberg, Pfefferle & Bishop, 2008; Gittell et al., 2018). RC is also found related
positively with job satisfaction (Gittell et al., 2018; Gittell & Logan, 2017; Havens, Gittell &
Vasey, 2018) and improved level of quality of life (Gittell et al., 2008) of healthcare professionals.
Employees in healthcare usually work for long and irregular hours which lead to high involvement
and would result in establishment of more social connections (Moen, Kelly & Huang, 2008).
Workers having higher levels of RC are anticipated to be highly embedded because they develop
relations within the organization with their colleagues and supervisors and friends and neighbors in
the community they live (Karatepe and Ngeche, 2012; Mitchell et al., 2001). According to the
Mitchell et al., (2001) “Job Embeddedness (JE) involves non-attitudinal work and non-work
aspects classified as fit, links and sacrifice, across organization as well as the community, that
collectively bind the workers to an organization”.
Outcomes of JE are explored by several scholars; however, the antecedents of JE (factors
influencing JE) are still understudied (Ferreira, Martinez, Lamelas & Rodrigues, 2017; Singh,
2017), thus investigating relational coordination as antecedent of JE seems to be a fruitful research
avenue. The relational dimension of RC is anticipated to be related with job embeddedness,
however, RC as an antecedent of JE is not studied by prior research. Moreover, despite calls for
enhanced communication and coordination among healthcare professionals globally, over the last
two decades; research regarding examination of coordination and interdependencies among
healthcare professionals and their outcomes for the care providers remains limited in Asian context,
particularly in developing countries like Pakistan. Chan, Ho, Sambasivanc & Ng (2019) studied JE
in Asian context, however the sample was confined to local frontline employees of hotels/resorts in
Malaysia. Hence, the authors called for further research to enhance, the understanding of JE
perception in other regions and other types of service settings and cultural contexts. Furthermore,
RC is typically measured using Gittell’s (2012) RC Survey, which is a 7-items 5-point Likert type
scale, assessing relationships (3-items) and communication (4-items). Using this method RC is
measured as a composite score, based on simple summation and linear weighting process, i.e., all
the indicators contributes equally to form the composite (Henseler et al., 2014) RC score. To assess
strength of relational ties, this is necessary. However, while relating RC to other constructs, it is
more appropriate to conceptualize it as a latent factor, to account for measurement error (Chin,
1998; Hair, Hult, Ringle & Sarstedt, 2017).
To address these research gaps, this research examined the impact of RC on JE in healthcare
settings in Peshawar, Pakistan, while conceptualizing RC as a latent construct. Further, rather than
using JE as a unified construct, the research model of the study incorporated on-the-job
embeddedness (ONJE) and off-the-job embeddedness (OFJE) separately. According to Chan, et al.,
2019), this is a useful framework foundation that has been proved to be theoretically significant.
LITERATURE REVIEW
Relational Coordination
Employees interaction and coordination essential to successfully achieve organizational goals.
Gittell’s (2002) Relational Coordination Theory (RCT) postulates that relational coordination is
determinant of both quality and efficiency outcomes, particularly in conditions of uncertainty and
task interdependence. The RCT posits that RC also improves outcomes for care providers (Gittell et
al., 2008) in healthcare settings. Initially developed and used in an airline (Gittell, 2001), the theory
is tested variety of organizational settings (Siddique & Yunis, 2018; Pagell et al., 2015; Sánchez,
Heredero & Merodio, 2015). RC is a multidimensional construct, whereby the relational dimension
of RC is operationalized by shared knowledge, shares goals and the mutual respect, enabling
employees to provide best possible service (Coffey, 2015) and establish meaningful connections
(Gittell, 2012). The communication dimension of RC is operationalized by frequent, timely,
accurate and problem solving communication (Gittell, 2002; Gittell et al., 2018) enabling
employees to coordinate “on the fly”. RC is measured using Gittell’s (2012) RC Survey, which is a
7-items 5-point Likert type scale, assessing relationships (3-items) and communication (4-items).
Using this method RC is measured as a composite score based simple summation and linear
weighting process, i.e., all the indicators contributes equally to form the composite (Henseler et al.,
2014) RC score. To assess strength of relational ties, this is necessary. However, while relating RC
to other constructs, it is more appropriate to conceptualize it as a latent factor, to account for
measurement error (Chin, 1998; Hair et al., 2017). In the healthcare settings, successful inter-
professional teamwork is highly dependent on the collaboration as the teams are responsible for
provision of continuous care (Momsen et al., 2012). RC is positively associated with many positive
outcomes for healthcare professionals (Gittell & Logan, 2017; Gittell et al., 2018) such as job
satisfaction and quality of life (Gittell et al., 2008; Havens et al., 2018). RC between nurses is
found to enhance professional efficacy, career satisfaction, proactive work behaviors, sense of
social support and motivation (Cramm, Hoeljmakers & Nieboer, 2014; Naruse, Sakai, & Nagata,
2014). Furthermore, according to Gittell et al. (2018) and Havens et al. (2018) RC positively
influence job satisfaction and work engagement and negatively influence burnout in healthcare
settings.
H2: Relational coordination (RC) is related positively to off-the-job embeddedness (OFJE) of the
healthcare professionals in Peshawar, Pakistan.
METHODS
Procedure
The research employed a cross-sectional & descriptive design. Survey design was used to assess the
responses of the individuals participating in coordinated tasks in healthcare settings. Using the
procedure of Gittell (2012), “Patient Care” was selected as a broad focal work process, followed by
selection of cross-functional workgroups. Six functional groups (Doctors, Residents, Nurses,
Technologists, Technicians/Paramedics and Administrators) involved in the focused work process,
were selected based on relevant literature (Gittell, 2012, Gittell et. al., 2018) and informational
interviews. Using PLS-SEM, RC, ONJE and OFJE were incorporated as reflective constructs. Both
measurement and structural models were assessed using the standard model assessment criteria.
The use of PLS-SEM was considered because of the exploratory nature of the study and little
insight about the casual association between RC and JE (Richter, Sinkovics, Ringle, & Schlägel,
2016). Moreover, for complex models, PLS-SEM is a recommended approach (Richter et al., 2016)
and has a higher statistical power (Hair et al., 2017).
Measures
RC was assessed using RC Survey (Gittell, 2012) which is a 7-item Likert type scale that
evaluate three dimensions of relations and four communication dimensions. Responses to survy
items were based on a 5‐point measure vacillating from low to high. ONJE was assessed using
Crossley, Bennett, Jex & Burnfield (2007) 7-items scale, whereby respondents specified their level
of agreement with the scale items using options ranging from (1) ‘strongly disagree’ to (7) ‘strongly
agree’. Negatively worded item-6 was reverse coded before analysis. OFJE was assessed using 6-
items scale of Ng and Feldman (2013). Responses were recorded based on the options ranging from
(1) ‘strongly disagree’ to (7) ‘strongly agree’.
Control Variables
Following suggestion of (Gittell et al., 2018) age and gender of the respondents were included as
control variables in the model. However, impact of both the demographic variables was
insignificant.
Measurement Model
In PLS-SEM, measurement model’s assessment, involve assessment of internal consistency
reliability and Convergent and Discriminant Validity. Rather than the generally used Cronbach’s α,
Composite reliability (CR) is a recommended measure of internal consistency (Hair et al., 2017).
Composite reliability score of up to “0.6 is acceptable in exploratory research but values above 0.95
indicate redundancy” (Avkiran, 2017, p. 4).
Table 3 presents CR values for all the constructs, depicting that the value ranged from 0.903 to
0.924, which provide evidence for internal consistency reliability (Nunnally and Bernstein, 1994;
Hair et al., 2017). Indicators outer loading and Average Variance Extracted (AVE) of a construct
are determinants of CV (Hair, Ringle & Sarstedt, 2011; Hair et al., 2017). As a general rule, outer
loading should exceed 0.708. The outer loadings (Table 3 and Figure 2) for all the indicators
exceeded the critical value of 0.708, representing satisfactory results (Nunnally, 1978; Hair et al.,
2017). CV is also evident from scores of AVE for all the constructs ranging from 0.509 to 0.636.
Discriminant validity (DV) is “the degree to which a construct is truly distinct from other constructs
by empirical standards” (Hair et al., 2017, p. 115). Fornell and Larker (1981) criterion and
Henseler, Ringle, & Sarstedt (2015) Heterotrait-Monotrait (HTMT) ratio of correlations were used
to assess DV.
According to Fornell and Larker criterion, for each construct, the value of square root of AVE
should be higher than the values of its bivariate correlations with all other constructs (Hair et al.,
2017). Values of the square root of the AVE (Table 4) for each component exceeded 0.764 and
were greater than the correlation among them.
Table 4: Fornell and Larker test
OFJE ONJE RC
OFJE 0.780
ONJE 0.745 0.797
RC 0.658 0.737 0.764
Notes: OFJE= Off-the-job Embeddedness, ONJE=On-the-job
Embeddedness, RC=Relational Coordination.
HTMT ratio is required to be less than HTMT0.85 (Clark and Watson, 1995) or HTMT 0.90 (Gold,
Malhotra & Segars, 2001). According to HTMT ratios (Table 5) all the constructs exhibited
discriminant validity at HTMT0.85.
DISCUSSION
The current research study explored the influence of relational coordination (RC) on job
embeddedness (JE) among healthcare professionals. The findings of the study revealed that RC
plays a significant role in influencing both on-the-job and of-the-job embeddedness of healthcare
professionals. The findings support and extends previous researches that have confirmed that
relational coordination is related with positive outcomes for employees as well as organizations
(Cramm et al., 2014; Gittell et al., 2008; Gittell & Logan, 2017; Martinussen et al., 2017;
McDermott et al., 2019; Naruse et al., 2014). The findings confirmed that RC can enhance JE
which is found to be associated with many positive outcomes for employees such as developing
social connections (Moen et al., 2008) and career and life satisfaction (Bambacas, 2011; Wolff &
Moser, 2009). High level of relational coordination resulting in enhanced JE can also improve
organizational outcomes like employees’ work engagement (Takawira, Coetzee & Schreuder,
2014), reduced turnover intention (Mitchell et al., 2001) and proactive customer service (Chan et
al., 2019). The findings suggest that, beside quality patient care, effective work coordination among
workgroups in healthcare settings can positively affect both on-the-job and off-the-job
embeddedness. As scholars have concluded that antecedents of JE (factors influencing JE) are still
understudied (Ferreira et al., 2017; Singh, 2017), the findings also suggest that RC is an important
antecedent of both ONJE and OFJE. Furthermore, an important methodological contribution of this
research is to successfully employ PLS-SEM in a new context. PLS-SEM is considered a
recommended methodology for social science research (Memon et al., 2018), however, previous
studies relating RC to its consequences are largely based on first-generation analysis methods.
suggest that other factors are also in play and (6) future research studies of RC and JE should
incorporate other theoretically related constructs as well.
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There are many factors due to which startups face difficulty in accessing external sources of
financing. Some of these factors include information asymmetry, collateral, entrepreneur’s prior
experience and reputation as identified by the literature. This study has used case study
methodology to identify the factors which affect a startup’s ability to access funds. These factors
include return on investment and lack of Government’s support in addition to the factors identified
by the literature. When an entrepreneur is unable to access traditional sources of funds such as
banks then he/she either takes funds from alternate sources such as angel investors and venture
capitalists or bootstraps the venture.
INTRODUCTION
Recently, especially after the 1990s, it has been widely accepted by both scholars and policy
makers that entrepreneurship is the driving force behind the development of an economy (Doruk &
Söylemezoğlub, 2014). Entrepreneurs do not want to pursue a traditional career path and, instead,
choose to create careers for themselves (Roundy, 2018). They create new ventures due to their
creativity and ability to identify opportunities (Jack & Anderson, 2002). These new ventures or
startups are the drivers of economic growth and employment (Megginson, 2004). It has been
observed that virtually all the net jobs in United States are created by startups and other young
firms, which are five years old or younger (Haltiwanger, Jarwin & Miranda, 2013). According to
Blank (2010) “a startup is a company, a partnership or temporary organization designed to search
for a repeatable and scalable business model. Through the startup phase, new ideas are brought to
the market and transformed into economically sustainable enterprises.” Similarly, Leplow (2016)
defined start-up as a recently formed company. In Pakistan, the Federal Board of Revenue has also
introduced the definition of a startup through the Finance Act of 2017. Under section 2 (62A),
startup has been defined as “a business set-up by a resident individual, AOP or a company having
turnover up to Rs. 100 Million in the last five tax years, registered and certified by the Pakistan
Software Export Board (PSEB) as an information technology entity engaged in offering technology
driven products or services to any sector of the economy”.
Startups are limited in resources (Fayad et al., 2000) and they are more likely to fail as compared to
the established companies (Stemler, 2013) because an established company has resources, power,
scalability and established processes needed for success of a business which startups generally lack
(Weiblen and Chesbrough, 2015). According to a study conducted on 947 entrepreneurial firms in
eleven Sub-Saharan African countries, the biggest hurdle in the growth of a firm is financial
constraints (Vivarelli, 2011). Ayyagari, Demirguc-Kunt and Maksimovic (2008) also reported that
among all the obstacles faced by firms, financing constraint, crime and policy instability have the
most constraining effect on firm growth. They further argued that out of the three most constraining
obstacles present in a business environment, financial constraint was found to be most robust and
consistent one “regardless of which countries and firms are included in the sample” (p.484). This
difficulty in accessing financial resources is enhanced in case of small firms as compared to the
established ones. These firms are restricted to access even the mainstream financial institutions
such as banks due to lack of past track record, which is necessary for a good reputation and
credibility of the venture (Grilli, Mrkajic & Latifi, 2018). Therefore, it is important to investigate
that despite financial constraints which sources of funds do entrepreneurs prefer and why? Which
factors affect an entrepreneur’s ability to access different sources of external funds? Also, which
options do entrepreneurs have if they cannot access traditional sources of funds such as banks? This
study answers all of these questions by identifying factors which affect start-ups’ ability to access
traditional sources of funds and why do start-ups opt for alternate sources of funds. It will help the
banks to eliminate the factors which hinder start-ups’ ability to access loans. Furthermore, the
Government would be able to know the financial limitations faced by start-ups, which are
preventing them from developing and encouraging future start-ups.
LITERATURE REVIEW
Access to financial resources is critical to the success of an entrepreneurial venture (Grilli, Mrkajic
& Latifi, 2018). Perhaps having a good initial idea is the most important element for any start-up
specially an internet start-up, however, it is not enough. The reason is that taking a good idea from
business plan stage to a prototype needs money. Even after making the prototype, the marketing
and advertising needed for the success of the business plan needs huge amounts of capital (Flanc,
2014). With the increase in difficulty in attracting traditional sources of funding such as banks, the
need for alternate sources of investment such as crowdfunding, angel investment and venture
capital has increased (Dibrova, 2015). According to Bayar (2013), the type and source of capital for
any business depends upon its stage of development. Since companies in the early stage of
development not only possess high risk but also lack sufficient collateral, therefore, they cannot opt
for traditional sources of funding such as banks. For such companies, alternative sources of finance
such as angel investors, venture capital and hybrid organizations (e.g. business incubators) are the
most attractive options. All the external sources of financing whether traditional or not have certain
criteria on the basis of which they choose start-ups for investment.
After the financial crisis of 2008, it has become difficult for small and medium enterprises (SMEs)
to obtain external credit (Cowling et al. 2012). It was also observed by Cowling et al. (2010) that
the ability of SMEs to access external credit decreased after the recession of 2008-09. In the first
quarter of 2010, 73000 firms were rejected for a loan request by the banks. The reason could be that
banks have changed the criteria for granting a loan. Banks are not considering the growth
orientation of a firm; instead, they are processing loan applications on the basis of firm size as a
proxy for collateral as collateral is a very important factor to access loan from a bank. Banks do not
lend to two types of firms. One with high risk and the other with growth intentions and no
collateral. For high risk firms, instead of charging high interest rates to compensate for high risk,
banks do not grant them loan altogether.
One of the other reasons due to which it becomes difficult for the banks to evaluate investment in
innovative projects is information asymmetry due to which the processing cost for evaluating a loan
request by an innovative firm becomes higher than the potential returns (Mason & Harrison, 2004).
Information asymmetry means when equal information is not available to all the participants in a
market i.e. few people have more information as compared to the others. Tucker & Lean (2003) in
a survey of 103 small firms find that 50 percent of the survey respondents reported that the finance
providers did not have any knowledge about the nature of their business. Furthermore, the owners
of the small businesses have more information about the potential of their business than the external
finance providers. The small business owners cannot provide detailed information of their business
to financiers as they think the information might get leaked and the competitors could get a hold of
the information (Winborg & Landstrom, 2001). Consequently, it becomes difficult for the
financiers to evaluate the potential of the businesses without adequate information about it. This
information asymmetry leads to financial constraints, which affect the entry and post-entry growth
of the firms (Cabral & Mata, 2003).
Due to difficulty in obtaining funds from traditional sources of financing such as banks, startups opt
for other sources such as angel investors and venture capitalists. According to a report by Europe
Union (2008), if a certain segment of a society cannot access the mainstream financial services then
they should opt for services provided by alternative sources who do not exploit the low-income
segments of a society. These alternative sources are so open-minded and provide such a positive
image that they make the financially excluded people to try to access financial services once again.
This lays the first step towards financial inclusion with the mainstream financial providers.
However, even the alternate sources of external financing such as angel investors and venture
capitalists look for start-ups which fulfill their criteria for making investment in a start-up.
Kotha and George (2012) finds that if an entrepreneur seeking financing has past experience in
business ventures then he is more likely to get financing as compared to an inexperienced
entrepreneur. Similarly, Kaplan & Stromberg (2004) conducted a research on the investments made
by venture capitalist firms. They find that among the investments made by VCs, 60% of the time
their investment decision was influenced by the prior experience of the entrepreneur/ management
team. In the early growth stage, small firms do not have audited financial statements, assets to
pledge as collateral or profitability record. Consequently, it is difficult for external finance
providers to evaluate them. In such circumstances, the funds providers have to rely upon the
creditworthiness and reputation of the entrepreneur as they might have more personal assets to
pledge or a credit history that could be evaluated (Frid, Wyman, Gartner & Hechavarria, 2016).
METHODOLOGY
This study is qualitative in nature and has followed an inductive approach. The inductive approach
was followed because the purpose of the research was exploratory in nature. The chosen research
design for this study was qualitative multiple case study. One of the most important reasons to use
case study is to collect data in its natural setting and to answer why and how questions (Yin, 1984).
The data was collected by using semi-structured interviews. By using purposive sampling, a sample
of 15 startups was selected. All of the selected startups had either got funding from some source or
were planning to approach some source for financing.
primary themes were identified from the literature as well as from the data collected from the
respondents. After the primary themes, sub-themes were organized and the similar sub-themes were
grouped under one single theme. This process resulted in a final list of sub-themes which were then
compared with the research questions of the current study. The primary themes were identified
from the transcribed data collected through interviews. All of them identify the factors that affect
the ability of a startup to access funds from external sources of financing. Few of them such as
information asymmetry, prior experience and collateral were identified by the literature also.
However, few new factors have also been identified by collecting data from the entrepreneurs
running startups in Peshawar. These factors are risk, and lack of Government’s support.
Due to the limitations identified by the entrepreneurs in accessing traditional sources of funding, it
is more suitable for start-ups to opt for alternate sources of funding such as angel investors and
venture capitalists. The reasons entrepreneurs opt for angel investors is that they want someone
who can not only understand the nature of their startup but can also serve as their mentors and
provide them opportunities for networking with other potential investors or customers. They also
want their investors to understand the hardships a startup has to go through so that they can be their
equal partners in their risk.
The main themes identified by in-depth analysis of the interviews are given below:
According to Berger & Udell (1998) the available information about start-up firms is opaque and,
therefore, face difficulty in obtaining intermediated external finance. In the early growth stage,
small firms do not have audited financial statements, assets to pledge as collateral or profitability
record. Consequently, it is difficult for external finance providers to evaluate them. In such
circumstances, the funds providers have to rely upon the creditworthiness and reputation of the
entrepreneur as they might have more personal assets to pledge or a credit history that could be
evaluated. The financial institutions debt is based on the personal assets of the entrepreneur, which
are pledged as collateral. However, if the entrepreneurs are new and do not have any record to
display then how will their creditworthiness or reputation be evaluated?
Tucker & Lean (2003) reported that the finance providers do not have any knowledge about the
nature of the business of small firms. 22.5 percent of the respondent firms considered lack of a
financial track record as a significant reason in obtaining finance. As the businesses are in the start-
up phase, therefore, they do not have a financial track record to provide.
Furthermore, the owners of the small businesses have more information about the potential of their
business while the external finance providers do not have such information. The small business
owners cannot provide detailed information of their business to financiers as they think the
information might get leaked and the competitors could get a hold of the information (Winbord &
Landstrom, 2000). Consequently, it becomes difficult for the financiers to evaluate the potential of
the business without adequate information about it. This results in difficulty for entrepreneurs in
accessing finance.
Respondent analysis
Entrepreneurs mentioned in their interviews that the causes of information asymmetry are the lack
of awareness about the nature of start-ups and the traditional mindset of people. People in Peshawar
whether they are bankers, industrialists or family members do not understand the nature of start-ups
and the technology associated with them. They believe that only traditional businesses with
physical assets can generate money. They do not consider the start-ups to have potential for earning
money. Therefore, they feel reluctant in giving money to start-ups. As one of the respondents
mentioned,
“The problem here is that our elders do not consider startups as work. They think we are just
wandering around and we get money from here and there and the things are working. My parents
tell me look that person got the job and that too while you are just wandering around. So when
your own family will not give you funds then how will the others think that we are doing
something?”
“Because in Pakistan if you tell someone then people do not understand what an app is and how do
they earn money. We do not have any such model here. People think that IT people do not earn
money. During freelancing, I had so much problem in making an account in bank because even the
banks did not know what free lancing is so if banks do not understand then it would have been very
difficult to convince my family and friends. It’s even difficult to convince local businessmen.”
Literal analysis
According to Scholten et al. (2015) the most important factor in the success of a spin-off is the prior
start-up experience of the entrepreneur. It plays an important role in founding a new start-up and
also increases the chances of survival. It is advised that, in a spin-off team, at least one such
member must be included who has prior experience with a startup. Kotha and George (2012) finds
that if an entrepreneur seeking financing has past experience in business ventures then he is more
likely to get financing as compared to an inexperienced entrepreneur. Similarly, Kaplan &
Stromberg (2004) conducted a research on the investments made by venture capitalist firms. They
find that among the investments made by VCs, 60% of the time their investment decision was
influenced by the prior experience of the entrepreneur/ management team.
Respondent analysis
Prior experience of an entrepreneur plays an important role in enabling him to convince the
investors or loan providers. The funds providers get the confidence that since the entrepreneur has
founded or managed a start-up before so he knows what he is doing. It also makes them feel secure
that their money will not be wasted. As one of the respondent mentioned,
“Fund providers definitely go for those entrepreneurs who have any sort of product development,
or an execution experience. Your prior success and failure stories count in the decision.”
“Yes, that’s everywhere, when you are running a business, they know that you have developed your
product and are generating returns. That means you have experience. You cannot start a company
without experience.”
Literal analysis
Berger & Udell (1998) argued that collateral and guarantees provided by small firms to financial
institutions act as powerful tools in providing small firms with loan on favorable terms. Otherwise,
the information opacity of small firms make it difficult for them to obtain funds at all and even if
they do get funds from financial institutions, the terms are relatively unfavorable for them.
Similarly, Gangata & Matavire (2013) found that the SMEs face difficulty in securing finance from
financial institutions due to their inability to satisfy the credit requirements. The major part of these
requirements is collateral, which the small firms lack.
Furthermore, Makena et. al (2014) conducted a study on the factors hindering the ability of women
entrepreneurs in accessing business finance in Kenya. They identified collateral as the major factor.
As the small businesses lack tangible assets to pledge as collateral, therefore, they face difficulties
in accessing funds from financial institutions such as banks. Fatoki & Asah (2011) also concluded
that debt financing is important for SMEs to survive and in order to access debt financing, SMEs
must pledge collateral. Without collateral, it becomes difficult for SMEs to access bank loans.
Therefore, they must pledge their business assets or owner’s personal assets while applying for
bank loans.
Respondent analysis
Respondents mentioned that they face a lot of difficulties when they apply for even basic financial
services. These difficulties are created due to a number of reasons. First, the banks have tough
criteria about the acceptance of application. They need collateral in order to accept the request for
loan and start-ups do not have collateral to pledge as they are mostly web based businesses. The
start-ups do not have the kind of assets a bank need as collateral nor can they afford it if the idea
has not even been executed yet. Another reason is the high interest rates charged by banks. Banks
charge more interest from risky investments. As financial institutions consider start-ups to be more
risky due to their nature so they charge more interest from them, which is not feasible for start-ups.
Banks also offer limited financing for start-ups, consequently, even if start-ups cannot fulfill the
collateral requirements, the money granted to them without it is not enough to fulfill their needs.
Banks also have complex processes, which makes it unattractive for start-ups to apply even for
loan. As one of the respondent mentioned,
“No, we dint even try because we think the process is extremely extremely complex and if we will
get involved in these things then our work will get effected badly. When we were making bank
account, it was such a difficult process. We went here and there so we think if we will get involved
in it then a lot of our time will get wasted.”
“I am talking about technical startups, which are based on technology. In banks, you have to keep
collateral to get loan. We don’t have collateral in technical startups. Like in Empress bazar if our
evaluation is 1-1.5 million dollars then we just have a website and a significant number of
customers so if we go to a bank, it asks about tangible assets like office. We tell them our
everything is on the internet. The banks have not come towards the technical side yet so technical
investors go to VCs etc.”
Literal analysis
In the early growth stage, small firms do not have audited financial statements, assets to pledge as
collateral or profitability record. In such circumstances, the funds providers have to rely upon the
creditworthiness and reputation of the entrepreneur as they might have more personal assets to
pledge or a credit history that could be evaluated (Frid et al., 2016).
Respondent analysis
“Now even if you haven’t conducted any business previously but your image, as a person, among
some people who know you in the market is as of a guy who doesn’t waste others investments, then
there is a 1 out of 3 chance that you will get financing from external source.”
Investors also determine the credibility of a startup through the reputation of the founder of that
startup. As one of the respondents commented,
“I would say the founder/CEO has an aura on his/her business. I work in service industry and it’s
all based on the word of mouth and trust which is the culture of Pakistan. So in my industry all of
these factors are related to the founder which in turn is related to the startup.”
In addition to the factors identified by the literature and respondents as well, there were two
additional factors which were identified by the respondents during the interviews. These two
factors were return on investment and lack of Government’s support.
Investors invest from the point of view of generating return on their investment. Some investors
require quick returns on their investment and they only invest in startups who could generate
certain returns for them. One of the respondents mentioned that,
“There are 2 types of investors. The first one looks for quick cash that is how fast a business
generates cash. For example if such an investor were to invest in my start-up then they’ll be
focusing on the time frame in which my start-up will generate their return on investment and these
investors usually are quick to invest once they believe they’ll reach a breakeven point within 2
years.”
“An investor always looks for higher return on investment in short amount of time, which is a
unique characteristic found in Pakistan only.”
Hence, the startups who are already generating good amount of money can easily convince such
investors to invest in their venture as compared to the startups who struggle to cover their expenses.
The problems/limitations faced by entrepreneurs are enhanced due to the lack of Government’s
support. One of the respondent mentioned,
“The government does not take steps to promote start-ups and to make access to finance easier for
them. There are lack of rules and regulations for promoting start-ups. Furthermore, there is a
limitation of exit clauses, consequently, the investors feel reluctant to invest in start-ups.”
If startups are unable to access external financing due to the above mentioned factors then they opt
to fund their own ventures via bootstrapping rather than getting involved with other sources. Due to
complex processes, lack of awareness, absence of rules and regulations, collateral requirement and
information asymmetry, entrepreneurs feel it more feasible to fund their own startups.
5. Conclusion
Startups face a lot of problems when seeking investment or loan for their venture. As the nature of
startups involve risk and uncertainty, therefore, it becomes difficult for the entrepreneurs to
convince financial institutions such as banks or industrialists to finance their venture. They even
face difficulty in accessing basic financial services such as opening an account for their startups.
This finding is in line with the theory of financial exclusion that a group in society faces difficulty
in accessing even basic financial services. Other than traditional sources of financing such as banks,
startups also opt for other sources of external financing such as angel investors and venture
capitalists. The access to all of these sources is influenced by a few factors which affect a startup’s
ability to access potential sources of external financing. These factors are prior experience of the
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ABSTRACT
In emerging economies like Pakistan, it is usually agreed that stock market must play a very vital
role under general equilibrium in the collection, allocation and the optimal and productive use of
funds in an effective and efficient manner. Less robust results are offered by the previous studies
since the command of unit root and Cointegration tests are reduced by shorter data span. In
contrast, the study has used Cointegration tests along with other relevant econometric models in
order to discover relevant causal relationship among the variables of interest. The study focuses on
extending the existing literature by incorporating additional variables; increasing the size of the
sample data; and by the application of improved and advanced methodology to design a stock
pricing model at Pakistan Stock Exchange (PSX). This research has developed a stock pricing
model based on selected firm specific variables and Macro Economic Variables. However, the
long-run equilibrium relationship, speed of short-run disequilibrium or dynamics adjustment as
well as their short term relationship is also identified.
2
Corresponding Author
INTRODUCTION
Living in a developed economy is always desired because of having the sturdy belief that gradual
economic growth has significant association with increasing investment opportunities and industrial
growth, reduced unemployment, a good financial system, reduced inflation, favorable balance of
trade and balance of payment, rational relationship among Macro Economic Variables, rising per
capita income, better earnings, and finally, a better living standard. Out of several measures, for
having a developed economy a developed financial system is a significant pre-requisite Erkie
(2012), Öscal (1990), Ay (2000), Karecaoğlue (2010) Fatumn (2015), Khan and Abas (2015) and
Errer etal. (2016). Financial system comprises of banking and non-banking financial institutions,
and financial specialized institutions. In the absence of capital market, economic development
heavily depends on internally generated corporate savings and capital which have obvious
limitations of high profit margin to support required level of corporate savings, concentration of
industrial ownership and likely inefficiency in the corporate and industrial units. Therefore
developing stock markets are important and vital for making the ownership of financial assets more
attractive to medium and small investors and thereby to broaden the ownership of industrial wealth.
In addition, development of stock market also ensures allocational efficiency of scarce resources
through evaluating, ranking, and selecting investment alternatives according to expected returns
and associated risks Banerjee, R., & Majumdar, S. (2018). Development of the stock markets,
thereby, plays an important role in bringing a good financial system in any economy Alagidide, P.,
& Penagiotidis, T. (2012). Here stock markets are supposed to meet certain basic requirements i.e.
industrialization support through funds collections, mobilizing savings, and transformations of the
maturity; and to ensure that there is an environment of efficient application of the aforesaid
functions (Pradhan, R. P., Arvin, M. B., & Ghoshray, A. (2015) ; Ahmed, 2000). Economic reforms
including liberalization, denationalization and reorganization in most of the evolving economies are
still to be completed. In these circumstances, the information of prevailing stable relations between
stock prices and financial market oriented variables like market cap, price to earnings (P/E)
multiples, market dividend yields, retained earnings, book to market ratio, industry size and market
etc. foreign stock markets, and Macro Economic Variables like consumption, investment, exchange
rates, international crude oil price, unemployment, industrial production, gross domestic products
(GDP) etc. are primarily vital and are likely to advance the important postulate in a variation of
econometric models (Halle etal. 2008 Karacoglu 2010 Breituang 2001 and Errer et. al. 2016).
Given the recent experience of rapid fluctuations and extreme downfall in stock price indices at the
Pakistan Stock Exchange (PSX) in 2008 and at the mid of 2013, a relevant question may arise
regarding the efficiency in the allocation of scarce assets and efficiency of the stock markets. A
well-meant efficient stock market is generally categorized by informational efficiency that leads
stock prices at its equilibrium position through the adjustment of historical, public and private
information Ahmed, S., Coulibaly, B., & Zlate, A. (2017). All these information are generated
either from the company itself, or from the industry or stock market or from the aggregate
economy. This research is undertaken with the basic objectives of identifying the factors from all
these sources whether that are firm specific or macro-economic and to determine how and to what
extent factor information has been adjusted to security prices at Pakistan Stock Exchange (PSX).
Typically, the causal relationship between inflation rate, interest rate and GDP along with a few
other economic variables has been examined by the previous studies. Where the nexus between
firm specific factors and macroeconomic factors have often been ignored within the framework of
stock market considerations, as in the same empirical model these variables have not yet been
considered. The outcomes of previous studies may not be valid due to the exclusion of these
variables and limiting the scope of the study, especially if there is any causal relationship among
these variables.
This study besides other analysis examines the causal relationship among a wide range of
appropriate and relevant set of variables: these being firm specific variables, and macro-economic
variables. Although extensive studies can be found on the stock market indices and MEVs’
relationships since the influential study of Hamilton (1983), only a sub-set of the variables that are
chosen for this study has been considered by the prior researches (Damas and Solnek, 1995;
Desantes and Gerrard, 1997; Gerrard etal., 2003; Pukthenthong and Roall, 2008; Bekert etal., 2013;
Donedalli, 2018). Thus, a significant feature of this study is that it has examined the possible causal
linkages between firm specific variables, and MEVs conjointly. The study also considered the
emerging economy like Pakistan that has not received much attention in the literature. Furthermore
this group of countries and variables are studied over a contemporary and lengthy time frame, i.e.
over 2001-2018.
LITERATURE REVIEW
Emerging market is the term which is associated to a country that is making an effort to change or
improve. Or a country that is trying to improve its economy to achieve a level of sophistication
which is normally attributed to developed economies or developed markets. IFC (International
Finance Corporation) 1981 defines an emerging stock market as a market that is in a transitional
phase; trying to increase the market size, increase the level of sophistication or increase the level of
activities. IFC further categorizes a stock market as an emerging market if it meets atleast one of
the following two criteria: the level of investable market cap is lower as compared to its latest
GDP, or as defined by the world bank, the location of the stock market must be in a low or middle
income economy. World Bank defines emerging economies on the basis of per capita gross national
product (World developing report 1986). As per World Bank’s definition the minimum GNP per
capita of developed economies or high income economies is minimum $9,656, so if a country’s
GNP per capita is less than this level it is classified as a low income economy, or an emerging
economy if it is striving to achieve this level of GNP per capita.
Stock market development is a multi-dimensional concept as the previous literature indicates that.
Size of the Stock market, riskiness, integration with leading capital markets of the world, and the
legal environment that governs a market are the measures that are normally considered. For
instance, Attje and Joavnovic (1993) tested the hypothesis that economic performance is positively
affected by stock markets improvements. They concluded that their measure of stock market
development and economic growth are significantly and positively correlated. Leavine (1997) used
market size, volume, and riskiness as indicators of stock market development. De Jhong and
Semanov (2006); Henry (2000); Bekert and Harvery (2004); Rajen and Zingles (2009); Bekert etal.
(2013); Donadeli and Perrsha (2017) used market cap as a gauge of the development of stock
market.
It is very clear that there is no single measure of share market progress. Demirgec Kent and
Leavine (1996) and Phylektis and Ravazalo (2016) in their study concluded that there is a high
correlation between different measures and indices of stock markets. Leavine and Zarvos (1998)
and Donadeli and Perrsha, (2017) consider market liquidity to be a better measure of market
development and they established that the correlation between current and future rates of economic
growth and stock market liquidity is positive and significant.
Leavine (2002), Neoime (2012) and Peskalian etal (2016) used market capitalization as proxy for
stock prices. This author believed that market cap is a better proxy for representing changes in
stock prices, because it is less subjective as compared to other measures and indices of stock market
development.
between them to improve the performance of the stock markets of Pakistan (Ghulams M. Q et al.,
2015). Normally different indexes are developed which are used to relatively measure the
performance and productivity of the stock markets. KSE-30 index, KSE-all share Index, and KSE-
100 Index are the three main indices along with other secondary indices which are used in Pakistan,
to measure and reflect STOCK MARKET PERFORMANCE.
Stock market reactions to changes in different firm specific factors are tried to be determined in
different empirical studies e.g. Brenan (1970 and 1973), Litzenbarger and Rameswamy (1979 and
1980) Ogden (1994), Steven and Joshe (2010), Kato and Loewanstein (2015), Ariff and Finn
(2016), and Lee (2018) etc.
A significantly positive relation between changes in different firm specific factors and the stock
return is identified by Asharony and Swery (2008), Kwan (2011), Eadas (2012), and Wolridge
(2015). The dividend relevance doctrine is supported by Walter (1963) and Gordon (1962 and
1963). Their respective studies suggest that investment policy and dividend policy are inter-linked
and the firm’s value is affected by choosing an appropriate policy regarding dividends, that’s why
dividend policy can not viewed separately from investment policy.
The observed relationship between dividend yields and common stock returns could be attributed to
the information regarding the knowledge that dividend will actually be declared by firms, as Miller
and Scholes (1981) have argued. Examining how changes in dividends are reacted by stock and
bond prices by Dhilon and Johnson (2004) found that stock price reactions to the announcement of
large dividends are reciprocal to the bond price reaction. The information content hypothesis is not
ruled out by Dhilon and Johnson (2004) but the evidence provided by them also supports the wealth
redistribution hypothesis. Wealth redistribution and information content between bondholders and
stockholders are the two of the several more discussed potential explanations of the increases in
dividends are positively responded by stock market. The results of Dhilon and Johnson (2004) are
different from the results of Handinicolaou and Kaley (2004) while analyzing the reaction of bond
returns to the changes in dividends by the latter their results suggest that changes in dividends do
not affect the bond prices and sometimes the reduction in dividends negatively influence the bond
prices. The information content hypothesis is strongly supported by their data as argued by Dhilon
and Johnson (2004) while the results of Jayaramann and Shasstri (2008) are in contrast, which
concluded that dividend announcements and security prices are negatively but insignificantly
related.
Volatility or recent direction of the underlying market movements is how sensitively reacted by
investors is studied by Poal, Schott, Dockings and Kosh (2015) and found that during volatile times
if the news nature whether good or bad goes against the recent market trends than a significant
change in stock prices is elicited by the announcement of dividend changes. For example, when
markets are volatile and returns are high a greater and significant decrease in stock price is resulted
by lower dividend announcements. Similarly when markets are volatile and returns are lower or
normal a greater and significant increase in stock price is resulted by higher dividend
announcements but the statistical significance of this latter tendency is often on the lower side.
To link the market volatility and trends to the responsiveness of investors, the implications of
behavioral considerations with a dynamic equilibrium model of rational expectations is combined
for reasonable explanation of such results by Rehman, Z. and Rehman, L. (2008).
Price-earnings ratios and its subsequent historical relationship with stock market performance are
examined by Pu Shan (2013). Both in short and long run strong historical evidence have been found
by Pu Shan (2013) that stock market performance has remained very disappointing to the high
price-earnings ratios. Specifically, when stock prices depict a slow long-run growth it is often
preceded by high price-earnings ratios. Stock market performance always suffers in short run when
the earning yield on shares is reduced by high price to earnings ratio relative to return on
investments Pu Shan (2013).
Cumulative abnormal return (CAR) and market- adjusted abnormal return (MARR) on daily basis
are the two measures used by Chowdhary and Hamed (2018) to determine the impact on
shareholders’ value by dividend announcements. The changes in average market price, compared to
relative daily percentage price change in the dividend paying stocks is real indicator of MARR as
explained by them. Investors’ total return over a term that starts way before dividend announcement
to way after the announcement day of dividend is measured and defined by CAR. A total sample of
137 listed companies on PSX is examined by Chowdhary and Hamed (2018) and concluded that as
compared to actual announcement of dividend market participnts react earlier hence on the
dividend announcement day MARR was insignificant statistically. Furthermore, their results also
suggest that in the pre-dividend period the gained value was much less than the ex-dividend period
when evaluating the CAR results.
Dating back to 1970s the effects of MEVs on Stock Market Performance has been studied in the
literature. Emerging-capital-markets, developed-capital-markets and both emerging and developed-
stock-markets context has remained the focus of different studies. And the existing literature
suggests strong relations between MEVs and Stock Market Performance.
A negative relation between interest-rate, inflation, and SMP and a positive relation between broad
M2, IP level, and market performance has been identified by Aspreem (1989) while examining
European countries to investigate the association between MEVs and SMp. As interest rates if
higher attract other investment alternatives, Bulmesh and Travoli (1991) suggests that Stock Market
Performance is negatively influent by interest rates along with other major MEVs.
The causal relationship between MEVs and the SMP and its nature has been investigated by
Bhatacharya, B. and Mukerjee, J. (2003) in India. The causal relationships between seven major
MEVs, viz., trade balance, index of industrial production, money supply, Forex reserves, rate of
inflation, national income, effective EXrate, and the BSE Sensitive Index using monthly data from
1993 to 2001 has been tested by using the “long–run Granger non–causality test” proposed by
Todda and Yamammoto (1995), and unit root test and co-integration tests.
Multifactor regression model was used by L.M.C.S. Menake, (2006) for examining the association
between Stock Market Performance and 8 selected MEVs i.e. trade balance, index of industrial
production, M2, Forex reserves, rate of inflation, national income, and real effective Exrate. It was
indicated by the results that 27 out of 34 firms had greater descriptive power to explain Stock
Market Performance.
The impact of MEVs on the Stock Market Performance has been investigated by Absalem, T.O.
and Ogunmoyiwa, M.S. (2010). As dependent variable the average stock prices of the stock-
exchange at Nigeria, and as independent variables the IP level, Investment, Exrate, Fiscal-Deficit,
Foreign-capital-flow, inflation-rate and external-debt has been used by the authors. In the sample
time frame, the “Granger Causality test” indicated that any of the nine MEVs in the Nigeria-Stock-
Exchange is not Granger caused by ASP (average-share-prices). When the variables are considered
in pairs, average-share-prices- were only Granger caused by Exrate.
The association between stock prices and inflation has remained the focal point of different
researchers in different economies and they found a negative association between the two variables,
which are Osei (2006) in Ghana, Meysami, and Kohh (2000) in Singapore, Mohammed and
Shaheen (2004) in Pakistan, Eitta (2011) studied in Namibia, Wongbangpo and Sharma (2002) in
ASEAN 5 countries.
In contrast in relation to the examination of the US markets, the investigations of Europe have been
a lot sparser. Wasserfollen (1989), when breaking down the reaction of European financial
exchanges to unforeseen components of a few monetary factors, finds weak connections. Cannova
and De Nicholo (1995) find noteworthy connections between development rates in exports receipts
and stock returns. Pheiró (1996) demonstrates that stock profits depend emphatically on future
variations in export receipts. Nasseh and Strauss (2010) likewise find noteworthy reactions of stock
prices in six European nations to export receipt.
The EMEs’ (emerging market economies) financial conditions abruptly deteriorated because of the
news that large scale asset purchases (LSAPs) by the Federal Reserve could soon start reducing in
May 2013. As a result there was a sharp depreciation in Rupee, stock markets fell and investor’s
especially foreign investors withdrew their capital.
Mensi, W., Hammoudeh, & Balcilar, M. (2017), tested the impact of variables that are macro-
economic on STOCK MARKET PERFORMANCE from Jan 2008 to Jan 2009, employed a
multiple regression model. The MEVs included in that study were, change in exchange rate, gold
price, foreign exchange reserve, and inflation rate. STOCK MARKET PERFORMANCE and
Foreign exchange reserves had a positive correlation of 0.754.
According to Chen (2003), for growth rates in the consumptions, as a proxy imports growth rates
can be used. Especially in countries like Pakistan where imports to GDP ratio is high, increase in
consumption may also increase the imports. And if imports increase, Private domestic consumption
will also record an increase which in result will decrease stock prices.
RESEARCH METHODOLOGY
Methodology
For the purpose of designing an appropriate stock pricing methodology different econometric
methods and statistical tools are employed in this research study.
To estimate the discrete relationship in short run among FSFs, MEVs, and GSMs as independent
variables and KSE 100-Index as dependent variable “Multivariate Time Series Regression
Analysis” has been used in this study.
To identify equilibrium relationship in long run between the variables “Soren Johansen’s
Cointegration Test” was used.
The speed of the adjustment of disequilibrium in short run within equilibrium association in long
run between the variables of interest are estimated through “Vector Error Correction Model
(VECM”).
The possible causal nexus between the variables was identified through “vector autoregressive
(VAR)”. Exploiting the cross-sectional and time series variations in the data is the main advantage
of this approach. Thus, biases associated with regressions that are cross-sectional can be avoided by
considering the fixed effects that are country-specific (Levuine, 2005).
The estimates of Johansen’s Cointegration test between KSE and FSFs Indicated a Similar result
where MEPS is found to have a positive relationship with KSE with a coefficient of 4.431114.
Based on this empirical result, it can be concluded that Market EPS has long run positive
association with KSE 100-Index.
The error correction estimate for MEPS reveals that a percentage change in MEPS is associated
with a 0.042 percent increase in KSE on average ceteris Paribus in the short run.
In one way, increasing MKTEPS reflects the investor’s confidence in stock market which in turn
reflects in rising demand for the stock which ultimately leads to an increase in stock prices and
Stock Index in the stock market. In another way, a rise in stock price and Index Value provides a
positive message to the existing market participants which induce the investors to have larger
investment in stocks than before.
consider current dividend is better than future dividend or capital gain) and thereby contributing to
increase stock price. In addition, the influence of dividend payment on stock price may also differ
in different industry or within a specific industry. Beside that controversial relation, this research
assumes negative hypothetical relationship between stock price and market dividend yield.
In this research, Table 3 of multivariate regression analysis provides negative regression coefficient
(i.e. -3.385348) for market dividend yield (MKTDY) which is statistically significant at 1 percent
level. Therefore, the test result of multivariate time series regression analysis in table 3 is consistent
with the null hypothesis of negative relationship between KSE and market dividend yield. And
based on the results in Table 3, it can be concluded that market dividend yield has significant
negative association with Index value in the short-run.
The estimates of Johansen’s Cointegration test between KSE and FSFs Indicated a Different result
where MKTDY is found to have a positive relationship with KSE with a coefficient of 1.916133.
This test provides the evidence that MKTDY have significant positive association with KSE in the
first Cointegration equation but negative relation at the second cointegrating equation in the long
run. This significant positive evidence between stock price and weighted market dividend yield
fails to comply with the basic concepts of “Dividend Irrelevance Theory” (Miller and Modigliani
1961) and follows the path of Gordon and Lintner’s “Dividend Relevance Theory” (Gordon and
Lintner 1962). If the stock price goes down then the yield increases and if the stock price goes up
the yield decreases (Samauels and Welkas, 2015). This research also assumed to have negative
association between stock price and dividend yield. This empirical result in Table 3 reveals the fact
that any increase in dividend yield (either by decreasing stock price or by increasing dividend
payment) contributes to the increase in KSE 100-Index in the future both in long-run time frame.
The error correction estimate for MDY reveals that a percentage change in MDY is associated with
a 0.095 percent increase in KSE on average ceteris Paribus in the short run.
This result of table 3 of this research is consistent with Safari, M. (2009), Ahmed M. F. (2000),
Annuar & Shamsher (1993), Halicoglue (2017), DaVieta and kyawe (2018), Mohamadi et al.,
(2018).
convey positive message in the stock market which is ultimately reflected in increasing demand for
any particular stock as well a rising stock prices in the stock exchange. As this research depends on
three different types of econometric tools, therefore the research output is found to be not perfectly
identical to each other.
In Multivariate Time Series Regression Analysis between FSFs and KSE 100-Index provides a
Positive coefficient (i.e. 1.146732) for MKTROE which is not statistically significant. So in the
short run, MKTROE is not found to be a significant variable to predict the value KSE 100-Index.
The estimates of Johansen’s Cointegration test between KSE and FSFs Indicated a Similar result
where MKTROE is found to have a positive relationship with KSE with a coefficient of 7.607081.
Based on this empirical result, it can be concluded that Market ROE has long run positive
association with KSE 100-Index.
The error correction estimate for MORE reveals that a percentage change in MKTROE is
associated with a 0.57 percent increase in KSE on average ceteris Paribus in the short run.
In Cointegration test between FSFs and KSE provides mixed results. At cointegrating Equation 1
and 4 MKTROE has Positive coefficient (i.e. -7.60 and 25.59) whereas at cointegrating equation
2nd 3rd and 5th MKTROE has negative relationship with KSE. From the regression model sufficient
evidence is reflecting that MKTROE is not an influential variable for explaining the behavior and
volatility of stock prices in KSE in short run but in Long run as per the estimates it can be
concluded that MKTROE does has an influence on KSE 100-Index.
Table 3 of Cointegration Test reveals very consistent results for MKTPEM. Here MKTPEM
provide positive association with KSE in each of the Three Cointegrating equations i.e. 0.44, 3.00,
and 299.03. Therefore, the results strongly imply that positive relationship exists between
MKTPEM and KSE in the long run.
The error correction estimate for MEPM: a percentage change in MKTPEM is associated with a
0.02 percent increase in KSE on average ceteris Paribus in the short run.
Table 3 of Cointegration Test reveals very consistent results for MKTTV. Here MKTTV provide
positive association with KSE in 1st and 4th Cointegrating equations i.e. 16.72727, and 16.52379.
Therefore, the results strongly imply that positive relationship exists between MKTTV and KSE in
the long run.
The error correction estimate for MKTTV reveals that a percentage change in MKTTV is
associated with a 0.91 percent increase in KSE on average ceteris Paribus in the short run.
These results are consistent with the null hypothesis of positive relationship between Market
Trading Volume and KSE 100-Index. The results in Regression and Cointegration Tests indicate
that increasing trading volume has been worked like signal of market liquidity which actually
reduces uncertainty about stock investment and increase demand for stock in the market place. As a
result stock price increases with correspondent increase in trading volume. Therefore, it can be
concluded that market trading volume has long run positive relationship with stock prices and
Index.
The result of this research study revealed in Multivariate Regression Analysis in Table 3 is in line
to that evidence and supports our null hypothesis that change in foreign exchange rates have
negative influence over the behavior of KSE 100-Index at Pakistan Stock Exchange (PSX). In
Regression Model Table 3, regression coefficient for foreign exchange rates has been found to be
negative (i.e. -0.781140) which is statistically significant at 10 percent level. Similar negative
relation between stock price and foreign exchange rate are also found by Abugri (2008) for Brazil
and Mexico, Adam and Tweneboah (2008) for Ghana.
The estimates of Johansen’s Cointegration test between KSE and MEVs indicated a similar result
where EXRATE is found to have a negative relationship with KSE with a coefficient of 0.769745.
The error correction estimate for EXRATE reveals that a percentage change in EXRATE is
associated with a 0.056 percent decrease in KSE on average ceteris Paribus in the short run.
Based on this empirical results of the regression and Cointegration models sufficient evidence is
reflecting that EXRATE is an influential variable for explaining the behavior and volatility of stock
prices in KSE in short run and in Long run as per the estimates it can be concluded that EXRATE
does has an influence on KSE 100-Index.
Gross Domestic Product Per Capita (GDPPC) in this research has been hypothesized to have
negative influence over share price at Pakistan Stock Exchange (KSE). The result of this research
also supports this null hypothesis which is documented in Multivariate Regression Table 3. In
Regression Model in Table 3, negative coefficient (i.e. -2.926468) has been found for GDPPC and
the coefficient is statistically significant at 1 percent level.
The error correction estimate for GDPPC reveals that a percentage change in GDPPC is associated
with a 0.088 percent decrease in KSE on average ceteris Paribus in the short run.
regression coefficients have been found to be Positive (i.e. o.287845) and statistically significant at
10 percent level.
The error correction estimate for REMIT reveals a percentage change in REMIT is associated with
a 1.42 percent increase in KSE on average ceteris Paribus in the short run.
It is already stated that broad money supply (BMS) is expected to have bilateral effect in both
restrictive as well as expansionary monetary policy. In this research, positive relation has been
hypothesized between broad money supply (BMS) and KSE 100-Index.
In Regression Models in Table 3 provide Positive and significant regression coefficients (i.e.
3.488177) for BMS. This evidence implies that an increase in broad money supply (BMS) has
positive association with stock price (KSE) in the short run.
In Table 3, Johansen’s Cointegration test provides positive normalized cointegrating coefficient for
all the cointegrating equations (i.e. 2.604903 in equation 1) for BMS. This positive normalized
coefficient implies BMS has positive association with stock price in the long run.
The error correction estimate for BMS reveals that a percentage change in BMS is associated with a
0.50 percent decrease in KSE on average ceteris Paribus in the short run.
However, the empirical evidence of positive relationship between stock price and broad money
supply (BMS) in the long run is supported by Ratanapakorn & Sharma (2007) for United States,
Chen et al. (2005) for Taiwan, Bulmash and Trivoli (1991), Naik & Padhi (2012) for India,
Mukherjee and Naka (1995) for Japan, Ahmed & Imam (2007) for Bangladesh. Ibrahim and Yusoff
(2001) found positive relationship between stock price and money supply in the short run but
negative relationship in the long run for Malaysia. On the other hand, short run negative
relationship between money supply and stock price is supported by Fama (1981) and Geske and
Roll (1983). Alshogearhri (1998) in his Ph.D. Dissertation, explain that stock price of Saudi Stock
Market is positively related with broad money supply (BMS) in the long run.
Empirical result of this research also supports our null hypothesis of negative relationship between
deposit interest rate and KSE 100-Index which is demonstrated in Multivariate Regression Model
in Table 3. In Table 3 regression coefficient for DIR has been found to be negative (i.e. -0.313027)
which is statistically significant at 5 percent level. The economic interpretation of this negative
relationship could also be viewed in terms of expectations of existing and prospective investors
from alternative investment opportunities.
When multivariate time series regression model demonstrate a short run negative relationship
between deposit interest rate (DIR) and KSE, Johansen’s cointegration test in Table 3 also provides
a negative relationship between them in 1 st 2nd 4th and 5th cointegrating equations. Here Johansen’s
Cointegrating test provides normalized cointegrating coefficient for deposit interest rate of
0.472620 in the first cointegrating equation.
The error correction estimate for DIR reveals that a percentage change in DIR is associated with a
0.35 percent decrease in KSE on average ceteris Paribus in the short run.
In the short run, when stock price is rising, market participants are discouraged to invest in different
deposit accounts. They decide to shift their investment from bank account to different stocks which
results a rise in stock prices in the stock market. If this situation continues then it significantly
depressing banking industry in terms of lower deposit collection. In this situation, monetary
authority takes steps to increase the rate of interest in bank accounts against the corresponding
increase in stock prices. This monetary decision leads to a long run linear relationship between
deposit interest rates and stock price. In addition, the investors’ ‘mental accounting’ also lead them
to invest more in stock market even at the time when deposit interest rate is rising. Because they
tend to divide their investment between safe investment portfolio and speculative investment
portfolio in order to prevent the negative returns that speculative investment may have from
affecting the entire portfolio. So investors have no problem to invest in speculative stock market
because their speculative investment decision is backed by safe return from increasing deposit
interest rate. This also leads to a long run positive relationship between stock price and deposit
interest rate.
CONCLUSION
This research is intended to identify the factors from both micro i.e FSFs and macro level i.e MEVs
that significantly influences stock market performance at Pakistan Stock Exchange (PSX). This
research also tries to estimate the degrees of their relationship with KSE 100-Index by
incorporating Semi-annual data set from June 2001 to December 2018. If these estimates could be
identified then they could be used to predict the volatility of stock prices, the underlying reasons for
this volatility and therefore efficient policy decisions can be taken to brought discipline, harmony,
ethical and rational trading practices in Pakistan Stock Exchange (PSX). In addition, the findings of
this research are expected to contribute in different sectors of the economy as it is argued that
different sectors in the economy are interconnected to each other.
For accomplishing the desired research objectives two different econometric tools (i.e. multivariate
time series regression analysis and Johansen’s Cointegration Analysis have been applied. These
research results in these different econometric methods don’t differ significantly but they are not
found to be identical. It can be said that development of different model formulation and the
instructions for using these models are the main reason for getting less similar results. However,
this research has made it possible to have in-depth ideas about the influences of different factors
that could be used to explain the changes in stock market performance. This research incorporates
relative relationship, absolute relationship, as well as cointegrated relationship between PSX-KSE
100-Index and selected FSFs, and MEVs. All the result estimated here will certainly contribute to
the existing literature, research findings and gives new ways to advance this study.
The findings in this study will enable investors in their investment decision making in Pakistan
stock exchange. Investors could further enhance their investment by incorporating these results
with the findings in other approaches, like technical analysis. Another way to improve the decision
making on stock markets is to include the fundamental analysis.
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Adeel Rahim
Department of Management Sciences, FATA University, NMD, Kohat
[email protected]
Zahir Ullah
Department of Business Management and Commerce
University of Baltistan, Skardu
[email protected]
ABSTRACT
Health is wealth is an old saying; however, it is still a mounting concern for the developed and
developing countries to achieve the health quality agenda across the globe. The Kingdom of Saudi Arabia is
no exception that pays considerable attention for the healthcare policies; however, it’s still required sound
policy inducement in the healthcare agenda to support country’s economic growth. This study examined the
relationship between health indicators and growth specific factors in the context of KSA for the period of
1984-2019. The results supported the ‘Economics of Death’ phenomenon, where high crude death rate
support to the higher per capita income, while it is further confirmed the ‘Malthusian theory of population’,
where higher population growth, fertility rate, and life expectancy substantially decreases the country’s per
capita income. The study emphasized the need of strong healthcare infrastructure in a country that
supported the country’s socio-economic agenda for sustained growth.
Keywords: Healthcare expenditures; per capita income; Population Growth; Death rate; Fertility
rate; Fully Modified OLS; Kingdom of Saudi Arabia.
INTRODUCTION
The importance of health in country’s economic growth always remains a vital component for the
policy makers to device sound and healthy policies. Economic policies usually based on financial
system, however, the social expenditures always remains a distinct place in developmental research
to promote broad-based growth. It is evident that population pressure and rising income growth put
a strain to the country’s socio-economic activity in order to provide healthcare facility to their
growing population. The Kingdom of Saudi Arabia is no exception that faces the socio-economic
restraints that affect country’s social agenda by rising population pressure either in the form of
migration from outside the country and/or rising life expectancy that further put a pressure on the
existing healthcare reforms in a country. The country, although, maintain high standard of
healthcare facility, however, there is still lag behind the major health targeted that assigned by the
ministry of health in terms of number of physicians, nurses, hospitals, and other health related
infrastructure (Deloitte, 2015).
The healthcare system of Saudi Arabia consists of three main parts, i.e., i) the ministry of
health is responsible to provide public hospitals and health infrastructure to care about the 70% of
the population, while ii) semi-public organizations, and iii) private sector, both contributed the rest
of the healthcare facilities in a country. The healthcare expenditures of KSA is about 4.6% in 2015,
which mainly attributed by the construction of new hospitals, developed medical cities, health
related sports club, special children units, and funding for social infrastructure development for the
vulnerable peoples. These reforms are crucial to support the country’s existing healthcare system
for sustained growth (Tforg Group, 2015).
The relationship between healthcare spending and economic growth is widely pronounced
research area in the context of Kingdom of Saudi Arabia and there are plenty of study available on
the topic, however, this research area demanded more comprehensive work on the topic to explore
key socio-economic determinants that affect the country’s economic development. This study is
one of the initiative to explore the key promising variables related with health and economic growth
that would facilitate to proposed sound policy implications in a given country context.
Barro (1996) contributed in the modeling framework to examine the relationship between
health and fertility, which in turn to assess the changes in economic growth by healthcare
expenditures across the globe. Bhargava et al. (2001) considered the panel of several low –income
countries to examine the impact of health indicators on economic growth and comes to the
conclusion that health indicators significantly contributed in the country’s economic development,
especially while using adult survival rates as a proxy for health indicators. Mayer (2001) supported
the health –led growth hypothesis in a panel of 18 -Latin American Countries and concluded that
health expenditures Granger cause economic growth, but this relationship is not averted. The result
implies that healthcare expenditures strongly enforce the need of rising per capita income to fulfill
the demand of healthcare infrastructure in a region.
Bloom et al. (2004) examined the role of health on economic growth by using the new
extended production function including health and work experience factors in human capital
framework and concluded that good health significantly affect the country’s economic growth that
further required more policy framework to balance the healthcare agenda across the globe. Well
(2007) constructed return to health estimates in a cross-sectional setting and confirm the significant
relationship between health and economic growth under various proximate of health factors. Akram
et al. (2008) considered the time series data of 1972-2006 in the context of Pakistan to examine the
long-run and causal relationships between health and economic growth and found that there is a
positive relationship between the two variables, which further transformed into health –led growth
hypothesis in the given country setting. Li and Huang (2009) surveyed the provincial data of China
for the period of 1978-2005 and examine the relationship between health, education, and economic
growth and found that economic growth is positively influenced by both the education and health
factors in a given country context.
Stenberg et al. (2014) presented the new global health framework for women and children
health and conclude that given investment framework provide better estimates in order to device
sound policy implications to advance countries in socio-economic development across the globe.
Alhowaish (2014) confirmed the growth –led health expenditures in the Kingdom of Saudi Arabia.
Şen et al. (2015) estimated the relationship between social expenditures and economic growth in
eight developing countries and supported the social expenditure -led growth hypothesis in Brazil
and Mexico, while negative causality found between health, education, and economic growth in
Indonesia. The remaining five countries support the neutrality hypothesis. Murtin (2016) found a
small correlation between growth and health expenditures in OECD countries by using the age –
specific productivity factor in the health modeling framework. Aslan et al. (2016) examined the
causal relationship between health expenditures and economic growth in seven industrialized
countries and confirmed the feedback relationship between the two variables in the context of
United Kingdom, Germany, and France, while this relationship is averted in the form of health –led
growth and it is noted in Japan and Italy. The result doesn’t confirm the causal relationship between
the two variables in the context of United States and Canada.
The above studies emphasized the need of sound healthcare system to fulfill the demand of
country’s population for better health and wealth. The sound policy implication is desirable for
healthy living. The objective of the study is to examine the long-run relationship between different
health indicators and growth –specific factors in the context of Kingdom of Saudi Arabia by using
the time period of 1980-2015. The study employed robust regression least square method to obtain
the desirable estimates for sound policy conclusion.
The data of the variables is collected from World Bank (2016). The dependent variables are
i) economic growth, which is measured by GDP per capita (constant 2010 US$) and ii) health
expenditure per capita (current US$), while independent variables consists of 8 different factors,
including, i) crude death rate (per 1,000 people), ii) total fertility rate (births per woman), iii) DPT
immunization (% of children ages 12-23 months), iv) measles immunization (% of children ages
12-23 months), v) life expectancy at birth (years), vi) number of infant deaths, vii) number of
under-five deaths, and viii) population growth (annual %). The health expenditures data is largely
missing in the World Bank database from 1980-1995, so we used interpolation technique to filled
the missing variable series for robust inferences. The following equations are used to estimate the
possible relationship between health indicators and per capita income (and health expenditures per
capita), i.e.,
Where, GDPPC indicates per capita GDP, DR indicates death rate, FR indicates fertility rare, DPT
indicates DPT immunization, MSLS indicates measles immunization, INFDTH indicates infant
death, U5DTH indicates under -5 death, POPG indicates population growth, HEXP indicates health
expenditures, ‘ln’ indicates natural logarithm, ‘t’ shows time period, i.e., 1980-2015, and
indicates error term.
RESULTS
The data sheet, descriptive statistics and correlation matrix is presented in Table 1. The
statistic shows the mean value of DPT immunization, crude death rate, total fertility rate, per capita
income, health expenditures, infant death, life expectancy, measles immunization, population
growth, and under -5 death rates are about 88.971% of children ages 12-23 months, 4.608 per 1,000
people, 4.811 births per woman, US$17065.820 per capita, US$359.336 per capita, 16423.710 in
numbers, 70.497 years, 84.824% of children ages 12-23 months, 3.457%, and 20474.260 in
numbers respectively. The variables have a positive skewed distribution except DPT immunization,
life expectancy, and measles immunization, while higher kurtosis value is of measles immunization
followed by DPT immunization, per capita income, etc.
Source: World Bank (2020). a Missing values find by backward interpolated method.
The correlation results show that there is a positive correlation of crude death rate, fertility
rate, health expenditures, infant deaths, population growth, and under 5- death rates with the
per capita income, while the per capita income has a negative correlation with the DPT
immunization, measles immunization, and life expectancy. The health expenditures positively
correlated with the DPT immunization, per capita income, life expectancy, and measles
immunization, while it has a negative correlation with the rest of the factors in the given
country contexts. Figure 1 shows the variables’ plot for ready reference.
Table 2 shows the estimate of fully modified OLS regression and found that crude
death rate, total fertility rate, life expectancy, and population growth are the significant
predictor that influenced per capita income in a country, however, the intensity and direction
between the variables differ as per the expected relationship, i.e., if there is 1% increase in
crude death rate, per capita income increases by 2.345 percentage points. The result does not
means that higher death rate increases per capita income, while it shows the resource
optimum point where the burden of economic resources is shifted from less resources to
more resources that feed many more peoples that substitute with the died peoples. The result
supported the ‘Economics of Death’ agenda, where economic resources preciously matter as
compared to human values.
Table 2: Fully Modified OLS Regression for GDP per capita Equation
The other results show that fertility rate, life expectancy, and population growth
decreases per capita income by the estimated elasticity values of -1.194%, -9.614%, and -
0.701% respectively. The results imply that higher fertility rate, life expectancy, and
population growth substantially decreases the economic output, which support the
‘Malthusian theory of population’ in a country. The high R-square value indicates the
‘goodness of fit’ of the model, as the estimated results is in line with the true line of the
regression. Table 3 shows the estimate of health expenditures per capita by fully modified
OLS regression.
The results show that crude death rate and life expectancy both have a positive
relationship with the health expenditures, as higher the crude death rate and life expectancy,
higher will be the health expenditures per capita with the estimated elasticity values of
8.162% and 46.136% respectively. The total fertility rate and higher population growth both
significantly reduces the health burden from the economy, as both the variables have a
negative relationship with the health expenditures with an estimated elasticity values of -
2.323% and -0.715% respectively. The results conclude with the fact that higher health
expenditures are desirable to support economic infrastructure in order to maintain the healthy
population agenda countrywide. The policies should be design to support healthcare
infrastructure for broad-based economic growth of the country.
CONCLUSIONS
The objective of the study is to explore the key socio-economic determinants that affect the
health and wealth of the country. The Kingdom of Saudi Arabia is passionately investing in
their healthcare expenditures, however, the country still lag behind some crucial health
targets in terms of number of hospitals, physicians, medical units, etc. This study especially
designed for KSA to examine the key healthcare factors that influenced the country’s
economic growth. The results show that high crude death rate increases per capita income,
while lower fertility rate, population growth, and life expectancy considerably increase
country’s economic growth. The results emphasized the need of quality healthcare reforms
that provide free access to the health opportunities to all of the residents of the country, while
private health insurance may also boost the country’s economic growth. The following are
the desirable action plans for the policy makers to promote healthy policy agenda in a
country; i.e.,
i) Increase social expenditures for reducing health related concerns, especially under
-5 mortality ratio.
ii) Rapid population growth cumbersome the country’s growth, therefore, it is
imperative to reduce high fertility rate by promoting family planning in a country.
iii) Technological progress in health infrastructure is required to promote sustained
growth.
iv) Private investment in healthcare infrastructure further may support the existing
healthcare system of a country for sustained growth.
v) To allocate considerable portion of social expenditures for healthy economic
development.
vi) Trade liberalization policies will provide an opportunity to generate sufficient
health revenues by attracting FDI inflows in this sector.
It is imperative to device sound policy plan for a country that should be linked with country’s
strategic mission and goals of healthy living in a country.
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production function approach. World Development, 32(1), 1-13.
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Systems for Thriving Nations in the 21st Century (pp. 81-103). Palgrave Macmillan
UK.
Şen, H., Kaya, A., & Alpaslan, B. (2015). Education, Health, and Economic Growth Nexus:
A Bootstrap Panel Granger Causality Analysis for Developing Countries. The
University of Manchester, Discussion Paper Series EDP-1502.
Stenberg, K., Axelson, H., Sheehan, P., Anderson, I., Gülmezoglu, A. M., Temmerman, M.,
& Sweeny, K. (2014). Advancing social and economic development by investing in
women's and children's health: A new Global Investment Framework. The Lancet,
383(9925), 1333-1354.
Tforg Group (2015). A Peek into the Healthcare System in the Kingdom of Saudi Arabia.
(accessed on 17th May, 2018).
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World Bank (2016). World Development Indicators, World Bank, Washington D.C.
Muhammad Abouzar
PhD Scholar, Department of Education, Abdul Wali Khan University, Mardan, KP
[email protected]
Jamshed Iqbal
PhD Scholar, Department of Education, Abdul Wali Khan University, Mardan, KP
[email protected]
Muhammad Asif
PhD Scholar, Department of Education, Abdul Wali Khan University, Mardan, KP
[email protected]
Muhammad Adnan Khrushid
Department of Business, Sindh Madressatul Islam University, Karachi
[email protected]
ABSTRACT
The current study explored the association of industry & technical & vocational centers in
KP for CPEC. The objectives of this research are to find out the relationship between
industry & technical centers & to ascertain that this association is beneficial for the students
in obtaining market-based jobs. The population of the study comprised of all teachers of
technical & vocational centers and industrialists of KPK. The convenient sample technique
was used. Two questionnaires were used for data collection and analyzed through simple
percentage, frequency, mean and standard deviation. The results of this research exposed
that a significant link is needed to exist between industry & technical & vocational centers as
per CPEC demands. This research forwarded the suggestions for managing the challenge of
establishing the links between industry & technical centers then it would prove a real game
changer in terms of economic & sustainable developments for KP.
INTRODUCTION
Coming together is a beginning, keeping together is progress and working together is
success” a saying of Henry Ford pinning towards a key to success of nations. Historical
instances reflect that individualistic strive for excellence can never be made real unless the
unity of forces into a bond (Ahmad, 2012). Alliance between technical & vocational institutes
with industries is very much important for the enhancement of skills in training & education,
new innovation and technology transfer to the generation is an imperative. The advantages of
institutes-industry links are very comprehensive: they can expedite collaborations of
scientific and technological capabilities (Marotta, Blom, & Thorn 2007). Hagedoorn, Link,
and Vonortas (2000) argue that institutes -industry linkages have various kinds of purposes.
These may be either formal or informal which include patent licensing, human capital
mobility, and official equity corporations. research projects and contracts. Similarly, it is
opined by Koschatzky and Stahlecker (2010) that it is also valuable to make the differ ence
between short and long terms collaborations. Short-term alliances normally are made up of on
demand while solving a problem with predefined outcomes which lean towards licensing and
consultation. Long-term alliances linked with joint projects and with three Ps (public-private
partnerships) it includes private-funded institutes or joint institutes-industry research centers,
and these longer-term alliances are more planned and open-ended, offering a multi-
dimensional platform in which organizations may progress an innovative capacity in future.
TVET institutions are noticed as a catalytic agent which make enhancement to the
development of skills and competences and provides the expected competences which are
demanded in the market. Juri et al. (2006) argued in (Yusof, 2015) that in the age of
globalization and advanced technological know-how, long term learning is essential for all.
Therefore, TVET educational institutions sector should enhance and update its potential for
providing skill work-force. They are not only well-informed, but also skilled and adaptive as
per the market jobs demands. Sipon (2003) supported by arguing that one of the key
challenges for TVET institutions is to graduate the students who can exhibit professional
competencies along with an academic qualification. Only qualification is a mark on a piece of
paper and competence is actually what is not only demonstrated but also demanded in the
workplace market demand.
The current study is entitled as to discover the linkages among industries & technical &
vocational centers in KP for CPEC.
1. To find out the linkages among industries & technical centers, and
2. To ascertain that these linkages are beneficial for the students in acquiring market-based
jobs.
1. How to find out the links between industry & technical centers?
2. How to ascertain that these linkages are beneficial for the students in acquiring market-
based jobs?
The private business organization and companies create nine out of ten jobs in the developing
countries and 38 % of private business employers argue that they face difficulties on account
of unavailability of trained work force as they recruit the personnel for the vacant position. A
strong mismatch is witnessed. Similarly, a vast number of job seekers who do not have the
required skill which the business employers are looking for, come for jobs interviews.
Therefore, it is so-called skills gap- a strong mismatch between the required skill for jobs and
those possessed by the jobs seekers. This reflects a major constraint in our country in face of
CPEC market jobs demands (DI and BCG January 2016).
Some industry mangers high spotted the necessity of considering industry demands while
planning technical education they said they require graduates who are well trained but often
miss-match exist between our demands and their training & education. These managers stress
to develop institution-industry coordination in planning technical education programs. It
helps us in running our machines”. Technical education provides human resources to the
industries that have significant role in the development of any industry in face of CPEC
projects market demands.
REVIEW LITERATURE
The scope of institutes-industry collaboration is very much significant. To build effective
industry-institutes linkages in this scenario usually are very much time consuming and
nonstop efforts are required because technical and vocational institutes in unindustrialized
countries normally have not too much experience in industry-institute linkages and that
inadequate administrative approach in research. Existing linkages appear informal and to put
emphasis on the organizations’ hiring of college fresh-graduates for placements, consulting
and staffing. In so many unindustrialized countries industry- institutes linkages are
embarrassed by based cultural, historical and institutional constraints. To overcome on such
barriers, it will take enough time.
Colleges are the important drivers of economic development and catching-up technology
absorption, adaptation, and diffusion (Yusuf 2007). Complications in negotiations for the
industry-institutes linkages comprise lack of information, problems in finding and inter-acting
suitable individuals, and dealing costs of finding the appropriate partners among others.
The key roles of colleges are education and training, particularly in those countries which
have income level is low and they have dearth of skilled work force that is a main blockage
delaying the attractiveness and state-of-the-art capacity of organizations. Governments
concerned may try to find to enhance the quality of engineering colleges students by
development stronger linkages of colleges and engineering trade industry. At first phase, the
consultative process starts and the various suggestions of the relevant employers and
industrial managers are given due consideration in the development of curriculum so that
engineering colleges education programs to be brought in a better position which may reflect
the needs of industry (Guimón, 2013).
main source which enable the youth for employability. Those people who have technical
skills are in better position to get job easily in Pakistan as well in abroad (Bakhsh, 2015).
Physical infrastructure lays the foundation for industrialization. The CPEC (China Pakistan
Economic Corridor) is not only revolutionizing regional connectivity and trade in the region
but it will also help Pakistan industrialize itself. Pakistan’s economic history reflects that no
country of the globe has reached high levels of income without industrialization. To
accomplish such high economic growth, she has to transfer from being an agricultural
economy to an industrialized economy. The CPEC is a formula to industrialize via its four
components: the Gwadar port, road infrastructure, energy and industrial cooperation. The
Special Economic Zones (SEZs) are going to be constructed in every province of Pakistan
which is based on the strengths of the local economies of these regions, industrial plants in
Khyber Pakhtoon Khwa, at Rashkai Nowshera district & at Hattar Haripur district then these
economic zones will be established (Iqbal, 2017).
The projects which include in (CPEC) China-Pakistan Economic Corridor have started
creating employment for the locals that are estimated to rise to 2.32 million. This job
generation will bring the level of Pakistan’s unemployment rate to 3.3% from 5.9%. These
jobs may be on available within next two years as the entire CPEC open-up in the form of
projects infrastructure, energy and other fields. Even more jobs are anticipated with the
construction of (SEZs) special economic zones under the CPEC that will also assimilate the
nation into global production chains. Majority of the Pakistani have confidence in that the
CPEC project will develop a game changer for Pakistan and will bring concrete rewards to its
people. In this connection, it is necessary to map out concrete measures to sustain the projects
by permitting more people to enjoy its advantages (Luqman, 2016).
RESEARCH METHODOLOGY
The current study is descriptive in nature that examined the point of view of technical
college’s teachers & vocational centers teachers of Khyber Pakhtoon Khwa about to find out
the links between industry & technical colleges & vocational centers & to ascertain that these
linkages are beneficial for the students in acquiring market-based jobs with respect to CPEC
projects demands. The population of the study comprised of all faculty members of KP
technical colleges & vocational centers and all KP industrialists. The convenient sample
technique was used and two different questionnaires having closed and open- ended items
were utilized for collecting the data, i.e. one from technical colleges teachers & vocational
centers and the second from industrialists respectively. The collected data were analyzed
through simple percentage & frequency. The respondents showed their choices according to
their attitudes and knowledge.
Population
Population is the sum collection of all parts, cases and elements from which the
sample is selected. They are considered from which the research conclusion is drawn from
that. Sekaran (2013) In this study, the population is the 19 government poly technique
institutes (GPIs) and 26 vocational centers and all industrialists of Khyber Pakhtoon Khawa
Pakistan.
Sample
Khyber Pakhtoon Khwa all 19 government poly technique institutes (GPIs) and 26
vocational centers through convenient sampling method. 12 government poly technique
institutes (GPIs) and 15 vocational centers total (27) institutes & centers collectively were
taken which constitute sixty percent of the sample. Further four teachers from each technical
college & vocational center and 5 different industrialists were chosen randomly as
respondents for data collection. (http://www.raosoft.com/samplesize.html)
Research Design
The current quantitative detailed research study included the collection of vivid information
from the respondents that seeks to explore to examine the links between industries &
technical & vocational centers in KP for CPEC; Challenge & Implementation.
Eight teachers from two KP GPIs conveniently & fifteen teachers from vocational colleges
teachers and one industrialist of Khyber Pakhtoon Khwa were chosen for practical test. The
sample size of the participants was positively well convenient as pointed out by some
researchers. The two different questionnaires were piloted personally for the purpose of the
research study which could be explained to them effectively. The participants were requested
to fill the questionnaires in and return it within two days
0.934 11
0.935 12
RESULTS
Analysis Teacher’s Responses
Table-1: To find out the links between industry & technical colleges & vocational centers
The college has trade-wise industrial dictionary, which include name &
01 1.80 0.95 108
location of the industry in KP
02 The college has OJT office. 2.11 1.02 108
OJT is fruit full for associate engineers in face of CPEC competitive
03 4.17 1.16 108
market demands.
The college in which you are serving has inked any MOU with any
05 1.69 0.87 108
local industry as per CPEC market demands.
All the associate engineer graduates get job easily in the market in face
06 1.09 108
of CPEC demands. 2.10
The technical /vocational college has contracted agreements with any
07 1.88 0.96 108
local industry according to CPEC projects demands.
Findings
The results of table-1 reveals mean values and standard deviation of each statement
responded by teachers. Results show that teachers disagreed with the statement that college
has trade-wise industrial dictionary (M 1.80<2, S. D=0.95) and also with that college has OJT
office having mean 2.11>2 but <3 having S.D 1.02. But teachers agreed that OJT is fruitful
for associate engineers in face of CPEC competitive market demands (M 4.17>4, S. D=1.16).
They disagreed with the statements that colleges have placement dictionary (M 2.03 >2 but
less than 3, S.D=1.00). majority of the colleges have not signed the MOU with any of the
local industry as per CPEC market demand (M 1.69<2, S.D=0.87). In the light of analysis of
table-1 teachers showed concern that associate engineer graduates face difficulties to get the
jobs easily in the market in face of CPEC demands (M 2.10>2 but less than 3, S.D=1.09).
Very few Technical Colleges/ Vocational Colleges has signed contract or agreements with
any local industry according to CPEC project demands (M 1.88<2, S.D=0.96).
Table -2: To ascertain that these linkages are beneficial for the students in getting market-
based jobs
Findings
The results of table 2 reveals that teachers agreed with the statement of incorporation
of associate engineers into working environment of the local industry keeping in view the
market demands of CPEC is the need of the hour (M. 4.19>4, S. D=1.11. Similarly, it is
deduced from the analysis that the respondents agreed that the associate engineering students
need to have self-confidence, team work, responsibility, leadership ability & Planning &
Time management as respective mean 4.21>4 with S. D=1.06. The mean 4.18>4 having S.
D=1.02 reveals that teachers agreed with the statement that two months on job training in
each year or during each certificate course helps and polishes the associate engineering
students’ skills in face of CPEC market demands. Similarly they are also agreed that the
incorporation of OJT in associate diploma or vocational certificate curricula helps the
associate graduates to get job in CPEC market demands easily as the mean value 4.27>4 with
its respective S.D= 0.8
50
40
30
20
10
0
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11
The graphic representation shows that (87.03%) of the KP GPIs & vocational colleges
teachers disagree that the college has trade-wise industrial dictionary, which includes name &
location of the industry in KP are generally negative. Majority of the colleges & centers
(74.07%) accept that the colleges do not have OJT office. (91.8 %) of the respondents are of
the opinions that OJT is fruit full for associate engineers in face of CPEC competitive market
demands& (83.33%) GPIs & vocational teachers are of the view that the college does not
have any placement dictionary. (97) % of the respondents argue that the college in which
they are serving has not inked any MOU with any local industry as per CPEC market
demands. Majority of the engineering colleges & centers ‘teachers (83%) respondents refute
the idea that all the associate engineer graduates hardly get job in the market in face of CPEC
demands. The GPIs & vocational colleges ‘teachers (87%) argued that the technical
/vocational colleges have not contracted agreements with any local industry according to
CPEC projects demands.
Table -2-To ascertain that that these linkages are beneficial for the students in getting market-
based jobs: Data further reveal that the GPIs & vocational colleges teachers’ perceptions
about this links is fruitful for the students in getting CPEC market-oriented jobs. Majority of
the respondents (90%) argued that the incorporation of associate engineers into working
environment of the local industry keeping in view the market demands of CPEC is the need
of the hour. (90.7%) of the respondents accepted the associate engineering students need to
have self-confidence, team work, responsibility, leadership ability & planning & time
management then the objectives of their education are achieved generally. (88% ) of the
teachers claim that (OJT) Two months OJT (On Job Training) in each year or each certificate
course help the associate engineering students polish their skills in the industry in face of
CPEC market demands..(92.59% )% of the GPIs & vocational colleges teachers’ have firm
idea that incorporation of OJT in associate diploma or vocational certificate curricula help
associate graduates get job in CPEC market demands easily
Findings
The data further reflects that KP (100%) industrialists are very much keenly interested about
the perception if T.T.B or B.T.E seek their demands when they design curricula as per
CPEC projects. (100%) % are of the opinion that academician of T.T.B or B.T.E does not
seek their demands with respect to designing curricula for the associate engineers or
certificate courses in face CPEC projects. Majority of the respondents (100%) denied that
the current curricula of B.T.E or TTB based on their demands with respect to CPEC projects.
(100) percent of the respondents supported that OJT is fruit full for associate engineers/
trainees of short courses in face of CPEC competitive market demands of CPEC. (100) % of
the industrialists completely denied that the industry which they own have not inked any
MOU with any local technical & vocational college as per CPEC market demands. (60 )% of
are of the negative view that all the associate engineer or trainees of short courses graduates
get job easily in the market in face of CPEC demands.(100)% of the responded reflected that
The technical /vocational college has not contracted agreements with any local industry
according to CPEC projects demands.(100%) argued that the incorporation of associate
engineers or short courses trainees into working environment of the local industry beneficial
for their industry is very much beneficial for sustainable development keeping in view the
market demands of CPEC.(100%) firmly support that the associate engineering students or
short courses trainees need to have self-confidence, team work, responsibility, leadership
ability & planning & time management.(100) % of the industrialists suggested two months
OJT in each year or each certificate course help the associate engineering students polish
their skills in the industry in face of CPEC market demands.
. (100) % strongly support the idea that incorporation of OJT in associate diploma or
vocational certificate curricula help associate engineers’ graduates get job in CPEC market
demands easily.
(60) % are of the suggested that their local industry has the facility to train the associate
engineers or short courses trainees for OJT as per CPEC projects demands.
0
1 2 3 4 5 6 7 8 9 10 11 12
DISCUSSIONS
The findings of the study are discussed in connection of establishing the linkages between
technical & vocational colleges and local industry in face of CPEC projects. Many
Challenges have been identified which hinder the linkages. The findings of tables # 03 in
technical & vocational colleges teachers responses and 03 in industrialist responses revealed
statistically and both results are surprising in face of mega national developmental enterprise
i.e CPEC. The same views are supported by Marotta, Blom, and Thorn (2007) that linkages
between institutes & industry in the form of OJT for associate engineering students is an
imperative and its benefits are far reaching.
Similarly, (Guimón, 2013) supported that governments concerned may try to find to enhance
the quality of engineering colleges students by development stronger linkages of colleges and
engineering trade industry. At first phase, the consultative process starts and the various
suggestions of the relevant employers and industrial managers are given due consideration in
Pakistan national education policy 2009 admits that technical education as main source which
enables the Pakistani youth for employability. Those people who have technical skills are in
better position to get job easily in Pakistan as well in abroad (Bakhsh, 2015) In light of
findings of tables # 07 in technical & vocational colleges teachers responses and 06 in
industrialist responses revealed statistically and both results are very much astonishing that
all the associate engineer or trainees of short courses graduates get job easily in the market in
face of CPEC demands.
Challenges
❖ There is too much verbal & written work on associate engineering students so they
work beyond the recommended study load & almost invest all their time in memorization.
Therefore, engineering graduates are often jobless because they lack practical knowledge.
❖ Associate engineering students as well as trainees of short course are very much poor
in communication skills, self-confidence, team work, responsibility, leadership ability &
planning & time management.
❖ It is also very difficult in getting on job training for associate engineering students or
trainees of short courses in the local industry on account of no such MOU exist between GPIs
(Govt.Poly Technique Institutes) & local industry.
❖ There is lack of adequate personnel & office equipment for OJT program in GPIs
(Govt.Poly Technique Institutes) & vocational colleges.
Recommendations
❖ The GPIs & vocational colleges should have industrial liaison offices of OJT and
need to interact dynamic people who are very much helpful for industrial practices in order to
create fruitful linkages among government poly technique institutes (GPIs) & vocational
colleges with local industry in face of CPEC projects in KP.
❖ Seminars for the impact of CPEC on our local industry with respect to associate
engineering students and industry related excursion trips should be incorporated into the
academic curriculum of B.T.E (Board of Technical Education) and TTB (Trade Testing
Board), so that it may help expose these associate engineering students to real working
environments while being under academic training in face of CPEC projects.
❖ Technical & vocational colleges and local industries need to collaborate to organize
seminars and workshops where these associate engineering students 0r trainees of short
courses will share information on the changing trends in industrial practices and how these
changes can be incorporated into the curriculum of the Technical & vocational colleges.
❖ At the provincial level, all government institutions which have an oversight
responsibility on technical & vocational education need to charge while putting up structures
& policies that led to facilitate industry and institutional linkages while maximum being
benefited from CPEC projects.
❖ Human and non-human resource constraints facing technical & vocational education
should be addressed by the various stakeholders involved in education including the
government. It is also recommended that in the course of the development of curricula BTE
or TTB, the local industry must be involved f to have input into the curricula regarding
CPEC needs.
CONCLUSION
This research study requires an explicit commitment from all its stakeholders:
1. From the government to invest in and facilitate maximum skills development and
employment creation in face of CPEC projects in KP.
2. From employers and industrialists to interact meaningfully with policy makers, to
train their workforce and to ensure congenial working conditions to reap the maximum
benefits of CPEC in terms of national development.
3. From training providers to deliver training according to the needs of industry and
best practice with CPEC demands to ensure maximum jobs opportunities.
4. From students of diploma associate engineering to make use of maximum skills
development opportunities to advance personal and social development and to contribute to
national development & economic growth.
In a nut shell, this study has endeavored to presents a realistic view of the challenges
Pakistan faces by our technical & vocational education sector for the establishment of the
linkages between technical & vocational education and industry for earning the maximum
benefits of CPEC and attempts to offer practical proposals for reformation of Technical &
vocational educational curricula in face of CPEC demands. If we are industrialists,
students, teachers, policy makers or donors, we must cooperate all and to work towards the
common goal with CPEC perfect materialization & reaping its full benefits: Industrialized
and Developed Pakistan.
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NAVEED (PhD)
Assistant Professor, Qurtaba University Peshawar
[email protected]
ABSTRACT
The out of school children are those who are not enrolled in primary or secondary schools.
Currently, Pakistan Education Statistics Report 2016-17 showed that 22.84 Million children
were out of school. The purposes of this research is to study ‘out-of-school’ children. The
major purpose of the research was to examine the reasons to out of school students in Khyber
Pakhtunkhwa (KP), Pakistan. To analysis the relationship between poverty and out of school
children in KP, the impact of family size, parent education and curriculum on out of school
children and how terrorism effect the students educational performance. The data was
collected through questionnaires. The result revealed that poverty is the main reason behind
out of school students. After poverty, terrorism mostly effect student education. The other
variables due to which the students leave school were family size and parent education. The
findings of this study recommend that (i) raise the wages of individuals, reduce the cost of
education and reduce the child labor in a country, (ii) Government should make a group for
awareness about benefits of education (iii) Implementation of policy regarding population
control, (iv) provide extra security to the educational institution. Moreover, arrange such
tutorials in school which encourage students to join schools and eradicate fear from minds of
students.
Keywords: Out of school, Poverty, Terrorism, Family size, Parent’s education and
Curriculum.
INTRODUCTION
Education is the process of facilitating learning or gaining of knowledge, skills, values and
beliefs. It also means that through education people will be able to learn how to do things in
better manner. The information of something passes from generation to generation through
education. Education helps the individuals on how to take action. There are numbers of ways
to classify education, which are formal, non-formal and informal education (Joseph, 2019). A
nation can be build and develop with the help of education. Few peoples can believe that
monetary value is more vital for the developing nations but it is a rigorous point of view
because nothing is possible without education. Education is an important element if someone
want to learn new ideas and through which new idea creation may easy. Without required
education and knowledge one cannot discover the new idea and may be able to build up the
nation. Without any idea one cannot do creativity and creativity is very important for a
nation’s progress. Knowledge is power and is an instrument which aid to provide individuals
the required skills, information, techniques and knowledge. It enable the individuals to realise
their duties and rights related to their state, society and family. Education can provide an idea
through which an individual can see the outlook of the world. Through education one can be
capable to fight against injustice, violence and corruption etc. (Doumbia, 2013). Education is
very important for substantial constructive part for promoting the socio-economic status of
people are documented by several prior studies including Azam and Ahmad, Khan et al.
(2014; 2018; 2019), Azam et al. (2020), and Azam (2020).
Education in our lives: Gain knowledge of the world around us and changes it into something
better and helps us build opinions and point of view on things in life. In simple words
success, comes through education. No one can deny the fact that education bring change in
the life of individuals which greatly contribute a significant role in the development of a
nation. Education also plays a vital role in the grooming of children’s future. They should be
provided with current affairs. For the development of a country children should require to be
protected because they are the major pillars to develop a nation. Education is Important for a
country because people will from a better society with education. You will see the
importance if selection only through education, It will help us to get a perfect job (Doumbia,
2013). Education is the only source of progress and development. Education alone can help in
reducing or controlling poverty, unemployment and others issues in a country since it is
consider the driver of growth. According to Muhammad Ali Jinnah, education is matter in life
of individuals and also in society. There is darkness without education (Ali, 2018). But
unfortunately 22.8 million children aged 5-16 are not attending school, representing 44% of
the total population in this age group. Out of school children is a big loss to individuals as
well as to society in Pakistan. Pakistan Education Statistics Report 2016-17 shows that 22.84
Million children were out of school. According to the report 70%children in Baluchistan,
57% in FATA, 52% in Sind, 40% in Punjab, 34% in KP and 47% in Gilgit Baltistan.
Overall rate of literacy in Pakistan according to Economic-Survey of Pakistan (2017-2018) is
58%. The literacy rate estimated at 60% in 2012-13 has decreased by 2% in 2013-14. It is the
same percentage 2017-18 means 58%.
Purpose of the research is to find out the causes due to which children out of school in KP as
well as analysis of relationship between out of school students in KP with poverty, terrorism
and current curriculum. The result of the study is specifically significant for government to
come up with good plans. Moreover, the study may be used by educational policy makers for
improving efficiency in Education Development Plan.
LITERATURE REVIEW
Many studies are found throughout the globe in which many of the people evaluate and
quantifies that out of school students is a big problem. Mangat and Chuard (1996) have a
broad research on the effects of learning and drop-out ratio only on the basic level based on
samples of eight thousand (8000) individuals in two provinces Khyber Pakhtoonkhwa and
Punjab. This study focused on educational institutions of three types i.e. Grade I & Grade IV
in 100 schools in government, private, and mosque in the mosque. Overall, in a gender
school, drop-outs rates are higher in women's schools. At the local level, drop points in rural
side which is not effected due to many grades and grade I education, or most of the schools
are not even offering all level of elementary school. Poverty force the human beings to keep
children away from school and send them to work. Child labor has negative impact on school
enrolment which directly relates to poverty. (Nielsen & Jensen, 1997). Patrinos
and Psacharopoulos (1997) the effects, number of sibling and sibling activities on child
schooling progress. So, using information from the 1991 Peru Survey of Living Standards.
Thus result show that the range of family is key factor for out of school children. The larger
the family size (larger numbers of sibling), poorer the possibility that a child in school and
more child labor. Malik (2002) found out the dropout (out of school) rate at primary level in
Tehsil Sargodha and also identify the causes of dropout at primary level for urban and rural.
Since the data comes from questionnaire method. Their result indicates that the most
important cause of the dropout from the school is poverty. Parents carelessness and increase
of educational expenses directly related to poverty, which increases dropouts. Lack of
children interest and mental weakness also important reason of out from school students.
Aloise-young et al. (2002) analyzed the relationship between educational achievement and
cigarette smoking and perceived health in Hispanic adolescents, and result shows that
academically risky students was 2.80 times possible to smoke heavily than student control
and school dropout are 6.46 times additional possible. Further, Homes (2003) studied
different determinants of primary school, middle and higher school completion in Pakistan,
also disparity between students i.e. Male and female. According to the results from data
analysis collected from Pakistan Integrated house hold survey, 1991. The result showed that
school distance from a student’s house was not significant, however middle and upper
schools influenced the education of both men and women. But generally as compare to male,
female getting lower education because of social and cultural factors which put off females
from school. The study by Zimmerman (2003) analyzed the relation between school
enrolment and children fostering. The result they found that around 25% black South African
children live with non- biological families. And these children are not less likely than other to
attend school. Bilquees and Saqib (2004) studied to determine the factors that compel the
children to leave and inter school movement (public & private) in Pakistan. The variables are
household consumption level, gender, parental characteristic, distance to school, and
increasing private schools in Pakistan. These variables influence dropout rates as well as play
vital role in inter school movement. So female dropout rate in rural area is higher in the
village areas. And drop out male student’s rate for both urban and rural is almost same and
high which is directly connected to child labor. Parents education reduce dropout rates
specially mothers. Long distance from school is the element that forced children to get out of
school. However dropout rates are low in private school then public. So, students movement
from public to private no gender differences and its positive influence. While private to
public school movement indicate low economic status. Idde (2013) examined the effect of
teachers’ workload on students schooling in community secondary schools in Mbeya City. In
which he finds out the numbers of periods taken by teacher in one week and also identifies
the internal marks effect on student performance and examine the administrative roles affect
students education. His result shows that teacher workload has negative effect on student’s
academic progress in community schools. Continues terrorism play a significant role in
education. The fear of terrorism causes students to drop out from school because their
parents do not want to send their children to school as a result out of schools ratio will
increase (Ali, 2015). Soopanyo et al (2016) worked on the current situations of the ‘out-of-
school’ children and youth in Thailand and the problems and causes of problems. Find a way
to help them through the activities provided by related organizations. The study by Kamran
and Shamas (2017) determined the causes at pakistani rural area primary schools students for
drop-out; aim of the study was to find out the causes and effects of different factors due to
which a student ma join an informal school or institute as copare to a formal institute. The
study also explore that is NFBEI’s (non-formal basic education institutions) can do enough
effort to bring drop-out students back to schools. In recent study, Tilak (2018) examined the
relation between education and poverty, confirming that there is a strong and opposite
relationship between education achievement and poverty. Thus, constant increase in the
household economic levels by participation in education.
Out of school children: Number of children of primary school age who are not enrolled in
primary or secondary school, and children enrolled in pre-primary education are excluded
and considered out of school (UNESCO UIS, 2019).
Poverty: Poverty refers to the number of people who fall below a certain level of income.
Poverty is a condition in which a person have deficiency of the financial resources necessary
for minimum standard of living (james chen, 2019).
Family size: The size of the family is described by the number of household children
(Thomson, 2001).
Table 2 shows the average result that poverty Mean and Std. deviation is 4.27 and .50
respectively with 2.8 minimum and 5 maximum, parents education mean is 3.5 and std.
deviation .55 and its min 2 and 4.5 max, family size mean, std. deviation , minimum and
maximum respectively 3.5, .477, 1.67 and 5. Curriculum min 2.4, max 4.8, mean 3.6 and
their std. deviation .57. And terrorism mean is 3.9 and std is.82 with min and max
respectively 1.6 and 4.8.
Half of population living beneath the poverty line, they cannot fulfill their basic needs so as a
result children are out of school due to higher educational cost. Earlier research illustrate that
most of the students are out of school as a result of poverty level because increase of
educational expenditure directly relates to poverty (Malik, 2002). Child labor has negative
impact in school enrolment which directly relates to poverty. Poverty forces human beings to
keep children away from school and send them to work (Nielsen & Jensen, 1997). When
parents are educated they know the importance of education, and send their children to get
education. While uneducated parents de-motivate their children education, they believe that
children should follow their parents’ foots-prints and work is best for their children so in
early age child knows how to they work. From cultural point of view education of girls is less
value. Thus in out of school children girls’ ratio is greater than boys. Parents’ education
reduce the out of school rates and especially mother education (Bilquees & Saqib, 2004).
Larger the family size, parents cannot pay proper attention to their children education
resulting in out of school children. Simple greater number of siblings in a family leads to
getting less education. Patrinos and Psacharopoulos (1997) surveyed the effect of number of
siblings on child schooling progress. There is a negative effect of size of family on
educational process. The previous study implies that the teacher workload is also a minor
cause of out of school students (Idde, 2013). This study shows that only theoretical education
less the interest of students to get education there must be some practical work. Therefore,
there is a relationship between curriculum and school attendance.
And last the most important terrorism, terrorism play a significant role in education. Due to
terrorism schools are not secure which is also a major cause to leave the school. Similarly,
any News related to the terrorism has a harassing impact on the students mind and may cause
the students out from the school. Ali (2015) analyzed that there are negative effects of
terrorism on education sector development.
education play a major role in the development of individuals which leads a better society
and effect the economic growth.
The result shows that all variables have negative impact on student education. Because
poverty causes the students to leave school, terrorism affect the children minds, family size,
parent education and current curriculum also affect the student performance.
According to the results of this study, following policy recommendations are suggested.
• The results reveal that poverty is foremost reason for out of school students. So, study
highly recommended that raise the wage of individuals, reduce the cost of education.
According to article 25-A Constitution of Pakistan, which states provide free and
essential education under 16 age children. Strictly implemented this law. As well
reduce the child labor in a country.
• The finding also confirms that parental characteristic also plays a part in education.
Some uneducated parent not concentrates on children education. So awareness must
should raised that parent pay attention to their children to provide proper education.
For this, the government has to make a group, go to the house and tell the benefits of
education.
• For numbers of siblings it is recommended to implementation of policy regarding
population control
• The study results show that due to terrorism, students cause to leave school. Therefore,
it is recommended to provide extra security to the educational institution. Or arrange
such tutorial in school which encourages students to join schools and eradicate fear
from minds of students.
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Research Paper
PSYCHOLOGICAL CONTRACT BREACH & WORKPLACE
DEVIANCE: STUDY OF HIGHER EDUCATION
INSTITUTIONS IN PESHAWAR
Abstract
Employees perceive a breach to have occurred once an employer fails to meet their promises.
This breach in the psychological contract of employees will have them exhibit various types
of counterproductive behaviors. The study examined this relationship between psychological
contract breach and workplace deviance. The study sampled 220 faculty members from HEIs
in Peshawar, KP. Regression analysis was conducted on the data, which indicated a positive
relationship between psychological contract breach and workplace deviant behavior. The
findings indicate that when HEIs fail to keep the psychological contract of its faculty
members intact, then this results in them engaging in deviant behaviors.
1. INTRODUCTION
Higher education is at its peak in the education system, with an objective to develop capable
human resources. Knowledge workers are the only resource with ethical and moral values
that serve as a prerequisite for shaping future generations. It is the responsibility of Higher
Education Institutions to develop them especially in the context of developing countries
(Gonda, 2014). Originally, the purpose of institutions was simply to teach but later they also
added the role of research in the 19th century and later followed it by economic development
(Schmitz, Teza, Dandolini & De Souza, 2014). Universities exist to generate and disseminate
knowledge and for that to be executed effectively, several factors like culture, motivation,
and trust are kept in mind (Kurdi, Haddadeh & Eldabi, 2018). Trust according to McNeish
and Mann (2010) is a major factor contributing to not only the conveyance of knowledge but
also for the recipient to understand the message. Adoption of trust as social phenomena has a
very consistent role in the Psychological Contract. It is taken at an interpersonal level,
something that impacts the relationship between the employer and the employee in the
formation of a Psychological Contract (Atkinson, 2007). In the current environment, an
increase in factors like globalization, re-engineering, alliances, mergers, acquisitions, and
reorganization, etc., the terms of employment agreements have had to be renegotiated and
changed because it results in redundancies (Li & Dai, 2015). Leading with this reality, it can
be concluded that there has been a shift in contemporary employment relationships (Robinson
& Rousseau, 1994). For this reason, certain strategies have to be adopted by organizations in
order to survive in competitive settings, such as outsourcing or downsizing. The adoption of
such adjustments can result in the termination of the employment relationships of workers
with their respective organizations (Peng, Jien & Lin, 2016). Contrasting with psychological
contracts, a simple contract, on the other hand, is defined as a way for individuals to serve
their private interests in the eyes of the law by predictable obligations that are negotiated and
memorialized in written instruments (Eigen, 2012). However, Rousseau (1989) explains the
Psychological Contract as a correlative exchange, or unwritten expectations, between two
parties who happen to be the employer and the employee. These Psychological Contracts are
contemporary work relationships wherein only a promise of mutual future exchange gives
reason to make contributions without which said relationship will result in a breakdown
(Robinson & Rousseau, 1994). Following changing dynamics in higher education
institutions, certain changes (i.e. globalization, technological development, etc.) have been
argued by authors to alter the character of psychological contracts, which often leads to
breach of the contract. These changes bring about negative effects on the behavior and
attitude of employees and results in issues such as turnover, mistrust, low performance, and
missed days (Morrison & Robinson, 1997; Robinson & Rousseau, 1994). This breakdown in
their relationship is where the Psychological Contract Breach (PCB) comes into play. A
Psychological Contract Breach results when the employee perceives there has been a failure
on part of the organization in fulfilling its promises and its obligations (Zhao, Wayne,
Glibkowski & Bravo, 2007). It is also believed that an employee can perceive a breach to
have occurred, even if it has actually not, resulting in influencing the employee’s attitude and
behavior in negative ways (Reimann & Guzy, 2017). Psychological Contract Breaches in that
sense are very subjective in nature as they are based on the individual’s perception and could
result even without an actual breach occurring within a social context. Promises made by the
employer could include pay, promotions, job security, training, and employee development,
etc. (Robinson, 1996). These breaches can lead to employees exhibiting negative behaviors
such as having trust issues, less commitment, reducing contributions, or sometimes even
quitting altogether at the other extreme (Morrison & Robinson, 1997). Such behaviors violate
organizational norms, policies, and internal rules and are hence classified as deviant
behaviors. Deviance is always used as a negative connotation and such behaviors in the work
environment are known to have disastrous effects, which are said to be equal to the impact
arising from issues such as absenteeism, turnover, and complete absence from work (Ishaq
and Shamsher, 2016). Recently, there has been an increase in research on deviant behaviors
of employees, especially when deviant behavior is a result of a breach of Psychological
Contract in an organization. Some of the outcomes of Workplace Deviant Behavior include
theft, harassment, aggressiveness, vandalism, physical violence, etc. and are constituted as
counterproductive behaviors (Peterson, 2002). These behaviors go against ethical norms, are
usually voluntary in nature, consequently threatening the well-being of the organization and
its employees (Robinson & Bennett, 1995).
2. LITERATURE REVIEW
2.1 Psychological Contract Breach
Rousseau (1989) defines a psychological contract wherein a focal person and another party
have individual beliefs related to the terms and conditions of reciprocal exchange. The typical
parties to such a contract are usually the employer and the employee of the organization.
Similarly, another definition of the psychological contract offered by Aarulandu (2017) states
that a psychological contract is defined as one where there is a presence of a dynamic
relationship between an employer and employee, which creates beliefs about reciprocal
obligations. Satisfied employees lead to retention, positive impacts on institutional students,
and a more stable and happier faculty body. It is also essential to note how psychological
contract is an important determinant of faculty satisfaction. Although research on faculty and
Psychological Contracts in Higher Education Institutions (HEI’s) exists, it is limited (Marlier,
2014; Naidoo, Abarantyne & Rugimbana, 2019). Skoko and O’Neill (2008) focused their
attention on features of psychological contract on a university in Australia because they felt
that changing conditions, increased accountability, and practices of performance
management, etc. are all paving the way for its study. They believe universities elsewhere can
experience the same changes and problems as well.
Psychological contracts are linked to HRM practices and strategies in considerable studies in
order to achieve positive alignment in attitudes and behaviors of employees in an
organization (Abela & Debono, 2019). The root of the Psychological Contract lies in social
contracts and is only an extension of what philosophers have previously theorized about it
(Schein, 1980). Gough (1978) explains there are two types of social contracts; one deals with
the state’s origin wherein individuals living in a state of nature voluntarily consent to become
part of an organized society, and the other (also known as a “contract for submission”)
assumes a state already exists, and only the governing terms within are addressed. These
terms are agreements, which create reciprocity in the duties and rights between the state and
the individuals living in it. Similarly, in management literature, Roehling (1997) cited
Barnard’s theory of equilibrium and explained how by employing the exchange perspective,
organizations become successful in making their employees participate by providing them
with inducements such as pay. For these inducements, the employee will keep making
contributions in return as long as the contributions offered to him are equal to or greater than
the ones the employee is asked to make in return. The Psychological Contract is a concept
that helps in explaining behavior depending on the extent to which an employee believes that
his employer has lived up to the promises that were perceived by him, which otherwise
results in negative emotions (Conway & Briner, 2011). The origin of the concept of
Psychological Contract has been credited to Chris Argyris in 1960 and was then made more
popular by Levinson in 1962, and later by Schein in 1980 (Robinson, 1996). Chris Argyris
first called it a ‘Psychological Work Contract’ relationship between the employers and their
foremen whereupon satisfaction, continued employee effort would result. Schein also
discussed it as an informal relationship between clients and consultants (Kautz & Bjerknes,
2015). Zhao, Wayne, Glibkowski, and Bravo (2007) similarly extended the discussion by
citing works of Argyris (1960), Levinson (1962), Schien (1965) and Rousseau (1989)
attitudes and behaviors of employees. Conway and Briner (2011) explained the psychological
contract breach as a failure, whether perceived or actual, by the employer of the organization
regarding the promises made. These perceived breaches have the ability to conjure negative
emotions including feelings of mistrust, frustration, betrayal, resentment, etc. (Erkutlu &
Chafra, 2013). Research conducted by Morrison and Robinson (1997) outlines that contrary
to what is generally believed, a contract breach does not only result in an emotional reaction
such as disappointment, frustration, distress, anger, etc. In fact, according to Cassar,
Buttigieg, and Briner (2013), Psychological Contract Breach is also a determinant of behavior
inside the organization in addition to emotional reaction and these responses are exhibited in
order to adjust the relationship between the contracting parties once a breach has occurred.
Unlike formal contracts, Psychological Contracts are not made only once but are instead
revised constantly in the employee’s tenure in that organization. The more they interact with
increased reciprocity, the more contributions will be included in the Psychological Contract
(Robinson and Rousseau, 1994). Age-related differences also exist in how breaches are
perceived. As compared to younger workers, older ones are more sensitive towards various
aspects of their psychological contract. They have these expectations because of having more
years of experience and providing services to the organization. (Bal & Smit, 2012). They also
explain how having negative emotions towards their work as a result of breach leads to
decreased motivation and effort through anger and frustration. Parzefall and Coyle-Shapiro
(2011) in their qualitative study classified events that led to breaches of the contract into a
total of four categories: specific obligation breach, chains of breaches, secondary ones, and
everyday breaches. Specific obligations breaches are those that occur in employment
contracts and layoffs that are temporary in nature and these increased levels of anger and
frustration in the employees. Chains of breaches come from management styles and their
decision-making, which employees find undesirable. Morrison and Robinson (1997)
described secondary breaches as “knock-on effects”. A lot of job-related outcomes directly
correlate to contractual breach degrees. Finally, everyday breaches are not considered
extremely important independently but in combination with other frequent/minor breaches,
these accumulate to be frustrating over time. A distinction between a psychological contract
breach and a psychological contract violation is also important to management. The main
difference between them is how the breach is a perception of an employee of receiving less
than what they believed they were promised, while a violation is a depressing state that
follows the occurrence of a breach (Suazo & Stone-Romero, 2011). According to Parzefall
and Coyle-Shapiro (2011), the violation is a reaction of an employee to a breach and its
influence comes from how the individual in question tries to understand, interpret, and create
meaning through the information existing with them. What makes a Psychological Contract
psychological and not legal is based on its nature, how the exchange is dependent on
perceptions and not on any writings made by the parties. Even if some aspects are made
explicit and agreed to, the majority of it is simply an implicit understanding of the promises
made by the parties to each other (Conway & Briner, 2011). Supporting this view, Marks
(2001) also argues how as opposed to general employment contracts, psychological contracts
are not implemented through formal means since the organization cannot communicate or
negotiate itself and instead does it through an agent and is said to be deeper than formal
contracts. Psychological Contracts are explained in the backdrop of the social exchange
theory (SET). Blau (1964) differentiated between economic and social exchange and
explained how social exchanges hold obligations that are unspecified and have long-term
social patterns while economic exchanges are more tangible/specified. The theory involves a
series of reciprocal interactions that result in obligations that are interdependent and
contingent upon the actions of the other person. Social Exchange Theory is known to be one
of the most widely used concepts in understanding workplace behavior and has its roots in
social psychology (Cropanzano & Mitchell, 2005). The supportiveness of leaders in an
organization towards their employees is a big determinant of employee behavior. The
fulfillment of the Psychological Contract draws on Social Exchange Theory in order for
employees to engage in a relationship leading to an increase in willingness to supply
resources that the parties desire (Gouldner, 1960). Similarly, injustice or unfair treatment
anywhere in the organization will increasingly weaken the quality of social exchange
relationships and in addition, result in employees reciprocating through deviant behavior
(Akremi, Vandenbergh&Camerman,2010).
While many definitions exist, this study follows the one laid out by Rousseau (1995) who
explained it as simply as possible: the psychological contract basically comprises the
perception of an individual, along with any mutual obligations existing, all in an exchange
with the employer, whereby sustainability will come through the norm of reciprocity.
motivation to obey norms in a social context or because they are motivated to disobey certain
expectations. Deviance must be specified in terms of formal rules, policies, and standards of a
group in an organization rather than a system of moral standards. Similarly, Sackett and
DeVore (2001) also stated deviant behavior as an intentional act by the organization’s
employee, and such acts are constituted as divergent and the opposite of legitimate interest.
These behaviors are planned by employees to cause damage to the organization.
The word “deviant” comes from the Latin word deviation, which means an abnormality
(Hanimoglu, 2018). Litzky, Eddleston, and Kidder (2006) too define workplace deviance as
“abnormal” and explain that from the perspective of the organization, this is an employee’s
unwillingness to comply with or conform to the firms’ values and norms and results in
workplace aggression and retaliation. Researches on behavioral deviance have been
conducted in multiple disciplines such as psychology, sociology, criminology, philosophy,
and many others (Salakhova, Bulgakov, Sokolovskaya, Khammatova & Mikhaylovsky,
2016). The phenomenon of workplace deviant behavior is not new and factors such as
increased competition, technology, workplace stress, globalization, have all significantly
contributed to the increase in the incidence of this behavior which in turn impacts the
employee’s morale and drive which is why it is of utmost importance to address the issue
(Waseem, 2016). Workplace deviance, antisocial behavior, workplace aggression, or
retaliation, is a topic that has attracted a lot of research in the past decade (Fox & Spector,
2005). Management scholars started studying workplace deviance back when the industrial
revolution began and modern forms of companies were established (Klotz & Buckley, 2013).
It is said that there are different types of behaviors occurring inside the workplace, each of
which has its own consequences to offer to both the employees and the organization. Every
organization naturally expects behaviors from employees to align with the norms and rules it
has set in place. These norms come from codes, beliefs, regulations that the employees are
expected to follow and when this does not happen, researchers have given these results
different names such as counterproductive behavior, organizational misbehavior, antisocial
behavior, or dysfunctional behavior (Zare, 2016). Deviance is a very broad concept that has
led managers and researchers into wanting to understand the roots of such behavior in order
to take necessary action in the creation of a workplace that eradicates or at least decreases
such behavior since it is associated with huge costs to the organization (Peterson, 2002).
Workplace Deviance has been known to be a pervasive issue and research conducted by
Bennett and Robinson (2000), Slora (1991), etc. all show that out of all employees at least
50% to 70% are engaged in some form or another of deviant behavior (Bennett, Marasi &
Locklear, 2018). Although there is no common definition, adopting the definition given by
Robinson and Bennett (1995) of Workplace Deviance, it is defined as behavior that is
voluntary in nature and violates norms of the organization in turn ultimately threatening the
employees and the organization's well-being. Robinson and Bennett’s (1995) typology
explains that deviance falls along two dimensions: minor vs. serious, and organizational vs.
interpersonal. The first dimension outlines the severity of the act while the second dimension
deals with the target of said deviant behavior. Several types of deviant behaviors exist in an
organization: production deviance, property deviance, political deviance, and personal
aggression.
Vardi (2001) outlines three factors that could contribute to anti-social/deviant behavior inside
the organization: individual, interpersonal, and organizational. According to Peterson (2002)
individual and interpersonal reasons alone do not account for such behavior alone and that
organizational factors should also be taken into account in addition to the former reasons, to
understand why such behavior results. Various other studies have also shown that factors
including job commitment, stress, sabotage, mistreatment from the leader are all very
strongly related to workplace deviance as well (Walsh, 2014). Ishaq and Shamsher (2016)
have concluded that when employees partake in deviant behavior, it can cause great damage
to the organization in multiple ways. With breach comes anger and anger turns into action.
Not only does attitude and behavior change but the employee can portray a very negative
image of the organization to outsiders, which can destroy the organization’s capability in
future hiring (Mowday, Porter & Steers, 1982). Studies conducted already have shown that a
large number of organizational phenomena can be attributed to deviance. Employee deviance
is a voluntary act and is said to be violating the norms of an organization, which in turn
threatens the organization's overall well-being (Robinson & Bennett, 1997). In order to
strengthen the employer and employee relationship, reciprocity in terms of mutual
expectations and obligations need to be engaged in (Rayton & Yalabik, 2014). It is possible
that certain behaviors, although not conforming to the rules of the organization, do not harm
the organization but in fact help it become even better. These behaviors are constituted as
constructive deviance and are defined as behaviors that intentionally depart from the norms
but in an honorable way. This can include creativity or innovation (Spreitzer & Sonenshein,
2003). Some of the theories that help in explaining workplace deviance are justice theory,
reactance theory, social information theory, and social exchange theory (Bennett, Marasi &
Locklear, 2018). According to Chaudhry and Tekleab (2013), Social Exchange Theory (SET)
serves as a theoretical basis for psychological contract, and explains how engaging in
reciprocity leads to valued benefits. SET constitutes interactions that are interdependent and
contingent on another person’s actions (Cropanzano & Mitchell, 2005). In addition, it is
believed by employees that reciprocal obligations in psychological contracts go beyond a
simple formal contract. When there comes a breakdown in the relationship by individuals
who feel mistreated in a social exchange, it results in the Psychological Contract Breach. This
breach then leads employees to act in a negative and harmful manner to the organization, also
termed as workplace deviance (Peng, Jien & Lin, 2016). Employees engage in these
behaviors as a result of perceived psychological contract breach, in order to restore the
imbalance. These Workplace Deviant Behaviors are deliberate actions, to either punish or
avenge the organization for not upholding its side of the psychological contract. Deviant acts
include decreasing work effort, leaving the organization, sabotage, etc. (Balogun, Oluyemi &
Afolabi, 2018).
Numerous researchers have provided their own definitions of what they believe to be
categorized as workplace deviance, and they all have their own names for it too. Behavioral
researchers, however, believe that almost all definitions and terminologies have overlapping
themes.
For the purpose of this study, the definition of workplace deviance behavior provided by
Robinson and Bennett (1995) is considered since it best combines all the themes.
Production Deviance
Political Deviance
Psychological Contract
Workplace Deviance
Breach
Property Deviance
Personal Aggression
2.6 Hypotheses
H1. Psychological Contract Breach and Workplace Deviant Behavior has a positive and
significant relationship with one another.
H2. Psychological Contract Breach is positively related to Production Deviance.
H3. Psychological Contract Breach and Political Deviance has a positive relationship.
H4. Psychological Contract Breach and Property Deviance are positively related to each
other.
H5. Psychological Contract Breach and Personal Aggression has a positive relationship
with each other.
3. RESEARCH METHODOLOGY
This research study is quantitative in nature. Data is gathered through the survey
questionnaire. The unit of analysis selected for this research is the individual employee i.e.
permanent faculty of the Higher Education Institutions (HEIs).
Data was collected using a structured questionnaire, filled by respondents of the sampled
HEI’s. A total of six universities were selected as a sample termed HEI-1, 2, 3, 4, 5, and 6.
Afterward, 300 questionnaires were distributed, however of the total received only 220 were
usable. Questionnaires received from HEI-1 amounted to 30 (13.6%), HEI-2 had 34 (15.5%),
HEI-3 had 20 (9.1%), HEI-4 had 47 (21.4%), HEI-5 had 69 (31.4%), and HEI-6 had 20
(9.1%).
The higher education sector was classified into two categories: public and private.
Respondents from the public sector were 136 (61.8%) and the private sector had 84 (38.2%)
respondents. Respondents were further divided into four categories; Lecturer, Assistant
Professor, Associate Professor, and Full Professor. Of the four categories, lecturers were 97
(44.1%), assistant professors 81 (36.8%), associate professors 34 (15.5%), and full professors
were 8 (3.6%). Males represented 145 (65.9%) and females represented 75 (34.1%) of the
total respondents. The age brackets were 22-30, 31-40, 41-50, and 50 and above. 51 (23.2%)
respondents belonged in 22-30 years bracket, 104 (47.3%) respondents were aged between
31- 40, 46 (20.9%) respondents were 41-50 and 19 (8.6%) were aged 50 and above.
3.5 Measurement
All adopted items in the survey were measured on a 5-point Likert scale. Psychological
Contract Breach (PCB) was measured through the 5-item questionnaire, developed by
Robinson and Morrison (2002). Workplace Deviant Behavior (WDB) was measured using
the 12-item scale developed by Peterson (2002).
4. Data Analysis
The correlation depicted in table 4 shows that production deviance (r=.576, p<0.01), political
deviance (r=.544, p<0.01), property deviance (r=.625, p<0.01), and personal aggression
(r=.558, p<0.01) are all positively and significantly related with psychological contract
breach.
The following table represents a breakdown of each dimension of workplace deviant behavior
with psychological contract breach. For PCB and PRD, the adjusted R Square is .329, and
Sig. = .000. Similarly, for PCB and POL, the adjusted R Square value is .293, and Sig. =
.000. For PCB and PRO, the adjusted R Square value is .388, and Sig. = .000. Finally, for
PCB and PER, the adjusted R Square is .308, and Sig = .000. Sig. for all the dimensions is
P<0.001.
Variables R R2 β F Sig
1. PCB and PRD .576a .332 .645 108.478 .000b
2. PCB and POL .544a .296 .586 91.547 .000b
3. PCB and PRO .625a .391 .703 108.478 .000b
4. PCB and PER .558a .312 .665 98.700 .000b
Table 6 breaks down values in terms of the four designations. Lecturer, Assistant Professor,
and Associate Professor all have their Sig= .000 (P<0.001). Professors, however, have an
insignificant value at Sig= .360 (P>0.001) which could be attributed to the smaller sample
size (n=10, 3.6%).
Table 6. Designation
Designation R R Square β F Sig.
Lecturer .692a .480 .550 87.600 .000
Assistant Professor .762a .581 .788 109.667 .000
Associate Professor .712a .507 .627 32.860 .000
Professor .872a .760 .769 19.033 .360
Table 7 breaks down the values in terms of the two genders. For males, with R-value being
.718 shows the correlation between the two variables. R Square value at .512 and Sig. = .000
(P<0.001). For females, the R-value is .740 and shows a correlation between the two
variables. R Square value is .548 and Sig. = .000 (P<0.001).
Table 7. Gender
Gender R R Square β F Sig.
Male .718a .512 .859 151.988 .000
Female .740a .548 .720 88.486 .000
In the table below there is a breakdown of the values in terms of the four age brackets chosen.
As is evident, all four brackets have Sig. = 0.000 (P<0.001) with their respective R values at
.685, .737, .707, and .794.
Table 8. Age
Age R R Square β F Sig.
22-30 .685a .469 .857 43.356 .000
31-40 .737a .543 .772 121.190 .000
41-50 .707a .500 .787 43.922 .000
50 and above .794a .631 .885 29.077 .000
Associate Professors only exhibit production deviance the most with Sig. = .014 (P<0.001).
Professors only engage in politically deviant behavior since its Sig. = .011 (P<0.001).
Table 9. Designation
Designation Dimensions R R Square β F Sig.
PRD .132 .091
POL .248 .002
Lecturer .717a .514 24.364
PRO .409 .000
PER .095 .221
PRD .166 .106
Assistant POL .142 .093
.764a .584 26.643
Professor PRO .218 .021
PER .213 .009
PRD .392 .014
Associate POL .101 .647
.733a .538 8.430
Professor PRO .006 .974
PER .280 .184
PRD .552 .053
POL .880 .011
Professor .988a .976 30.177
PRO .145 .325
PER .358 .059
Table 10 below gives a breakdown of each dimension of workplace deviant behavior in terms
of gender. For males, the behavior they most exhibit in comparison to others is political,
property, and personal aggression as is evident by their respective Sig. = .004, .000, .002
(P<0.001). Production deviance is insignificant at Sig. = .151. For females, the behavior they
exhibit the most is production, political, and property deviance with Sig. = .002, .002, .003
(P<0.001). Personal aggression is Sig. = .810 which goes to prove that women are not given
the privilege of displaying aggression as compared to their male counterparts.
The following table 11 gives a breakdown of the four age brackets chosen in terms of each
dimension of workplace deviant behavior. For age bracket 22-30 the most common behaviors
engaged in are political deviance with Sig. = .007 (P<0.001), for 31-40 it is production,
property, and personal aggression with respective Sig. = .003, .002, .038 (P<0.001). For the
age group 41-50 the deviant behavior they most display is political and property deviance
with Sig. = .018 and .027 (P<0.001). Finally, for age bracket 50 and above, the only behavior
exhibited by them is property deviance with Sig. = .003 (P<0.001).
4.5 Summary:
Hypotheses Conclusion
H1 Accepted
H2 Accepted
H3 Accepted
H4 Accepted
H5 Accepted
5. DISCUSSION
The aim of this study was to explore the relationship between psychological contract breach
and workplace deviance. The findings of the study revealed that a breach by the employer
consequently results in an increase in deviant behavior by the employees. This outcome stems
from the employees' feelings of being wronged, they want to restore their positions/parity in
the relationship with their employees and do so through deviant behavior. The results from
the analysis indicate that PCB has a positive and significant association with production,
political, property deviance, and personal aggression. When an employee feels that his/her
psychological contract has been breached, there are a total of four forms of deviant behaviors
he/she can exhibit. These behaviors were tested overall and then individually for each
demographic (designation, gender, age).
With reference to H1, the results show that PCB and WDB share a positive and significant
relationship. This goes to prove statistically that when faculty in HEIs feel their psychological
contract to be breached, they will displaying deviant behaviors of any of the four types.
Similarly, when H2 was tested for PCB and PRD, the results showed it to be positive and
significant as well. If the level of the breach is perceived to be high then more severe forms
of deviant behaviors are engaged in which potentially results in working slowly, wasting
resources of the institute, etc. With H3, the relationship between PCB and POL is also
positive and significant. If the level of breach occurred by the HEI is not perceived to be as
high by faculty then a less severe form of deviance is engaged in. This results in behaviors
like gossip, favoritism, and placing blame. As with the other hypotheses, H4 to exhibits a
positive and significant relationship of PCB with PRO. PRO is one of the more serious ones
and includes stealing, sabotaging, and interfering with expense accounts. Finally, for H5, the
relationship between PCB and PER is positive and significant. Faculty will display personal
aggression, in which intimidation schemes and verbal/physical abuse etc. are included. This
is considered a minor form, which is targeted at the members of the institute they are
employed in.
In addition to the positive and significant relationship between PCB and WDB, this study
also takes into consideration factors like age, designation, and gender can also play a role in
how such behaviors are exhibited. As is evident from the analysis, it is not necessary for
every age group, designation, and gender to display the same form of deviant behavior. They
vary with respect to each factor.
personality, context, entitlement, and environment etc. also play a part in the type of behavior
engaged in by employees.
6. CONCLUSION
The results of this study provide support for the social exchange theory, which is one of the
bases of PCB. Men and women, their positions, and the age group they belong to can
severely impact their reaction to a breach in their psychological contract which is why HEI’s
need to make it their utmost priority and responsibility to (1) not breach psychological
contracts of their employees and (2) acknowledge and tackle deviant behaviors. In addition,
universities should focus increasingly on fulfilling the psychological contracts of its faculty
because HEIs are no longer restricted to being just traditional teaching institutes rather they
are entrepreneurial entities as well. In this new knowledge economy, employees are a very
important currency for sustained competitive advantage and in order to keep that advantage,
HEIs need to have their faculty exhibit organization citizenship behaviors because, in today’s
environment, they are no longer bound by simple contracts, rather by psychological ones too.
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