Bad corporate governance is responsible for circularity debt and liquidity crisis in Pakistan: Study

Karachi, November 20, 2015 (PPI-OT):The bad corporate governance is responsible for circularity debt and liquidity crisis in Pakistan, while the circularity of debts is not a fiscal issue; it belongs to bad corporate governance. This theorem was concluded in a doctoral dissertation completed in Iqra University Karachi. Muhammad Irfan Khan faculty member of the Department of Business Administration in Iqra University has finalized his PhD dissertation titled “Development Financing and Economic Governance: Analysis of the Liquidity Crises and Circularity Debts in Pakistan”. The dissertation was supervised by Dr. Ayub Mehar.

The study shows that corporate savings is a good predictor of the macro level investment in the country. The magnitude of national investment will increase by improvement in corporate savings. In fact the corporate savings indicate the expansion in business activities which may be an indicator of the trust and confidence of private sector.

On the other hand it explains the financial health of corporate sector, which may provide the significant portion of tax revenue to the government for developing projects in public sector. Government is responsible to create a business environment where transparent management of public finance becomes possible at the national level. Not only the return on investment but the circularity of debt and liquidity position also affects the corporate savings.

The study has concluded that corporate governance is a significant variable in determining the liquidity and circularity debts. In this way corporate governance becomes a crucial determinant of the national investment. The bad corporate governance may deteriorate the investment activities at national level, which may damage the economy for a longer term. This study also indicates that capital structure and the patterns of ownership play important role in the determination of corporate governance of the institutions.

It was deduced that the state of corporate governance must be improved in order to minimize the circularity debt problem which is really a governance issue. Government must focus on the issue of circularity debt from the governance point of view rather from the perspective of finance.

For more information, contact:
M. A. Lodhi
Secretary General
Federation of Pakistan Chambers of Commerce and Industry (FPCCI)
B-1, Federation House, Main Clifton Road,
Karachi-75600, Pakistan
Tel: +92-21-35873691, 93-94
Fax: +92-21-35874332