PBRV14N4

PBR
ISSN 1561-8706
PAKISTAN BUSINESS REVIEW

Indexed and Abstracted by ECONLIT, Journal of Economic Literature
Indexed by EBSCO, USA
HEC Approved Journal (Y)
Volume 14 Number 4
January 2013
Research
Prevalence of Risk Factors of Non-Communicable Diseases Amongst Female Prisoners
of Pakistan
Asima Faisal, Salina Mukhtar
Factors Influencing Capital Structure of Pharmaceutical Companies Listed on The
Karachi Stock Exchange
Shashi Raja,Waqar Ahmed Siddiqui, Shazia Farooq,H. Jamal Zubairi
An Empirical Study of Working Capital Policy, Risk and Leverage
Sumita J. Shroff
Emotional Intelligence in Doctors and Nurses of Emergency Medicine Units in Tertiary
Hospitals
Humeira Jawed, Asima Faisal
AFRs for MSEs in Pakistan (2006) Challenged By IFRs For SMEs (2009)
Muhammad Aslam Dossa
Pay Satisfaction and Organizational Commitment in University Faculty
Nadia Ayub Ali, Shagufta Rafif. Shahid Iqbal
Feasibility of Application of IFRs On Companies Operating in Developing Countries
With Focus on Pakistan
Mehboob Moosa
Case Study
Engro Foods Prized Stallion in The Making!
Ahmed Mushtaq, Ali Raza, Roma Ramani, Sana Sheikh, Shazia Farooq
Discussion
Approaches in Leadership: Trait, Situational & Path-Goal Theory: A Critical Analysis
Adnan Khan
Book Review
What is Global Leadership?
Fareeda Ibad
INSTITUTE OF BUSINESS MANAGEMENT

MANAGEMENT EXCELLENCE CENTRE
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E-mail: sabina@iobm.edu.pk, mec@iobm.edu.pk
http://www.iobm.edu.pk
January 2013
Volume 14 Number 4
Contents
Research
Prevalence of Risk Factors of Non-Communicable Diseases Amongst Female
Prisoners of Pakistan
Factors Influencing Capital Structure of Pharmaceutical Companies Listed on
The Karachi Stock Exchange
Shashi Raja,Waqar Ahmed Siddiqui, Shazia Farooq,H. Jamal Zubairi
An Empirical Study of Working Capital Policy, Risk and Leverage
Sumita J. Shroff
Emotional Intelligence in Doctors and Nurses of Emergency Medicine Units in
Tertiary Hospitals
AFRs for MSEs in Pakistan (2006) Challenged By IFRs For SMEs (2009)
Pay Satisfaction and Organizational Commitment in University Faculty
Nadia Ayub Ali, Shagufta Rafif. Shahid Iqbal
Feasibility of Application of IFRs On Companies Operating in Developing
Countries With Focus on Pakistan
Mehboob Moosa
Page No
663
689
712
732
744
765
780
Case Study
Engro Foods Prized Stallion in The Making!
Ahmed Mushtaq, Ali Raza, Roma Ramani, Sana Sheikh, Shazia Farooq
796
Discussion
Approaches in Leadership: Trait, Situational & Path-Goal Theory: A Critical
Analysis
Adnan Khan
830
Book Review
What is Global Leadership?
Fareeda Ibad
843
PAKISTAN BUSINESS REVIEW JAN 2013
Volume 14 Number 4
January 2013
Chief Editor: Prof. Dr. Shahida Wizarat

Managing Editor: Sabina Mohsin
Editorial Board
Prof. Izlin Ismail, Faculty of Business and
Accountancy, University of Malaya, Kuala
Lumpur.
Dr. Teoman Duman, International Buarch
University Bosnia and Herzegovina
Prof. Angelo Santagostino, University of
Brescia, Italy
Mr. Thomsas Winter, University of Rostock,
Rostock, Germany
Dr. Bettina Robotka, Humboldt University,
Berlin, Germany
Dr. Geoff Kay, City University, London
Dr. D.M.Semasinghe, University of
Kelaniya, Sri Lanka
Mr. Javaid Ahmed, Head Department of

Marketing
Mr. Khalid Amin, Head Department of HR and
Management
Dr. Nasreen Hussain, Head Department of
Education
Mr. Jamal Zubairi, Head Department of
Accounting and Finance
Dr. Shahid Amjad, Acting Dean College of
Business Management
Referees
Dr. Ishrat Husain, Institute of Business Administration, Karachi
Prof. Dr Mehtab Karim, John Hopkins University, USA
Dr. Khalid Nadvi, IDS, University of Sussex
Dr. Peter O Brien, SADCC, South Africa
Prof. Sarfaraz Qureshi, Islamabad
Dr. T.M. Roepstorff, UNIDO, Vienna
Dr. Shahid Hasan Siddiqui, Research Institute for Islamic Banking and Finance
Dr. K.M. Larik, Iqra University, Karachi
Dr. Javed Iqbal, University of Karachi, Karachi
Professor Dr. Rashid A. Naeem, Chairman, Department of Economics and Management Sciences,
Allama Iqbal Open University, Islamabad
Dr. Rizwana Zahid, Government APWA College for Women, Karachi
Dr. Arshi Ali, Federal Urdu University, Karachi
Dr. Abdul Wahab Suri, University of Karachi, Karachi
Prof. Dr. Abdul Waheed, University of Karachi, Karachi
Dr. Naveed, Institute of Business Administration (IBA), Karachi
Dr. Moazzam Khan Sherwani, Institute of Environment Studies, University of Karachi
Dr. Samiuzzaman, Global Environmental Lab (Pvt) Ltd. Korangi, Karachi
Dr. Anila Ambar Malik, University of Karachi, Karachi
Dr. Seema Munaf, University of Karachi, Karachi
Dr. Nabeel A. Zubairi, University of Karachi, Karachi
Contd.
Dr. Zainab F. Zadeh, Bahria University, Karachi
Dr. Ziasma, University of Karachi, Karachi
Prof. Asim Jamal Siddiqui, University of Karachi, Karachi
Prof. Dr. Mudassir-ud-din, University of Karachi, Karachi
Ms. Yasmin Zafar, Institute of Business Administration (IBA), Karachi
Dr. Muhammad Zubair, University of Karachi, Karachi
January 2013
Volume 14 Number 4
Referees
Dr. Uzma Parveen, University of Karachi, Karachi
Mr. Mohsin H. Ahmed, Applied Economics Research Centre, University of Karachi, Karachi
Prof. Ghulam Hussain, University of Karachi, Karachi
Mr. Mahboob-ul-Hassan, University of Karachi, Karachi
Dr. Muhammad Mahmood, Khadim Ali Shah Bukhari Institute of Technology, Karachi
Dr. Nargis Asad, Aga Khan University Hospital, Karachi
Dr. Abuzar Wajidi, University of Karachi, Karachi
Ms. Rubina Feroz, University of Karachi, Karachi
Prof. Dr. Talat Wizarat, Institute of Business Administration (IBA), Karachi
Dr. Muhammad Zaki, University of Karachi, Karachi
Mr. H. Jaleel Zubairi, Allied Bank Ltd. , Karachi
Dr. Zaira Wahab, Iqra University, Karachi
Dr. Ismail Saad, Iqra University, Karachi
Mr. Naim Farooqui, Sindh Bank Ltd, Karachi
Dr. Sara Azhar, University of Karachi, Karachi
Prof. Ahmad Farooq Shah, Bahauddin Zakarya University, Multan
Mr. M. Mazhar Khan, State Bank of Pakistan, Karachi
Mr. Mohammad Soliman, University of Sciences and Technology Chittagong, Bangladesh
Prof. Abdul Mannan, School of Business, University of Liberal Arts Bangladesh
Dr. Fatima Imam, Federal Urdu University, Karachi
Prof. G.R. Pasha, Bahauddin Zakariya University, Multan
Mr. Shameel Ahmad Zubairi, University of Karachi, Karachi
Mr. Imran Naveed, State Bank of Pakistan, Karachi
Mr. Qaisar Mufti, Qaisar Mufti Associates, Shahra-e-Iraq Saddar, Karachi.
Ms. Afra Sajjad, ACCA Pakistan, Lahore
Dr. Khan Brohi, nstitute of Environmental Engineering and Management, Jamshoro
Mr. Amir Hussain, WTO Cell, Trade Development Authority of Pakistan, Karachi
Dr. Tanveer Anjum, Department of Business Communications, Iqra University
Dr. Arifa Farid, Department of Philosophy Ex-Dean Faculty of Arts, University of Karachi
Mr. Muhammad Asim, Department of Business Administration, Karachi
Mr. Muhammad Zubair, Department of Islamic History, University of Karachi, Karachi
Dr. Aliya Zahid, Anatomy Department, Allama Iqbal Medical College, Lahore.
Dr. Qurrat-ul-ain, Sir Ganga Ram Hospital, Lahore.
Dr. Atif Mahmood, Shaheed Mohtarma Benazir Bhutto Medical College,
Dr. Muhammad Adnan Kanpurwala, Dept. of Physiology, Dow University Karachi.
Dr. Uzma Ali, Institute of Clinical Psychology, Karachi
Dr. Ali Rizvi, Universiti Brunei Darussalam, Brunei
Dr. Pervez Wasim, Applied Economics Research Centre, Karachi
Dr. Muhammad Usman Awan, Institute of Quality & Technology Managment, Lahore
Dr. Amber Gul Rashid, University of Karachi, Karachi
Production Unit
Literary Editors:
Muhammad Asif Khan
Wajdan Raza
Production Associate and
Editorial Co-ordinator:
Shahzad Ali
Research
Research
Prevalence of Risk Factors Of Non-Communicable Diseases
PREVALENCE OF RISK
FACTORS OF NONCOMMUNICABLE DISEASES
AMONGST FEMALE
PRISONERS OF PAKISTAN
Department Health & Hospital Management
Institute of Business Management, (IoBM)
Abstract
Non-communicable diseases (NCDs) are a group of
conditions that includes cardiovascular diseases, cancer, mental health
problems, diabetes mellitus, chronic respiratory diseases and
musculoskeletal conditions. Since NCDs account for a large number
of deaths in Pakistan, the objective of this study was to determine
the prevalence of risk factors for non-communicable diseases
particularly in female prisoners as this stratum has not been much
studied. The study also aims to compare the prevalence of risk factors
for non-communicable diseases in the female prisoners in four
provinces of Pakistan. For this purpose, a cross sectional research
was conducted at the female prisons, one in each province. A total of
269 female adult prisoners, having age of 16 years and more, belonging
to different nationalities, participated in the study. During the survey,
data on anthropometrical and vital measurements, smoking habits of
female prisoners were collected and analyzed. Among the female
prisoners, 71% were of Pakistani origin, while 23% were foreigners.
24.9% were smokers. 75.4% prisoners had no access to fruits in their
diet. 39% and 44.2% female prisoners used vegetable oil and ghee
respectively in their meals while 16.3% were unsure about the type of
663
Research
oil used in their meals. The statistical analysis showed significant

difference in the type of oil consumed in meals in all the four prisons
visited (p < 0.001). 55% female prisoners were satisfied with the quality
of prison food. The mean BMI assessed was 36.63 kg/m2, for females
of mean height of 1.57m and mean weight of 67 kg. 46.5% females were
found to be in the normal BMI range. 26.4% were over-weight, while
27.13% were found to be obese.
The prevalence of risk factor of non-communicable
diseases including smoking and unhealthy dietary practices in the
female prisoners of Pakistan was found to be high as compared to
normal female population of Pakistan, elevating the risk of having
non-communicable diseases.
Keywords: prevalence; non-communicable diseases; risk factors;
female prisoners
JEL Classification: Z000
Introduction
World Health Organization (WHO, 2012) defines noncommunicable diseases as a group of conditions that includes
cardiovascular diseases, cancer, mental health problems, diabetes
mellitus, chronic respiratory diseases and musculoskeletal conditions.
Non-communicable diseases account for 46% of all deaths in Pakistan.
According to an estimate of 2008, more than 300,000 deaths occurred
due to NCDs, in both males and females in Pakistan (WHO, 2011).
NCDs are backed up by many common risk factors. A number of
research studies have thrown light on the prevalence of NCDs in
Pakistans population in general but relatively very less attention has
been paid to the stratum of prisoners.
664
Research
According to Maniyar (2004), and Pakistan Human Rights

Report (2004) the number of female prisoners is increasing resulting
in over-crowding of female prisons and other detention centres. Poor
prison facilities and overcrowding has contributed towards
substandard conditions of prisons. Inadequate living space, poor or
non-existent ventilation, limited sanitation facilities, low levels of
cleanliness and hygiene and inadequate food and medical supplies
make female prisons in developing countries, a sub-human entity.
Maniyar (2004) stated that while conditions of detention vary greatly
from country to country and facility-to-facility, standards in most
countries are shockingly low.
Women represent a small portion of Pakistans prison
population and their particular needs are overlooked. Prison conditions
are extremely poor and life threatening. Overcrowding is observed as
a widespread phenomenon. According to Human Rights Commission
of Pakistan (2004), there are 80,000 prisoners in jails that were built to
hold a maximum of 35,833 persons. According to The Progressive
Womens Association, there were approximately 2,765 female prisoners
in jail nationwide in 2002. Although, special female prisons have been
established nationwide, but these prisons receive fewer material and
human resources than regular prisons. Efforts to raise funds for these
prisons achieved minimal results.
Fernando (1995) pointed out that there is an absolute lack of
adequate programs and services designed for the sentenced women.
Such programs may include women-centred programs, programs for
addiction & health, education, vocational training and programs linked
to upgrading the community.
It has been reported that by the dawn of the third millennium,
NCDs would sweep the entire globe (Dawn News 7th April 2005). By
definition, the non-communicable diseases are those that cannot be
spread through contact.
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Research
The major concern worldwide is the increasing trend of NCDs

in the developing countries where the transition imposes more
constraints to deal with the double burden of infective & non-infective
diseases in poor environment characterized by inadequate health
system. Pakistan Human Rights Report (2004) stated that by 2020, it is
predicted that these diseases will cause 7 out of 10 deaths in
developing countries.
Increase in the smoking habit is one of the risk factors which
are making NCDs more prevalent. According to the WHO Human
Rights Watch World Report (2002), approx.100 million people died
worldwide from tobacco-associated diseases e.g. cancer, chronic lung
disease, diabetes, and cardiovascular disease. Tobacco usually kills
4.2 million people every year. This figure has nearly doubled in the
last 10 years and it is estimated to reach 8.4 million by the year 2020 if
no action is taken to curb the tobacco-epidemic. While tobacco
consumption is falling in most developed countries, it is increasing in
the developing countries by about 3-4% per annum. Today, 80% of 1.2
billion smokers in the world live in least developed countries where
smoking prevalence among men is nearly 50%.
Majority of the risk factors associated with NCDs e.g. blood
pressure, cholesterol, tobacco, alcohol and obesity have always been
associated with wealthy societies. But, with changing global trends,
they now also dominate the developing countries where they create
an additional burden on top of infectious diseases that have always
afflicted poor countries.
Boutayeb (2005) mentioned in his study regarding burden of
NCDs in developing countries. It was estimated that tobacco increases
the risk mortality from coronary heart disease and cerebrovascular
diseases by 2-folds. It increases the risk of many other types of cancer.
666
Research
Methodology
I n order to get a uniform sample of female prisoners of Pakistan,

the study was conducted from 1st February to 28th June 2011 in female
prisons of each of the four provinces of Pakistan. The study sites
were:
Location
Female Prison,
Karachi, Sindh
Central
Date
Jail
of
st
nd
1 and 2 March 2011
Female Prison, Central Jail of Koth

Lakh Patt, Punjab
4th and 5th April 2011
Female Prison, Central Jail of

Haripur, Khyber PakhtoonKhwah
18th and 19th April 2011
Female Prison, Central

Quetta, Baluchistan
23rd and 24th May 2011
Jail
of
All registered femaleadult prisoners of all nationalities who

consented to participate in the research work were included in the
survey. Disabled female adult prisoners and female prisoners enrolled
in the last 3 months from the date of the survey were excluded from
the research. The sample for the study included 66% female adult
prisoners of each prison visited in each province. The age of the
population was 16 years and more. The sample population was taken
using purposive sampling technique. The data was collected by
visiting the four prisons of Pakistan, one of each province. A written
consent was read out to each prisoner before the start of the interview.
The interview was taken from each prisoner and questions were asked,
based on the pre-written and translated WHO STEP wise approach to
chronic disease risk factor surveillance questionnaire (STEPS).
Blood pressure monitoring and blood sugar levels (fasting) were
collected. STEPS is a WHO program for stepwise approach to
surveillance of NCDs. The WHO-based questionnaire was modified
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Research
by translating the questionnaire in Urdu for the convenience of the

female prisoners. During data analysis, the questionnaire was
translated back to English.
The STEPS questionnaire which was used for this study was
divided into two steps:
Step 1:
The Step 1 of the questionnaire includes the following main
sections:
a. Demographic Information
This section includes questions related to the core and
expanded demographical information thus helpful in gathering
information like age, qualification, ethnic background, work status,
etc.
b. Core Behavioural Measures
This section involves questions related to the behaviour and
life-style of the individuals. The section is helpful in gathering the
following information:
Tobacco Use (Section S)
Diet (Section D)
Physical Activity (Section P)
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Research
This section also includes questions involving history of

high blood pressure and diabetes in the individual.
Step 2:
The Step 2 of the questionnaire includes physical
measurements. The measurements which were taken during the survey
included:
Measurement of height (in centimeters)
Measurement of weight (in kilograms)
Measurement of blood pressure (in mmHg)
Hip circumference (in centimeters)
Heart rate (Pulse per minute)
Research Study Design

The study design used in this study was a cross-sectional
survey.
Statistical analysis
Statistical Software SPSS Program Version 17 was employed
to perform statistical analysis for Chi Square and ANOVA analysis at
p=0.05 level of confidence.
Results
This study was conducted with the objectives of identifying
the prevalence of risk factors for NCDs in female prisoners of Pakistan.
Data was collected from 269 female inmates of Pakistan and few of
foreign origin. Out of 269 inmates, 114 prisoners were from Central
Jail, Karachi denoting the province of Sindh, 73 inmates were from
Koth Lakh Path, Lahore, representing the province of Punjab. 66
669
Research
female prisoners were representing Central Jail, Quetta, depicting the

province of Baluchistan and 16 prisoners belonged to Haripur Jail,
denoting the province of Khyber Pakhtoon Khuwah (KPK). On the
whole, 77% (n=207) of the study subjects had Pakistani nationality
while the rest (23%, n= 62) were of foreign origin, out of whom 7%
(n=4) of the subjects belonged to Bangladesh, Thailand and India
each. 15% (n=9) were from Guinea while 64% (n=40) were from Nigeria.
Age Status:
About 68.40% of the female inmates were between 26 and 45
years (n=184); 20.40% belonged to age ranging from 46 to 60 years
(n=55); about 9.30% (n=25) females belonged to the age group
ranging from 16 to 25 years while 1.85% (n=5) females belonged to
age greater than 60 years. The mean age of our sample (n=269) was
35.44 12.23 years. Most of the female inmates (78.4%) belonged to
reproductive age group i.e. 16-45 years with the mean age of 32 + 7.0
years.
Educational Status:
The educational status of the female inmates was also
assessed during the survey. Majority of the respondents (46.4%,
n=125) did not have any formal schooling. Approximately 31.6%
(n=85) did not complete their primary education. About 7%
(n=19)completed their primary education, 11% (n=29)of the female
inmates were found to have completed their secondary education,
while 4% (n=11) had completed their university education (n=11)
(Figure 1).
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Research
Figure 1: Educational Status of Female Prisoners of Pakistan
Smoking Habits:
The results analyzed showed that, out of total sample size of
269 inmates, 67 were smokers (24.9%) The youngest age at which the
smoking was taken up by the female inmate was 10 years.
Figure 2: Percentage of Smokers with Number of Cigarettes
Smoked per day by the Female Prisoners of Pakistan
n = 67
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Research
Amongst the daily smokers, 18% (n=12) of female inmates

smoked 1-4 cigarettes/day; about 49% (n=33) prisoners smoked 5-10
cigarettes daily; 12% (n=8) female prisoners smoked 11-15 cigarettes
daily while 16% (n=11) smoked 15-20 cigarettes daily. 5% (n=3)
prisoners smoked cigarettes greater than 20 each day (Figure 2). The
maximum number of cigarettes used daily was 40. Out of the total
prisoners who were smokers (n=67), 85% (n=57) were using
manufactured cigarettes, while the remaining smokers (15%, n=10),
smoked handmade cigarettes e.g. Birri and Huqqa.
Amongst those who were current smokers, 30 belonged to
Sindh; 19 were from Punjab; 18 belonged to Baluchistan while Khyber
Pakhtoon Khuwah had 5 smokers.
There was no significant difference in the smoking status in
each province (Chi-Square; p-value: 0.977). Amongst the overall
population included in the research (n=269), 49 individuals were found
to be taking smokeless tobacco, which included mainly gutka and
tobacco taken with pan (Table 1). Amongst those taking smokeless
tobacco, 15 female inmates were from Sindh; 18 from Punjab; 12 from
Baluchistan; and 4 from Khyber Pakhtoon Khuwah. The difference in
the intake of smokeless tobacco in between each province was found
to be insignificant (Chi-Square; p-value: 0.214) (Table 2).
Fruit Intake:
Amongst all the female inmates, majority of the females approx.
75.4% (n=203), were those who had no access to fruits in a typical
week; about 17.4% (n=47) had 1-3 servings of fruits a week, while 7.2%
(n=19) had fruit servings for 5 and more days a week (Figure 3).
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Research
Figure 3: Percentage of female prisoners consuming fruit/week
Most of the inmates who had access to fruits were foreigners.

Type of cooking oil consumed:
The consumption of vegetable oil amongst the female inmates
of Pakistan was found to be 39% (n=106); 44.2% were using butter or
ghee in cooking (n=119), while 16.3% were unaware of the type of oil
consumed for their meal preparation (n=44) (Figure 4). All the female
prisoners who were consuming ghee in the preparation of meals were
cooking their own food, while majority of the inmates had meals
prepared in vegetable oil were consuming the jail food provided by
the Government of Pakistan. 55% (n=148) of the female inmates were
satisfied with the food they were consuming in jail, while the rest
were not (n=121). 65.78%, (n=79) of the female inmates who were not
satisfied with their food were consuming the jail food.
Figure 4: Percentage of female prisoners consuming the type of
oil
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Research
BMI:
The mean height when measured was found to be 1.57 m (SD
+ 0.094 m) while the mean weight was 67 kg (SD+ 14.63 Kg). The mean
BMI was 26.63 kg/m2 (SD+ 5.3) (n=269).Minimum BMI measured was
17.6 kg/m2 and maximum BMI measured was 43.15 kg/m2. Amongst the
female inmates, 46.5% females had normal BMI ranging from 19-24.9
kg/m2 (n=125); 26.4% were found to be over-weight with a BMI ranging
from 25-29.9 kg/m2 (n=71) while 27.13% (n=73) were obese having BMI
more than or equal to 30kg/m2. None of the female prisoners were
found to be under weight (Figure 5).
Figure 5: BMI range of female prisoners of Pakistan
Vital Measurements:
Blood Pressure
Out of all the inmates surveyed during the survey, 25% (n=67)
of the sample had high blood pressure according to their doctor since
last 12 months. The average systolic blood pressure was 124 mmHg
and average diastolic blood pressure was 82 mmHg.
According to the blood pressure monitoring done during the
survey, 21% of the inmates (n=56) were found to have systolic blood
pressure greater than 139 mmHg; while 34.6% female inmates (n=93)
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had diastolic blood pressure greater than 89 mmHg. The Systolic

Blood Pressure recorded ranged from 95 mmHg to 170 mmHg while
the diastolic blood pressure ranged from 60 mmHg to 115 mmHg.
Out of the total individuals found to have higher blood
pressure (n=96), 49% was found in Sindh (n=33), 23% (n=30) belonged
to Punjab and Baluchistan each, while 5% (n=3) belonged to KPK
(Figure 6)
Out of the female inmates who were recorded as those having
high blood pressure, 73% were receiving medication (n=49).
Diabetics
Out of the total diabetics found (6.7%, n=18), 40%
individuals belonged to Punjab (n=7), about 37.09% belonged to
Baluchistan (n=6); 16.66% were from Sindh (n=3), while Khyber
Pakhtoon Khuwah had 6.25% of the diabetics (n=2) (Figure 6). All
diabetics were using oral hypoglycaemic agents.
Figure 6: Prevalence of Hypertension and Diabetes in the Female
Prisoners of four Provinces of Pakistan
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Research
The following table gives a comprehensive analysis of the

risk factors for NCDs prevalent in Pakistani and foreign female
prisoners of Pakistan and also among prisoners of different provinces
of Pakistan.
Out of 269 female inmates who were interviewed during the
survey, 72 were current smokers while 197 were non-smokers. Majority
of the smokers belonged to Sindh while KPK had the least number of
smoking prisoners. There was no significant difference in the smoking
status in each province (Chi-Square; p-value: 0.977) (Table-1).
Amongst the overall population included in the research
(n=269), 49 individuals were found to be taking smokeless tobacco,
which mainly included gutka and tobacco taken with pan. Punjab had
the maximum number of female prisoners taking the same while
Baluchistan had the least. The difference in the intake of smokeless
tobacco in each province was found to be insignificant. (Chi-Square;
p-value: 0.214) (Table-1).
Comparison of usage of ghee and oil among prisons of
different provinces of Pakistan revealed that vegetable oil was mostly
used by prisoners in Sindh while ghee was preferably used by female
prisoners in Punjab, KPK and Baluchistan. There was a significant
difference observed in the oil consumption of the four provinces
(ANOVA; p-value <0.000) (Table-1).
The dietary habits were also assessed amongst the female
prisoners of Pakistan. Out of the 269 inmates, majority of the inmates
in each province did not consume a single serving of fruit a week.
Punjab and Sindh had 21 and 20 female inmates consuming 1-4 servings
of fruit per week respectively. There was no significant difference
found among the four prisons visited. (ANOVA; p-value: 0. 176) (Table1).
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The BMI was also calculated to evaluate the effect of the

dietary habits on weight of the female prisoners. Amongst the female
prisoners (n=269), 125 individuals had a normal BMI, with their values
ranging from 18-24.9 kg/m2; Majority of the inmates from Sindh had
normal BMI while there were nearly half of the overweight the inmates
in Baluchistan. Punjab and KPK had more number of obese inmates.
The BMI status of each prison was significantly different from each
other (ANOVA; p-value < 0.000) (Table-1).
Table 1: Comparative Analysis of various risk factors of NonCommunicable Diseases (NCDs) in female prisoners of the four
Provinces of Pakistan
Sindh Punjab
Khyber
Baluchistan
(n=114) (n=73) Pakhtoonkhwa
(n=16)
p(n=66)
Value*
Variables
Options
Smokers
Yes
No
30
84
19
54
18
48
5
11
Yes
No
15
99
18
55
12
54
4
12
Ghee
Vegetable Oil
Not Sure
10
79
25
59
9
5
39
16
11
11
2
3
0 servings/week
89
44
48
1-4
servings/week
20
21
14
>5servings/week
Smokeless
T obacco
Oil
Consumption
Fruit Intake
BMI
Normal
92
18
12
Overweight
13
23
31
Obese
32
23
Chi
Square
Chi
Square
0.214
ANOVA
<0.000*
ANOVA
0.176
ANOVA
<0.000*
*Values less than 0.05 are considered significant
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Research
Difference between Pakistani & Foreign Prisoners

During the study, the comparison of the prevalence of risk
factors NCDs amongst the Pakistani prisoners and foreigner prisoners
in the Pakistani jails was assessed.
Amongst the 125 and 85 female prisoners who had no formal
schooling and did not complete their primary education, majority had
Pakistani nationality. There were 19 females who had completed their
primary education and majority of them were foreigners. Female
inmates who had their secondary education completed were found
to be of foreign origin. There were 11 prisoners who had completed
post-graduation and all of them were foreigners. There was a
significant difference between the educational status of the Pakistani
prisoners and the foreigners (ANOVA; p < 0.000) (Table-2).
Nearly 90% of the inmates were non-smokers and belonged to
Pakistan. Out of those who were smokers, mostly were of foreign
origin. The cross-tabulation between the smoking status of Pakistani
and the foreign prisoners was found to be significant (Chi-square; p
<0.000) (Table-2). Out of the 49 female prisoners who were consuming
smokeless tobacco, 85% were Pakistanis. There was no significance
difference in the status of use of smokeless tobacco amongst the
Pakistani and the foreign prisoners in the Pakistani prisons (Chisquare; p =0.135) (Table-2). There were 79 female prisoners who were
consuming fruits in jail and majority of them had foreign nationalities.
There was a significant difference between the fruit consumption of
Pakistani and foreign prisoners of Pakistan (Chi-square; p <0.000)
(Table-2). On assessing the BMI status of inmates, 94.4% females
who had a normal BMI belonged to Pakistan. Out of 71 and 73
prisoners who were found to be over-weight and obese respectively,
81.7% and 44% prisoners were Pakistanis. The cross analysis between
the BMI status of foreign prisoners with the Pakistani prisoners in
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Research
the prisons of Pakistan was found to be significant (ANOVA; p

<0.000) (Table-2).
Table 2: Comparative Analysis of various Risk factors

of Non-Communicable diseases (NCDs) in Pakistani
& Foreign Female Prisoners of Pakistan
Variables
Educational Status
Smoking Status
Options
p-value
123
98.4%
1.6%
Incomp lete Primary Education

(n = 85)
78
91.76%
8.2%
Primary Education
(n=1 9)
26.3%
14
73.7%
Secondary E ducation
(n=2 9)
6.9%
27
93.1%
Post- graduation
(n=1 1)
0%
11
100%
Smokers
(n=6 7)
27
40.3%
40
59.7%
Non-Smo kers
(n= 202)
181
89.6%
21
10.4%
42
85.7%
14.3%
166
74.4%
54
24.5%
24
184
30.4%
96.85%
55
6
69.6%
3.15% Chi Square
< 0.000*
Normal
(n = 25)
118
94.4%
5.6%
Over-weight
(n=7 1)
58
81.7%
13
32
43.8%
41
18.3% AN OVA
< 0.000*
56.2%
Smo keless T obacco

Smo keless Tobacco Non-Users
Users
(n=220)
BMI (Kg/M2)
Foreign
P risoners %
(n=61)
No formal Schooling
(n =125)
Smokeless T obacco Users

(n=4 9)
Fruit Intake
Pakistani
Prisoners %
(n=208)
Yes (n =79)
No
(n =190)
Obese
(n=7 3)
AN OVA
Chi Square
< 0.000*
Chi Square
< 0.000*
Chi Square
0.1 35
*Values less than 0.05 are considered significant
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Research
Discussion
NCDs have affected the health of inmates besides general
population. With special focus on inmates, our study revealed that
25% of the inmates have hypertension. In comparison to our findings,
Plugge et al. (2009) found that female prisoners in the U.K. have high
risk of developing CVD.
In our study, we found relatively fewer female prisoners who
were smokers (24.9%) as compared to other international studies done
on the prevalence of smoking amongst female prisoners. The main
reason behind this lesser prevalence of smoking amongst the Pakistani
female prisoners is because of overall decreased incidence of smoking
amongst Pakistani females due to ban on smoking imposed in public
institutions.
Smokeless tobacco appears to be an addictive product and
contains the same tumor-initiating properties as cigarettes. While
evaluating the use of smokeless tobacco consumption in the United
States, it was observed that while the prevalence of cigarette smoking
has been declining, annual consumption of smokeless tobacco has
nearly tripled since the 1970s. In 1997, 121 million pounds of smokeless
tobacco (chewing tobacco and snuff) were consumed in the United
States. (US Department of Agriculture 1982-1997).
Maniyar M. (2004) stated that womens crimes are seen to be
predominantly non-violent & reflect the social and economic standing
of women in the society. The needs of women in prison basically
reflect the same needs of those in the community at large.
Pakistan Human Rights Report (2004) reported that women
in prison have as much need for specialized care as women outside
the prison, but in most of the cases, women are facing a deprivation of
basic needs. In the prison, of all the various types of deprivations
which women are facing, of particular concern is the lack of healthcare
services in female prison.
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Research
WHO Global Strategy on Diet, Physical Activity and Health

suggested that as far as health facilities are concerned, the prison
authorities in many countries failed to provide basic needs to female
prisoners. Healthcare in most of the female prisons are poor to nonexistent. Even in developed countries, medical services for female
prisoners are often seriously inadequate.
The fact that women constitute a small portion of the
correctional population has been used to justify a lack of adequate
programming and treatment for them (Belknap, 2001). This is especially
true with regard to their healthcare. Overall, scholars report that
effective healthcare for inmates is insufficient, particularly in
preventive care.
Richmond et.al. (2009) conducted a focus group study and
studied the role of tobacco use in prison and the possible influences
of the prison environment on smoking among inmates. The study
revealed that tobacco in prison is exchanged for good, pay debt and
for gambling among prisoners. They also found that smoking helps
prisoners in managing stressful situations, transfer and court
appearances.
Karen C., et al. (2004), surveyed the female prisoners in
Mississippi. The majority of female inmates 71.5% smoked cigarettes,
with a mean of 14.6 cigarettes per day. 73.9% of the inmates were
tobacco users.
Tracy and Terry (2004) examined the prevalence of smoking
among female arrestees of New York City. They found that 71% of all
women and 64% of pregnant women were daily smokers.
In our study, we found a similar association of increased
BMI with increased consumption of ghee in meals in the female
prisoners of Pakistan. There was a positive correlation with increased
BMI and consumption of ghee specifically in Punjab and KPK where
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Research
ghee is consumed more as compared to the province of Sindh where

there is more vegetable oil consumption resulting in lesser incidence
of obesity and increased BMI.
Plugge et al. (2009) conducted a research study on 505 women
prisoners in England. The study concluded that female prisoners were
at high risk of CVD, 85% smoked cigarettes, 86% did not eat at least
five portions of fruit and vegetables each day and 30% were overweight
or obese. Comparatively, Pakistani prisoners were lacking the
availability of nutritionally balanced meals. Most important reason
behind this finding can be due to the faltering economy of Pakistan,
making it difficult for the government to provide balanced diet to an
ignored population like the prisoners.
Dr. Herbert et al. found in their research study on the
prevalence of risk factors for NCDs in prison populations worldwide
that female prisoners are more likely to be obese than non-imprisoned
females in the U.S.A. and Australia and their mean energy intake and
sodium intake is more than the recommended intake for prisoners.
Comparatively, 75% of the Pakistans female prisoners fall in the
category of overweight and obese.
Edward J., et al. (2007), while assessing the diet of prisoners
in England, found that with the exception of some nutrients, prisoners
have access to and are able to choose a nutritionally balanced diet.
All prisons have attempted to make available menus that conform to
the balance of good health model.
Williams, P., et al. (2009), while evaluating the Prison
foodservice in Australia found that the system of non-selective cycle
menus of 46 weeks is common but inmates can supplement meals by
purchase of additional food items. Menus included adequate variety
and met most nutritional standards, with the possible exception of
fruit.
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Research
Conclusion
Lifestyle and living pattern determine an individuals
health regardless of his/her place of stay. The study concludes that
Pakistani females who are imprisoned have chances of developing
NCDs in the future because of high blood pressure, sugar levels, less
fruit intake, lack of physical activity and increased BMI. The
prevalence of risk factors of NCDs in the female prisoners of Pakistan
was found to be high. There was a higher incidence of smoking
amongst the female prisoners than the normal female population of
Pakistan. This research is expected to provide valuable insight into
health policy planning for prisoners and designing health programs
to promote healthy living in prisons as well.
Recomendations
Routine health check-ups should be conducted to ensure a
regular health assessment in prisons to encourage a healthy
environment. Expertise from local primary health care centers
should be utilized.
Campaigns should be carried out at government as well as
non-government level to bring awareness amongst the female
prisoners about the hazards of smoking and smokeless tobacco.
Cessation programs can be carried out to help the current
smokers and tobacco users quit these habits.
The research findings recommend an inclusion of a proper diet
program for the female prisoners.
The food provided by the government must contain a balanced
range of all the necessary nutrients especially a balanced
quantity of fruits. Use of vegetables oil should be emphasized
by the prison.
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Research
Regular visits by the dietician or nutrition expert is recommended

to manage the diets of the prisoners especially for diabetics.
It is recommended that proper recording of this data should be
done in the prisons with regular evaluation and proper
integration with the health policy and the strategic planning for
the improvement of health and quality of life of the prisoners
there.
Medical staff as well as the prison staff should participate in
training of the prisoners and play a role in bringing awareness
of the risk factors associated with NCDs and how they will
impact negatively on their health.
Female prisoners should be motivated to be involved in
productive activities which help to promote their health. They
should be trained to become health advocates to provide
awareness and information to other jail inmates.
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Research
References
Belknap, J. (2001). The invisible woman: Gender, crime, and justice
(2nd ed.). Belmont, CA:Wadsworth.
Boutayeb: 2005 The burden of non-communicable diseases in
developing countries. Int. J. Equity Health. 4:2.
Country Report on Human Rights, Feb 25, 2004 (cited: www.who.org)
Cropseya K., Gloria D.,Ladnerc T. Smoking among female prisoners:
An ignored public health epidemic. Addictive Behaviors, 2004 Feb;
29 (2):425-431.
Dawn Newspaper (April 7th 2005)
Fernando S. Antezana: Epidemiological Aspect of Hypertension in
World. BMJ 1995; 120:960-61
Herbert K, Plugge E, Foster C, Doll H. Prevalence of risk factors for
non-communicable diseases in prison populations worldwide: a
systematic review. Lancet. 2012 May 26;379(9830):1975-82. Epub 2012
Apr 20. Review. PMID: 22521520 [PubMed - indexed for MEDLINE]
Human Rights Watch-World Report-2002 (cited: www.who.org)
Edwards, J., Hartwell, H., Reeve, W. G. and Schafheitle, J. M., 2007.
The Diet of Prisoners in England. British Food Journal, 109 (3), pp.
216-232.
Kaufman. M. R.: Smoking and Tobacco in Ohio Prisons. Addiction.
2009; 70 (11), 2579 2585
Mackay J, Eriksen M.: The tobacco Atlas. Geneva, Switzerland: World
Health Organization, 2002.
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Maniyar M 2004. Women Criminals and their Life-Style, Kaveri Books,

New Delhi
Office of the Inspector General: Spit Tobacco and Youth. Washington,
DC, Department of Health and Human Services, OEI 06-92-00500, 1992
Pakistan Human Rights Report, 2004
Plugge, E.H., Foster, C.E., Yudkin, P.L. and Douglas, N. (2009)
Cardiovascular disease risk factors and women prisoners in the UK:
The impact of imprisonment. Health Promotion International 24(4):
334343.
Richmond, R ; Butler, T ; Wilhelm, K ; Wodak, A ; Cunningham, M &
Anderson, I (2009), Tobacco in prisons: a focus group study, Tobacco
Control, Vol. 18, pp. 176-182.
Robertson P.B, Walsh M.M, Greene J.C. Oral effects of smokeless
tobacco use, Advances in Dental Research 1997, 11(3): 307 - 312.
STEPwise approach to chronic disease risk factor surveillance (STEPS);
http://www.who.int/chp/steps/en/
Tracy L. Durraha, Terry J. Rosenberg: Smoking among female arrestees:
Prevalence of daily smoking and smoking cessation efforts. Addiction,
2004 Jul; 29 (5): 1015-1019
US Department of Agriculture: US consumption of chewing tobacco
and snuff, 1982-1997
WHO Global Strategy On Diet, Physical Activity & Health (cited:
www.who.org)
World Health Organization - NCD Country Profiles , 2011. http://
www.who.int/nmh/countries/pak_en.pdf
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World Health Organization 2012-Regional Office for Europe http://

www.euro.who.int/en/what-we-do/health-topics/noncommunicablediseases/ncd-background-information
Williams, P., Walton, K.,Hannan-Jones, M.: Prison foodservice in
Australia systems, menus and inmate attitudes. Journal of
Foodservice, (2009); 20:167180.
Wray A, McGuirt WF: Smokeless tobacco usage associated with oral
carcinoma. incidence, treatment, outcome. Arch Otolaryngol Head
Neck Surg 1993; 119:929-933
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Annexure 1: Body Mass Index (BMI) Chart for Adult Males and
Females
(Source: Adapted from Clinical Guidelines on the Identification,

Evaluation, and Treatment of Overweight and Obesity in Adults:
The Evidence Report)
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Research
Factors Influencing Capital Structure of Pharmaceutical
FACTORS INFLUENCING
CAPITAL STRUCTURE OF
PHARMACEUTICAL
COMPANIES LISTED ON THE
KARACHI STOCK EXCHANGE
Shashi Raja, Waqar Ahmed Siddiqui, Shazia Farooq,
H. Jamal Zubairi
Department of Accounting and Finance
Institute of Business Management (IoBM), Karachi
Abstract
This study focuses on investigating the factors influencing
the capital structure of seven companies listed in the pharma and
biotech sector of the Karachi Stock Exchange. Leverage has been
designated as a representative of capital structure. Seven variables
(all financial) are assumed independent and leverage has been taken
as the dependent variable forming the basis for our pooled regression
model. At an assumed 5% level of significance, three null hypotheses
are rejected. Reliability tests namely Cronbachs Alpha measure is
run in order to verify that the model is stable over time. The results of
this test suggest inconsistency in the case of the entire range of the
data but if considered individually the consistency, 5 out of 7 variables
have positive alphas. However, the conclusions drawn from the model
are tentative.
Keywords: Capital structure, leverage, pharmaceutical sector, Pakistan

JEL Classification: G100
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Research
The Theory and Literature Review:

Several research studies have been conducted on the issue
of capital structure in view of its importance in determining shareholder
returns. The real debate on the capital structure was triggered by the
publication of the paper by Modigliani and Miller. The Modigliani
Miller (MM) theory of capital structure, devised by Franco Modigliani
and Merton Miller in 1958, served as the foundation for various
schools of thought on capital structure and corporate finance.
MM grouped every firm to a certain risk class which is
described as an array of firms each of which has a matching pattern of
earnings payoffs. MM proposition I states that, in a perfect capital
market, value of any firm is independent of its capital structure and is
given by capitalizing its expected return at the rate appropriate to its
class. According to the theory, average cost of capital to any firm is
completely independent of its capital structure and is equal to the
capitalization rate of a pure equity.
MM proposition-2 states that a firms cost of equity is a
linear function of the firms debt to equity ratio. A higher debt-toequity ratio leads to a higher required return on equity, because of the
higher risk involved for equity-holders in a company with debt. This
proposition also holds under the assumption of perfect market.
MM proposition-3 focuses on dividend payments and the
value of firm. It states that under certain conditions, the value of a
firm is independent of its dividend policy. In other words, two identical
firms that belong to the same risk class will have equal market value
even if they have different dividend policies.
A number of principles underlie the theory, which holds under
the assumption of both taxation and no taxation. The two most
important principles are that, first, if there are no taxes, increasing
leverage brings no benefits in terms of value creation, and second,
that where there are taxes, such benefits, by way of an interest tax
shield, accrue when leverage is introduced and/or increased.
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Research
Myers and Brealey (2003) explain that the Proposition 1 is an

extremely general result. It applies not just to the debt-equity tradeoff but to any choice of financing instruments. For example, MM
would say that the choice between long term and short term debt has
no effect on firm value. They further elaborate that MMs opponents,
the tradionalists argue that market imperfections make personal
borrowing more expensive, risky and inconvenient for some investors.
This creates a natural clientele willing to pay a premium for shares of
levered firms. The tradionalists say that firms should borrow to realize
the premium.
According to Myers and Brealey (2003), this argument is
incomplete. There may be a clientele for levered equity, but that is not
enough; the clientele has to be unsatisfied. They doubt satisfaction
of clients with a number of levered firms available in the market.
Furthermore, MM theory is violated if finance managers find an
untapped demand and satisfy it by issuing something new and
different. They tend to lean towards MM Theory since finding
unsatisfied clienteles and designing exotic securities to meet their
needs is a game that in their words is fun to play but hard to win.
These results might seem irrelevant since none of the
conditions are met in the real world, but the theorem is part of corporate
finance curriculum because it establishes the importance of capital
structure. It points out determinants of optimal capital structure and
how these affect optimal capital structure. Given the crucial role of
capital structure in determining the cost of capital and the possibility
of one or more assumptions of MM Theory being violated, several
studies have been conducted to determine the factors influencing
the debt and equity mix of a firm.
The trade-off theory of capital structure tends to offset the
tax benefit of borrowing with the cost of financial distress. The
classical version of the hypothesis goes back to Kraus and
Litzenberger (1973) who presented the bankruptcy model of capital
structure in which they discussed the significance of tax shelter. Firms
optimal debt ratio is one where the tax advantage of borrowing is
equal to the expected cost of bankruptcy. Under this theory, high
profitability should mean high debt capacity and a strong corporate
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tax incentive to use that capacity. The cost of financial distress is also
determined by the type of assets on the firms balance sheet. According
to Myers and Brealey (2003), the theory successfully explains many
differences in capital structure, but it is unable to explain why some of
the most successful firms thrive with little debt.
According to Grossman and Hart (1982) use of debt, reduces
the conflict between managers and shareholders. Their model
spotlights the bankruptcy cost in debt scenario and shows that
managers can prefer investing in lucrative projects to consuming perks
that benefit them only. The likelihood of bankruptcy increases as the
manager use more perks. It seems bankruptcy is costly to managers
because they lose benefits, so debt can create an enticement for them
to make better investment decisions and cut down on perks.
A competing theory, Pecking Order Theory, was described
by Myers (1984) and revisited later in several studies including the
ones conducted by Sunder & Myers (1999), Fama& French (2002) and
Frank & Goyal (2003). Donaldson (1961) proposed that management
favors internally generated funds over external funds in his study of
capital structures in large corporations. These findings by Donaldson
gave a hint of a pecking order before the theory was presented by
Myers. The Pecking Order Theory states that firms use internal
financing when available and prefer debt to equity when additional
financing is required. This explains why less profitable firms are more
leveraged; not because they have higher target debt ratios but because
they require more external financing and since debt is next on the
pecking order when internal funds have been deployed.
Bradley, Jarrell and Kim (1984) found that earning volatility,
investment in R&D and advertising have a negative as well as a
significant relationship with leverage. They also found that the nondebt tax shield is positively related with leverage. The study also
concluded that industry classification is also relevant in capital
structure decisions.
Rajan and Zingles (1995) studied the impact of four
independent variables including tangibility, sales, market to book ratio,
and profitability on capital structure. The relationship with all variables
was found to be significant. They found tangibility and sales to be
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Research
positively related and market to book ratio and profitability to be

negatively correlated with debt.
Booth et al. (2001) analyzed data from ten underdeveloped
countries including Pakistan to assess whether capital structure theory
was transferable across countries with different institutional
structures. The study empirically proved that these decisions were
affected by the same variables as in developed countries.
However, there were persistent differences across various countries,
indicating that country specific factors such as GDP growth rates,
inflation and development of capital markets do work. The findings of
the study supported Pecking Order Theory since it was observed
that more profitable the firm was the lower was its debt ratio regardless
of how the latter was defined.
Fama and French (2002) note that debt ratios tend to adjust
slowly to specific target levels. This means that firms appear to take a
long time to return their leverage to its long-run mean or, in other
words, to optimal level.
A study by Shah and Hijazi (2004) conducted on listed nonfinancial companies in Pakistan showed that the size measured by
taking log of sales was positively correlated with leverage, indicating
that large firms tend to employ more debt. Growth measured by the
annual percentage change in total assets was negatively correlated
with leverage. Strong relationship was also found between profitability
and leverage. Profitability as measured by net profit before taxes
divided by total assets was negatively correlated with leverage that
supports the pecking order theory.
Leary and Roberts (2005) state that firms respond to equity
issuances and equity price shocks by rebalancing the actual leverage
towards the target level within two to four years. Furthermore, they
state that persistent effects of shocks on leverage are due to optimizing
strategies as opposed to indifference regarding their capital structure.
Qureshi and Azid (2006) identified that the public sector in
Pakistan preferred debt financing due to low corporate governance,
favorable terms and conditions of commercial banks and lesser
accountability than private sector.
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Research
Chen and Zhao (2006) showed that the relationship between

leverage and the market-to-book ratio (as a measure of growth
opportunities) is negative for firms with high market-to-book ratios
and is positive for firms with low to medium values of the market-tobook ratio. Hence, while the market to book ratio is a widely accepted
proxy for the firms growth opportunities, in standard leverage
regressions, it is difficult to make inferences about the impact of growth
opportunities on leverage when using this measure.
Kanwar (2007) studied the capital structure in sugar industry
of Pakistan and concluded that it has a significant relationship with
return on assets, asset tangibility, market to book ratio and size, except
tax rate. The developed provinces of Pakistan showed higher debt
ratios.
Shah and Khan (2007) examined the explanatory power of
tangibility, size, growth, profitability, non-debt tax shield and earnings
volatility in determining capital structure of listed non-financial firms
in Pakistan for the period 1994-2002. The results of the study, based
on pooled regression, supported the trade-off theory with reference
to tangibility. However, findings for earning volatility and depreciation
variables failed to confirm the trade-off theory. The results for growth
confirmed the agency theory whereas that of profitability supported
the pecking order theory. The relationship between size and leverage
was found to be insignificant.
Rafiqet. al. (2008) examined the chemical industry of Pakistan
regarding capital structure choice and suggested that chemical sector
preferred more equity financing than the debt financing.
Industry Profile
Tenth largest in the Asia Pacific region and worth $1.63bn in
FY 2007, the pharmaceutical market of Pakistan is very lucrative with
about 400 units being operated including nationals and multinationals.
Approx Twenty five multinationals are operating in this sector in
Pakistan and the market is still expanding. The products in this segment
include painkillers and antibiotic drugs with oncology and biotech
pills (IMS Health Asia) (PPMA, 2008) (BMI).
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Research
Some statistics of the pharmaceutical market reveal that

spending on drugs is very low. Hardly 1% of Pakistans gross domestic
product originates in the drugs and pharmaceutical sector. Annual
exports approximate $100 million, according to 2007 figures. New global
opportunities are likely to raise exports to about $500 million by 2013
(BMI).
Good manufacturing practices are being followed as per
international and national standards. Certain products are being
imported, including immunological, anti-cancer drugs, certain antidiabetics, antidotes, and products manufactured from biotechnology.
The market is not only fulfilling the countrys demand for drugs but it
has considerable export potential.
The prices are rather low and the health ministry has this
authority to raise the prices of the medicines which remained constant
for a long period.
The market share of multinationals to locals is 45 to 55
percent of sales. Growth rate is around 11% per annum with market
volume being $1.5 billion. From among 400 units competing, 80%
market share is with top 50 manufacturers and 90% market share is
that of top 100 players in the sector (OESC) (BMI, 2008).
Despite growth, the pharmaceutical sector also faces certain
problems due to a rise in inflation and a fall in purchasing power and
real incomes. Due to the currency devaluation, the cost of raw materials
has increased the cost of production. Consequently, drugs are
available illegally at certain stores with high price tags.
As mentioned above, the control over price is in the hands
of the Ministry of Health, therefore price adjustments are rare which
makes certain drugs unprofitable to manufacture. Raw materials are
imported from foreign markets, and increasing inflation and
devaluation has an impact on profits. Province-wise break-up of
pharmaceutical companies registered with Ministry of Health is as
follows:
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Research
Table1: Province- wise break-up of Pharmaceut ical

co mpanies registered with M inistry of Health
Province
National
M ultinationa l
Total
Punjab
Sindh
KhyberPaktunkhwa
Baluchistan
Azad
Jammu&Kashmir
204
92
50
05
23
-
209
115
50
07
03
02
-
09
03
Total
356
30
386
Source: Minist ry of Health (2008) ,OSEC (2008)
Province-wise break-up of licenses issued to pharmaceutical

companies by the Ministry of Health (2008) are given in Table-2.
Table 2: Province-wise break-up of licenses issued
Province
Licenses categories
Formulation
Punjab
Sindh
NWFP
191
109
45
Basic
manufacturing/
Semi basic
manufacturing
13
16
0
Repacking
Total
licenses
issued
2
0
0
206
125
45
Baluchistan
6
1
0
Azad
3
0
0
Jammu&Kashmir
Total
354
30
2
Source: Ministry of Health (2008),OSEC (2008 )
7
3
386
Pakistan produces about 80% of its pharmaceutical products demand

through local manufacturing. Products being currently outsourced or
imported in finished form comprise of immunological, antidotes, anticancer, certain anti-diabetics, and products and drugs produced from
biotechnologies etc.
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Research
All major pharmaceutical dosage forms are being

manufactured in Pakistani pharmaceutical companies; some of them
are listed in the following exhibit:
Exhibit 1: Pharmaceutical Dosage Forms
Tablets
Liquid injections
Capsules
Powder injections
Syrups
Semi solid/Cream
Drops
Inhalers
Gels
Effervescent
Ointments
Disposable enemas
Ophthalmic/Optic drops
Modified release
forms
Vaccines
Source: Ministry of Health (2008), OSEC (2008)
Some key statistics of the pharmaceutical industry in Pakistan are

presented in Table-3:
T able 3: S ome ke y st atistics of th e In du str y 2007
Nu mbe r o f e m plo ye es
R & D E xp enditure
Ove r 100,000
1% of profit (by ea ch
co mpany) goes to R & D Fund
of the Ministry of H ea lth.
47,000
1,100
R egistered drugs
R egistered Mo le cules (Ac tive
ingre dients)
C ontrolled price drugs
Alm ost all
M a rket siz e
US $ 1.5 Billion appr ox.
Avera ge growth rate
11%
M a rket Sha re of M ultinationa l
45%
M a rket Sha re of Loca l
55%
compa nies
M a rket le ade r
GlaxoS m ithK line ( Pa k) Ltd.
Quality requir em ent
High Te ch
Sou rce: M inistry of H ealth ( 2008), O S EC (2008)
The top ten pharmaceutical companies in Pakistan according to market

share in 2008 in terms of sales are listed in Table-4:
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Research
Table 4: Top ten companies in Pakistan Pharmaceutical

Market (2008)
S. No. Name of Company
Share % Growth
%
1
GSK (Glaxo Smith Kline)
11.59
8.9
2
Sanofi Aventis
4.15
7.4
3
Getz Pharma
3.76
26.7
4
Abbott Lab
3.69
4.7
5
Roche
3.13
14.4
6
Merck (Pvt.) Ltd.
2.89
16.6
7
Parke Davis
2.86
3
8
Sami
2.79
28
9
Novartis Pharma Specialty 2.26
11.6
10
Novartis Consumer Health 1.71
12.1
Source: Ministry of Health (2008), OSEC (2008)
The year-wise inflows of foreign direct investment (FDI) in Pakistan

pertaining to the pharmaceutical and Over The Counter (OTC) products
sector are given in Table-5:
Table 5: Year-wise Foreign Direct Investment (FDI)
in Pharmaceutical& OTC* Products sector
Year (July - June)
Foreign Direct
Investment (FDI)
(In Million USD)
2003-04
13 .2
2004-05
38 .0
2005-06
34 .5
2006-07
38 .4
2007-08
45 .6
Source: State Bank of Pakistan (SBP) *OTC: Over
the counter
There is scarcity of production of basic raw materials used

for the manufacturing of finished form medicines in Pakistan. The
country imports almost 95% of the basic raw materials usage from a
number of countries including China, Japan, India, the United
Kingdom, Germany, and the Netherlands (OSEC, 2008). However, a
few firms, almost half a dozen, are now involved in producing the
following raw materials domestically:
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Amoxacilin
Ampicillin
Aspirin
Cefixime
Cefadroxil
Exhibit 2: Domestic Raw Material

Ciprofloxacin
Parabinez
Cloxacillin
Piperazine
Ephedrine
Pseudoephedrine
Ephedrine Sulphate Pyrazinamide
Flucloxacillin
Santonin
Cephlexin
Paracetamol
Source: Ministry of Health, OSEC (2008)
The domestic production of raw materials in Pakistan does

not cover the need of the pharmaceutical industry and a major
proportion of special quality grades are still imported.
Currently, the pharmaceutical products manufactured in
Pakistan are being exported to Africa, the Middle East, Asia, and CIS
(Commonwealth of Independent States) markets. The year 2009-10
proved to be good for the pharmaceutical industry of Pakistan as
exports in this year increased by around 44.74% to reach $168.31
million (Table-6).
Description
Table 6: Pharmaceutical Exports from P akistan

(All Amounts in Thousands of US $)
July June
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Pharmaceutical 69,215
64,923
67,943
78,952
86,508
116,286 168,308
products
Source: State Bank of Pakistan (SBP), Trade D evelopment Authority of Pakistan (TDAP)
Although the Ministry of Health discourages imports of

pharmaceutical products into Pakistan except those at the high end
of the market, foreign pharmaceutical products enjoy considerable
access to Pakistans market. However, these can only be imported
into the country with prior mandatory registration of companies
products.
High end or high tech products being imported into Pakistan
are comprised of vaccines, therapies for HIV, oncology, hepatitis,
dialysis, and surgical instruments. The imports of pharmaceutical
products surged up to $354 million in 2007, increasing by 23.22% in 5
years from 2003 to 2007 (Table-7):
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Table 7: Pharm aceutical Import s into Pa kistan

(All A mounts in Thousands of US $)
Descriptio n
Pharmaceutical
products
2003-04
2004 -05
2005-06
2006-07
2007-08
287,478
276,210
329,36 6
342,234
354,235
Source: State Bank of P akistan (SB P)
In Pakistan, a majority of the population has no access to

adequate drinkable water and many experience a dearth of toilets and
sufficient sanitation systems. This produces serious threats to health.
Besides this, the varying and harsh climate induces major viral diseases
throughout the year.
A high burden of diseases exists in Pakistan as shown by the
following facts:
The current tuberculosis occurrence rate is 0.17%

Incidence of Hepatitis C in general population is 5.3%
High blood pressure is found in more than 24.3% of the
population over the age of 18 years
10% of the adult portion of people is diabetic
1% of the population is blind
Depressive disarrays are found in 34% in the total population
in Pakistan (OSEC, 2008)
Water-related diseases contribute nearly 12.5% of the disease

burden in Pakistan. This is because of a dearth of sanitation facilities
and safe sources of drinkable water.
Health expenditures of Pakistan increased by more than 140%
(from Rs.25 billion to Rs.60 billion) from 2001-02 to 2007-08 (OSEC,
2008). However, health expenditure as a proportion of GDP is only 6%
during the entire reported period.
Methodology and Sample
This study seeks to identify the determinants of the capital
structure or leverage of seven KSE listed pharmaceutical companies.
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The terms capital structure and leverage are used interchangeably in

this paper. The objective of this paper is to determine the influence of
the following factors on the capital structure of these companies:
1.
2.
3.
4.
5.
6.
Profitability
Size of firm
Growth
Liquidity (Quick Ratio)
Tangibility of assets
Non-debt tax shield
For profitability, two separate measures were used: Return

on Assets (ROA) and Return on Equity (ROE). Therefore, the total
number of independent variables used in this research report is seven.
We ran panel regression to test the hypotheses. Panel data
analysis facilitates amalgam of cross-sectional and time series data.
The pooled regression, also called the Constant Coefficients Model,
is one where both intercepts and slopes are assumed constant. The
cross-section company data and time series data are pooled together
in a single column assuming that there is no significant cross section
or inter-temporal effects. Specifically, the econometric model is defined
as follows:
CS = 0 + 1 TG + 2 SZ + 3 GT + 4 ROA + 5 ROE + 6 QR + 7 NDTS
+
Where,
CS =
Capital Structure (Leverage has been taken as its
representative: Long Term Debt as a percentage of Total Assets),
TG=
Tangibility of Assets (Fixed Assets as a percentage of Total
Assets)
SZ =
Firm Size (Natural log or in of Sales)
GT =
Growth (As a percentage of increase in total assets over the
period of years)
ROA = Return on Assets (Net Profit before Tax as a percentage of
Total Assets)
ROE = Return on Equity (Net Profit before Tax as a percentage of
Total Shareholders Equity)
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QR = Quick Ratio, representative of liquidity [(Current Assets

Inventory) / Current Liabilities)
NDTS = Non-debt tax shield (Annual Depreciation Charges as a
percentage of Total Assets)
Seven companies from the Pharma & biotech sector in KSE-100 have
been studied from which six are listed. This makes a significant coverage
of more than 85% of the sector.
These companies are named as follows:
1.
2.
3.
4.
5.
6.
7.
Abbott Laboratories
Ferozons Laboratories
Glaxo Smith Kline
Highnoon Laboratories
IBL Health Care Limited
Searle Pakistan
Sanofi Aventis
Financial statements of the seven companies (annual,

semiannual, as well as quarterly) were sources of data for all financial
measures. Financial statements used were mainly balance sheet, profit
and loss account and cash flow statements. Moreover, in case of
absence of data in financial statements, Yahoo Finance and Bloomberg
BusinessWeek were also consulted.
We included ten quarters starting from July 2008 (3rd quarter,
2008) till December 2010 (4th quarter, 2010). In cases of non-availability
of a particular quarter data for a variable, we calculated and used the
CAGR (Cumulative Annual Growth Rate) to estimate a value.
The following hypotheses were tested:

Hypothesis0 (H0): Capital Structure (Leverage) is not influenced by
the Tangibility of Assets (TG) in Pakistan
Hypothesis0 (H0): Size of Firm (SZ) is not associated with the Capital
Structure (Leverage).
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Hypothesis0 (H0): Capital structure (Leverage) is not influenced

positively by Growth (GT)
Hypothesis0 (H0): Return on Assets (ROA) and Leverage are
unrelated
Hypothesis0 (H0): Return on Equity (ROE) does not have a significant
impact on Leverage
Hypothesis0 (H0): Quick Ratio (QR) does not affect Leverage
Hypothesis0 (H0): Leverage is unaffected by Non Debt Tax Shield
( NDTS )
To find the degree of consistency of the entire range of data,

Cronbachs Alpha measure of reliability was carried out. It measures
internal consistency of items in a scale. Alpha measures true variance
over total variance.
According to Nunnally (1978), the alpha of a scale should be greater
than 0.70 for items to be used together as a scale. Hence, if there are
values above 0.70 and less than 1.0, the entire range of data has a
high degree of consistency.
Empirical Results
Using the technique of pooled regression, we ran the
regression of Leverage on Tangibility of Assets, Size of Firm, Growth,
Return on Assets, Return on Equity, Quick Ratio, and Non Debt Tax
Shield with the aim to investigate whether any or all these factors
may be regarded as significant determinants of capital structure.
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Table 8(A): Regressive Results

Model Summary
Mode R
R Square
Adjusted
R Std. Error of
l
Square
the Estimate
1
.587a
.345
.271
.0358050
a. Predictors: (Constant), Non - Debt Tax Shield, Firm Size, Return
on Equity, Tangibility of Assets, Growth, Quick Ratio, Return on
Assets
Model
Table 8(B): Regressive Results

Coefficientsa
Unstandardized Coefficients Standardized
Coefficients
B
Std. Error
Beta
-.095
.041
.037
.040
.124
(Constant)
Tangibility of
Assets
Firm Size
.005
.002
Growth
-.115
.078
Return on
-.956
.315
Assets
Return on
.685
.206
Equity
Quick Ratio
.009
.013
Non - Debt
1.801
1.595
Tax Shield
a. Dependent Variable: Leverage (Capital Structure)
Sig.
-2.344
.912
.022
.365
.355
-.271
-.833
2.933
-1.471
-3.039
.005
.146
.003
.694
3.329
.001
.120
.219
.685
1.129
.496
.263
It can be observed from the tables above that estimated value

of the coefficient of determination is approximately 0.345. It implies
that only about a third of the variation in leverage of the companies is
jointly explained by the above mentioned seven variables. The value
of F-statistic (4.656) indicates that the overall model is acceptable.
In the case of the first variable tested, Tangibility of Assets,
the empirical results show that the companies leverage is not
significantly associated with it. This implies that the null hypothesis
that leverage is not influenced by the tangibility of assets is accepted
at 5 percent level of significance.
The estimated model shows that there is statistically
significant association between leverage and the Firm Size. The Sig.
value is 0.005 which implies that we reject our null hypothesis i.e. Size
of Firm is not associated with Leverage at a 5% level of significance.
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In the case of Growth, the empirical results reveal that the

leverage is not influenced positively by growth. This implies that the
null hypothesis that leverage is not positively influenced by growth
is accepted at 5 percent (0.05) level of significance.
The estimated model shows that there is statistically
significant association between the leverage and the Return on Assets
(ROA). The significant value is 0.003 which implies that we reject our
null hypothesis i.e. Return on Assets and Leverage are unrelated at a
5% level of significance.
The estimated model shows that there is a statistically
significant association between the Leverage and the Return on Equity
(ROE). The p value is 0.001 which implies that we reject our null
hypothesis i.e. Return on Equity at a 5% level of significance.
In the case of Quick Ratio, the empirical results reveal that
the leverage is unaffected by liquidity. This implies that the null
hypothesis that quick ratio (liquidity) does not affect leverage is
accepted at a 5 percent (0.05) level of significance.
For Non Debt Tax Shield, the empirical results reveal that
the leverage is unaffected by this variable. This implies that the null
hypothesis that Leverage is unaffected by Non Debt Tax Shield is
accepted at a 5 percent (0.05) level of significance.
Since the significant value of three factors out of seven is less than
0.05, we conclude that there are associations between Leverage and:
Firm Size (SZ) positive association with Leverage
Return on Assets (ROA) negative association with Leverage
Return on Equity (ROE) positive association
The remaining four factors have no association with leverage.
Firm size being positively associated with leverage is quite
understandable as the more a firm grows, the more external financing
it will need. This means that the capital structure will incline more
towards debt if the firm size of pharma sector companies in Pakistan
increases.
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Considering the return on assets variable, an increase,

according to this research, will lead to a decrease in the leverage. The
result seems rational as higher the internal generation of cash, the
lesser the reliance on debt as explained by the Pecking Order Theory.
In the case of return on equity, a positive relationship with
leverage or capital structure seems to be unacceptable, against the
backdrop of Pecking Order Theory. The reason behind a negative
association could be the low to moderate consistency of data which
has affected the findings adversely.
For reliability test to determine the degree of consistency of
the entire range of data, we have used Cronbachs Alpha measure of
reliability. The results are as follows:
Table 9: Reliability Test
Reliability Statistics
Cronbach'sAlphaa
N of Items
-.194
8
a. The value is negative due to a negative average
covariance among items. This violates reliab ility
model assumptions. You may want to check item
codings.
As we mentioned above, we had to merge all the 70

observations (10 of each of the 7 companies) together including
different types of details such as assets and depreciation charges
merged together to be able to be tested on SPSS. This decreased
drastically the consistency of the entire range of data at one time. (A
positive value refers to an average consistency level of data whereas
a good one is above 0.7). On the other hand, when we tested the
reliability of one variable at a time, we found that only ROA and Quick
Ratio had a negative Cronbachs Alpha. Results are given below.
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1.
Cronbachs Alpha test applied on Capital Structure (CS)

and Tangibility of Assets (TG)
Cronbach's Alpha
.309
N of Items
2
The above results signify a positive Alpha value and as the value is
less than 0.7, which is denoted as a good level for reliability, a moderate
consistency in item data coding is seen between capital structure and
tangibility of assets. A positive correlation between these two
variables indicates a positive and moderate reliability.
2.
Capital Structure (CS) and Firm Size (SZ)

Cronbach's Alpha
N of Items
.025
2
The Cronbachs alpha in the case of firm size and capital structure
comes out to be only 0.025 which is nearer to zero and signifies poor
reliability and consistency in data coding.
3.
Capital Structure (CS) and Growth (GT)

Cronbach's Alpha
N of Items
.064
2
The reliability between the coding of growth and capital structure

has a non-significant value of 0.064.Hence, the reliability is very poor.
4.
Capital Structure (CS) and Return on Equity (ROE)
Cronbach's Alpha
N of Items
.344
2
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Moderate reliability can be seen between return on equity

and capital structure. This value is the highest compared with all
variables and the consistency in data coding is favorable. A positive
correlation between these two supports the reliability test result.
5.
Capital Structure (CS) and Non-Debt Tax Shield (NDTS)
Cronbach's Alpha
N of Items
.058
2
An alpha result of only 0.058 depicts that there is poor or almost no
consistency in the data coding of non-debt tax shield. This is supported
by the fact there is very low correlation between the two factors (0.124).
Conclusion
The study uses a sample of seven listed pharmaceutical
companies in Pakistan. The data covered the quarterly period from
July 2008 December 2010. Pooled regressions were run between
leverage and independent variables. Low R- square of regressions
imply that only about a third of the variation in leverage of the
companies is jointly explained by the above mentioned seven variables.
Furthermore, the results regarding the significance of individual
variables are summarized below:
Tangibility of assets is not significantly correlated with

leverage.
Size of the firm as measured using log of sales has a positive
and significant effect on leverage.
Growth as measured by change in total assets has a negative
and insignificant impact on leverage.
The relationship between profitability based on ROA and
leverage is negative and significant. However, this relationship
becomes positively correlated but significant if ROE is used
as a proxy for profitability.
Liquidity and leverage were found to be unaffected with each
other.
Leverage is unaffected by Non-debt Tax Shield.
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However, the consistency of the findings of the entire range of data,

were tested by applying the Cronbachs Alpha measure of reliability
to estimate the true variance over total variance. We found that the
reliability between leverage and the above mentioned variables was
positive with each variable, except for ROA and Quick Ratio.
Further research is recommended as an extension to this research,
with an increased sample size and time horizon. The hurdle of data
collection discrepancies and improper infrastructure for the same
cannot be eliminated but can be mitigated with the help of using
appropriate measures such as Composite Annual Growth Rate (CAGR).
It could be concluded from the findings of the study that the
Pharmaceutical firms in Pakistan tend to borrow more in a booming
economic scenario when they are more optimistic of the business
prospects. Furthermore, leverage increases with the tangibility of
assets and size of the firm since larger firms are more confident of
their repayment capability and are likely to borrow more. Growth in
profitability reduces the reliance on debt due to higher internal cash
generation which is given priority in meeting funding requirement.
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Corporation Finance and the Theory of Investment, The American
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An Empirical Study Of Working Capital
AN EMPIRICAL STUDY OF
WORKING CAPITAL POLICY,
RISK AND LEVERAGE
Sumita J. Shroff
Department of Accounting and Financial Management,
The Maharaja Sayajirao University of Baroda, Vadodara, India
Abstract
The current study examined the structure of current assets,
efficiency of current asset management, the nature of current asset
investment financing policy and the overall working capital policy
and working capital leverage of ITC Limited belonging to Indian
Food and Beverages Industry over a period of 11 years from 2000-01
to 2010-11. It was found that the inventory management has
deteriorated whereas debtors management has improved over the
study period. Further, the relationship between working capital
leverage and profitability as well as between working capital policy
risk and profitability was examined to understand the impact working
capital policies on the profitability of the Indian food and beverages
industry. The results indicated that ROTA was not very sensitive to
change in current asset investment policy. Also it was observed that
aggressive working capital financing and investing policy had
negative impact on the profitability of ITC Limited. However, the
results were observed to be insignificant due to which it could not be
applicable to the entire industry.
Keywords: Working Capital Policy, Working Capital Leverage,
Working Capital Risk, Net Working Capital, Current Asset
Management
JEL Classification: G31, G32
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Introduction
The corporate finance literature has traditionally focused on
the study of long term financial decisions. However, the short term
financial decisions are equally tactical and important for any enterprise
in order to carry on its business operations productively, consistently
and efficiently. Working capital management involves managing of
the dynamic relationship between current assets (CA) and current
liabilities (CL) which are ever changing and volatile. The high risk
high return working capital investment and financing strategies are
referred as aggressive whereas lower risk and return strategies are
called moderate or matching and still lower risk and return is called
conservative working capital policy (Moyer, Mcguigan and Kretlow1,
Pinches2, Gitman3). A firm may adopt an aggressive working capital
management policy with a low level of current assets as percentage of
total assets or high level of current liabilities as percentage of total
liabilities. However, excessive levels of current assets may have a
negative effect on the firms profitability whereas a low level of current
assets may lead to lower level of liquidity and stock-outs resulting in
difficulties in maintaining smooth operations (Van Horne and
Wachowicz4). Similarly, use of current liabilities to finance the current
assets as well as portion of fixed assets is risky to the company as the
current obligations are to be honoured every 12 months. The higher
the use of current funds to total assets, higher is the risk but such a
policy gives higher return in the context that it saves the cost of long
term funds used (since the cost of long term funds are presumed to be
more than the short term funds). However, if more of long term funds
are used to finance current assets, the risk is less but the returns are
also less. Thus, every management strives hard to adopt such working
capital policy which ensures risk return tradeoffs.
Risk in working capital management is therefore an outcome
of aggressive working capital investment and financing policy. Net
working capital (NWC) position represents the excess of CA over CL
and is a measure of risk of working capital financing policy. This is
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because, higher the NWC, greater is the cushion available to short

term creditors which lowers the risk of technical insolvency also
known as conservative financing policy. Similarly, current ratio (CR)
is yet another measure of a firms ability to meet financial obligations
as they become due. The aggressive policy would yield the lowest
CR, higher risk, higher profitability and lower liquidity whereas a
conservative policy would yield the highest CR with higher liquidity,
lower risk and lower profitability. Thus, both NWC and CR measure
risk of working capital financing policy.
Risk in working capital management can also be measured
by the equation used by Luther5, Mandal6 & Saini and Saini7 in their
empirical works, which is, Risk Factor = Shareholders Funds + Long
Term Debt Long term Assets Current Assets.
Thus, before deciding on an appropriate level of working
capital investment, the management has to evaluate the trade-off
between expected profitability and the risk of being unable to meet its
current obligations. Profitability is measured in terms of return on
total assets (ROTA), i.e., EBIT / Total Assets (TA) which reflects
operational efficiency.
According to E. W. Walker 8, risk means risk of not
maintaining sufficient investment in current assets to meet the
maturing financial obligations to support a given sales level and gave
the concept of WCL which analyzes the impact of a firms current
asset investment policy on ROTA. Thus, WCL is the measure of
sensitivity of returns due to change in the level of current asset
investment.
WCL = Change in ROTA Change in Current Asset (CA)
= CA Total Asset (TA) CA
In the said context, the present study is organized as follows:
Section-1 presents a review of previous studies on working capital
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policies. Section -2 states the objectives of the study; Section -3

presents the methodology; Data analysis and interpretations are
discussed in Section -4 and Section -5 concludes the results.
1. Literature Review
Review of Previous Studies
Many studies have been carried out for analysis of working
capital management (WCM) out which few studies have concentrated
on the working capital policies and working capital leverage.
Gardner, Mills and Pope (1986)9 explored the relationship
between hedging behaviour and operating risk of 139 firms for the
period 1980 to 1984. They found that more aggressive working capital
policies were associated with higher return and higher risk while
conservative working capital policies were concerned with the lower
risk and return.
Jose, Lancaster and Stevens (1996) 10 examined the
relationship between aggressive WCM and profitability of US firms
using Cash Conversion Cycle (CCC) and they found a significant
negative relationship between the length of CCC and profitability
indicating that aggressive WCM is associated with higher profitability.
Weinraub and Visscher (1998)11 examined the relative
relationship between the aggressive/conservative working capital
policies of 206 US firms belonging to ten diverse industry groups,
using quarterly data for the period 1984 -1993. Their study concluded
that the industries had distinctive and significantly different
aggressive current asset management policies which exhibited
remarkable stability over the study period. They also found that
relatively aggressive working capital asset policies when followed
were balanced by relatively conservative working capital financial
policies. Similar results were produced by Salawu (2006)12, who
investigated 42 firms in fifteen diverse industrial groups to establish
the relationship between aggressive and conservative working capital
practices during the period 1993 2004.
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Hyderabad (1999)13 elucidated the concept of WCL with the

help of case studies of three private sector enterprises, taking data
for one year. The analysis revealed that, a) firms having a low ratio of
fixed assets to working capital are more responsive to WCL than
those having a high ratio of fixed assets to working capital; b) firms
with higher fixed assets to working capital ratio suffer more than
those with lower ratio due to WCL.
Mallick and Sur (1999)14 examined the liquidity position as
well as the impact of WCM on profitability with the help of WCL
analysis taking data of ten years from 1987 to 1996 of Hindustan
Lever Limited. They found that the company followed a conservative
working capital policy and working capital of the company was found
to be significantly related to sales. WCL analysis revealed that change
in ROI was less than proportionate to change in gross working capital
investment.
Afza and Nazir (2007)15 investigated the relationship between
the aggressive and conservative working capital policies for 17
industrial groups of 263 public limited listed companies using crosssectional data for the period 1998-2003. The study found significant
differences in working capital investment and financing policies across
different industries which were remarkably stable over the study
period and that industries which pursued aggressive investment
working capital policies also followed aggressive working capital
financing policies. Finally, a negative relationship was found between
the profitability measures of firms and the degree of aggressiveness
of working capital investment and financing policies indicating that
aggressive working capital policies yielded negative returns. Similar
results were found by the study of Afza and Nazir (2009)16.
Luther (2007)5 evaluated the liquidity, profitability and risk
trade-off of Madras Cements Limited (MCL) for a period of nine years,
i.e. 1997-98 to 2005-06 which was further divided into two parts with
this first period covering first four years and the second period
covering the last 5 years of the time frame selected. It was found that
MCL had adopted a conservative policy in financing working capital
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for the initial four years and an aggressive policy in the last five years
resulting in negative working capital which had a negative impact on
the profitability. However, the positive association between risk and
profitability was substantiated in the first period.
Mandal (2010)6 assessed the impact of working capital
management on liquidity, profitability and non-insurable risk of ONGC
over a nine-year period from 1998-99 to 2006-07 and the analysis
revealed a statistically significant positive relationship between
liquidity and profitability as well as risk and profitability.
Saini and Saini (2010)7 assessed the efficiency of liquidity
management as also the association between liquidity profitability
and the trade-off between profitability and risk of Infosys Technologies
Limited for a period of ten years, i.e. 1999-2000 to 2008-09. The analysis
revealed that the investment of sample firm in current assets in relation
to total assets was very high and was consistently maintained. They
found a mildly positive association between risk and profitability
indicating that high degree of conservative policy adopted by the
company has made a negative impact on its profitability.
Thus, studies of Gardner9, Jose et al10, Mandal6 and Saini
and Saini 7 substantiated direct relationship between risk and
profitability, whereas, Afza and Nazir (2007)15 and (2009)16 found
negative relationship between risk and profitability thereby challenging
the conventional theories.
2. Objectives of the Study
In the light of literature reviewed, the present study is undertaken
with the following objectives:
a.
To examine the structure of current assets and the

efficiency of current asset management.
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b.
To study the current asset investment policy; measure the

working capital leverage and examine the relationship
between working capital leverage and profitability.
c.
To examine the working capital financing policy, measure

the risk and scrutinize the relationship between
profitability and the risk in working capital policies.
3. Methodology of the Study
1. Time Frame: An eleven-year period from 2000-01 to 2010-11 is

selected for the study.
2. Data: Financial data was collected from Centre for Monitoring

Economy (CMIE) Database.
3. Sample Selection: The Indian food and beverages industry is an

evergreen sector with consistent growth. The private final
expenditure on food, beverages and tobacco has remained highest
since 2004-05 to till date (Refer Table -1). And thus, the said
industry was selected for the purpose of inquiry with respect to
working capital management. There are 1763 listed and unlisted
companies in this sector of which 497 are listed. Of these 497
companies, 351 are listed on Bombay Stock Exchange (BSE). The
BSE listed A Group companies for which data for the entire study
period of 2000-01 to 2010-11 is available were selected for the
study. The final screening gave 3 companies of which ITC Ltd
had the highest sales turnover in the industry. So, ITC Limited
was considered as the representative sample for the study.
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4. Ratios Used: The following ratios are used to fulfil the

objectives of the study:
a. Structural Ratios: Inventory to CA Ratio (ITCAR); Debtors to
CA Ratio (DTCAR); Cash & Bank Balances to CA Ratio
(CBBTCAR); Prepaid Expenses to CA Ratio (PETCAR); Loans
and Advance to CA Ratio (LATCAR).
b. Efficiency Ratios: Inventory Turnover Ratio (ITR); Debtors
Turnover Ratio (DTR); Average Collection Period (ACP);
Inventory Holding Period (IHP); Current Asset Turnover Ratio
(CATR)
c. Working Capital Policy Ratios: Current Asset to Total Asset
Ratio (CATAR); Current Assets to Sales Ratio (CASR), Current
Liability to Total Assets Ratio (CLTAR); Current Liabilities to
Current Assets Ratio (CL/CA); WCL; CR; NWC; Risk Factor.
5. Statistical Tools Used: Arithmetic Mean; Median; Standard

Deviation; Coefficient of variation; Simple and Rank Correlation;
Simple & Multiple Regression, F-test and t-test.
6. Specification of Model: The regression model is y = a + bx

+ ut.
Taking the same, the model adopted to examine if ROTA is
being affected by WCL is:
ROTA = + WCL+ ut . . . . . . . . . . . . . (1)
The relationship between working capital policy risk and
profitability is examined by
ROTA = + 1CATAR+ 2 CLTAR + ut . . . . . . . . . . . . . (2)
7. Hypotheses of the Study:
Null Hypothesis (H01): Return on Total Assets is not
sensitive to the degree of working capital leverage.
Null Hypothesis (H02): Return on Total Assets is not
sensitive to the degree of working capital leverage.
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4. Data Analysis and Interpretation

A. Current Asset Structure Analysis
The descriptive statistics and yearly ratios of current asset
structure are presented in Table 2.
Year
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
CA
(Amt in `
Crores)
2872.70
2956.20
3390.01
3647.66
3465.67
5016.39
6037.08
7031.30
8171.61
7878.51
9863.58
Median
Mean
Standard Deviation
TABLE 2
Current Asset Structure Ratios
ITCAR DTCAR CBBT
PETCAR
(In %)
(In %)
CAR
(In %)
(In %)
39.85
39.52
1.23
0
39.93
45.31
1.50
0
36.93
41.08
11.18
0
42.06
37.88
9.33
0
57.80
32.97
1.60
0
52.55
24.82
17.06
0
55.58
23.95
14.91
0.36
57.61
27.9
8.11
1.08
56.29
21.9
12.62
3.37
57.74
22.83
14.30
2.91
53.40
20.10
22.74
1.64
53.40
27.90
11.18
0.00
49.98
30.75
10.42
0.85
8.40
8.92
6.96
1.26
LATCAR
(In %)
19.4
13.26
10.81
10.73
7.63
5.57
5.20
5.30
5.82
2.22
2.12
5.82
8.00
5.17
The analysis of Table 2 reveals the following:

The share of inventory in the total current assets has increased
throughout the study period excepting years 2002-03 and 2010-11;
the share of debtors has shown a declining trend whereas cash
balance has fluctuated with highest being 22.74 percent in 2010-11
reflecting idle cash and slack control of cash balance.
The loans and advances have been reduced to a considerable
extent reflecting efficient management of funds and measures taken
by the management for its improvement in order to improve the
liquidity and efficient utilization of funds.
The share of prepaid expenses which was nil became existent
from 2006-07 onwards and rose to as high as 3.37 percent which
had declined progressively there after indicating a possibility of
conscious steps taken by management to improve liquidity and
cash flows.
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B. Current Asset Management Efficiency Analysis

The analysis of Table 3 reveals the following:
From the perusal of Table 3, it can be observed that ITR ranged
between 5.05 and 8.81; DTR has ranged between 7.35 and 15.45
whereas CATR has ranged between 3.03 and 3.86. A declining
trend can be observed for DTR and ACP whereas a rising trend
can be observed for ITR and IHP.
It is interesting to note that over the study period the efficiency of
inventory management has deteriorated with inventory holding
period increasing from 48 days to 63 days whereas the efficiency
of receivables management has improved with reduced collection
period of 24 days. The combined effect of which has offset any
change in the overall management of current assets as reflected
by the median value of 3.24.
Mean CATR of 3.23 reflects that the current assets get converted
into sales 3 times a year and that the investment in current assets
is blocked for 111 days (Operating Cycle).
Year
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Mean
Median
SD
722
TABLE 3
Current Asset Management Ratios
ITR
IHP
DTR
ACP
(Times)
(In days) (Times)
(In days)
7.60
48
7.66
48
8.34
44
7.35
50
8.81
41
7.92
46
7.70
47
8.56
43
6.67
55
11.69
31
6.16
59
13.04
28
5.82
63
13.49
27
5.29
69
10.94
33
5.05
72
12.99
28
5.80
63
14.68
25
5.82
63
15.45
24
6.64
57
11.25
35
6.16
59
11.69
31
1.28
10
2.96
9.91
CATR
(Times)
3.03
3.33
3.25
3.24
3.86
3.24
3.23
3.05
2.85
3.35
3.11
3.23
3.24
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Research
C. Analysis of Working Capital Leverage and Current Asset

Investment and Financing Policy
The descriptive statistics and yearly ratios for Current Asset
Investment policy and WCL are presented in Table 4.
The analysis of the Table 4 reveals that the firm on an average
maintains 37% of the total assets as current assets and 31% current
assets against total sales of the company. From this, it can be
inferred that the management is following an aggressive current
asset investment policy whereby sales are supported by lesser
investment in current assets. Also, the proportion of current assets
to total assets is less than 50% which is indicative of an aggressive
working capital investment policy.
WCL is observed to be below 1 in all the years for the study period
which indicates that the change in ROTA was less than
proportionate to change in investment in current assets which
confirms the findings of Hyderabad13 that firms having a low ratio
of current assets to fixed assets are less responsive to WCL.
TABLE 4
Current Asset Investment Policy and Working Capital Leverage
Year
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
TCA
2872.70
2956.20
3390.01
3647.66
3465.67
5016.39
6037.08
7031.30
8171.61
7878.51
9863.58
Total
Assets
5997.84
7257.77
8681.34
10689.76
11758.15
13318.26
15235.23
17549.22
19785.21
23357.69
25844.21
Mean
Median
SD
CATAR
0.46
0.39
0.40
0.32
0.30
0.37
0.37
0.38
0.39
0.32
0.36
0.37
0.37
0.04
in
CA
----83.50
433.81
257.65
-181.99
1550.72
1020.69
994.22
1140.31
-293.10
1985.07
TA-CA
----7341.27
9115.15
10947.41
11576.16
14868.98
16255.92
18543.44
20925.52
23064.59
27829.28
Mean
Median
SD
WCL
----0.403
0.372
0.333
0.299
0.337
0.371
0.379
0.391
0.342
0.354
0.36
0.36
0.03
CASR
(In %)
33.02
30.02
30.74
30.86
25.94
30.90
30.95
32.75
35.15
29.84
32.20
31.12
30.90
2.32
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As already discussed that WCL measures the sensitivity of ROTA

to change in current asset investment policy and so the association
between WCL and ROTA was examined to confirm the findings of
descriptive statistics by applying rank correlation. Further to check
the significance of the correlation coefficient, t-test was applied. The
calculated value was less than the critical value at 5% level of
significance with 9 degrees of freedom. Ranks were assigned in
descending order in both the cases, i.e., highest value had been
assigned 1st rank and so on and the results are presented in Table 5.
From the perusal of Table 5, it can be observed that, the correlation

coefficient of +0.35 signifies a moderate degree of positive
correlation between ROTA and WCL which means an increase in
ROTA is moderately and positively affected by WCL which
further confirms the analysis that change in ROTA is less than
proportionate to change in CA. However, the correlation
coefficient was statistically insignificant meaning thereby that
these results cannot be generalized to the whole of food and
beverages industry.
Further simple regression equation was applied taking ROTA as
dependent variable y and WCL as independent variable x. The
null hypothesis 1 was tested at 5% level of significance with 9
degrees of freedom. The results are summarized in Table 6.
The beta coefficient is found to be statistically insignificant at

5% level of significance which suggests acceptance of the null
hypothesis. Thus, in the food and beverages industry, ROTA is
not sensitive to the degree of WCL which suggests non- linearity
of relationship. The possible reason could be the asset structure
as quoted by Hyderabad13, The asset structure is the basic
determinant of WCL.
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TABLE 5
Year
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Rank Correlation between WCL and ROTA

WCL Rank1 ROTA Rank2 Difference
D2
in Ranks
(D)
0.428
1
31.79
1
0
0
0.403
2
28.11
5
-3
9
0.372
5
26.47
8
-3
9
0.333
10
25.56
11
-1
1
0.299
11
28.06
6
5
25
0.337
9
26.15
9
0
0
0.371
6
27.82
7
-1
1
0.379
4
28.17
4
0
0
0.391
3
26.04
10
-7
49
0.342
8
28.28
3
5
25
0.354
7
29.81
2
5
25
TOTAL
0 144
r = +0.35
Calculated t = 1.12087
Critical t = 2.262 at 5% level of significance
TABLE 6
Results of Simple Linear Regression of WCL on ROTA
t
Variable
Intercept
R2
Slope 1
p value
statistic
WCL
19.99
0.183
21.54
1.4189
0.190
Table Value of t = 2.262 at 5% level of significance
The descriptive statistics and yearly ratios for Current Asset

Financing policy is presented in Table 7.
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Research
Year
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
TABLE 7
Working Capital Financing Policy Ratios
Total CA
Total CL NWC
CL/CA CR
2872.70
1604.39
1268.31
0.56
1.79
2956.20
2559.25
396.95
0.87
1.16
3390.01
3198.74
191.27
0.94
1.06
3647.66
4158.85
-511.19
1.14
0.88
3465.67
3617.18
-151.51
1.04
0.96
5016.39
4137.05
879.34
0.82
1.21
6037.08
4597.27
1439.81
0.76
1.31
7031.30
5277.12
1754.18
0.75
1.33
8171.61
5872.58
2299.03
0.72
1.39
7878.51
9185.60
-1307.09
1.17
0.86
9863.58
9791.74
71.84
0.99
1.01
Mean
0.89
1.18
Median
0.87
1.16
SD
0.19
0.27
CV
21.35
22.88
CLTAR
0.27
0.35
0.37
0.39
0.31
0.31
0.30
0.30
0.30
0.39
0.38
0.33
0.31
0.04
12.12
From the perusal of Table 7, it can be observed that

NWC was negative in 3 of the 11-year period which has
strained the CR and it has remained below 1 for 3 years
and below 1.50 for the rest of years with a mean of 1.18 and
median of 1.16. Mean CL/CA is 0.89 and Mean CLTAR is
0.33.
On an average 89% of the firms current assets were
financed by the CL. CR below 2 coupled with higher CL/
CA reflects an aggressive working capital financing policy
being pursued by the sample firm.
Thus, this firm follows an aggressive investment as well
as financing approach which is a highly risky preposition.
Further, all the measures of risk viz, NWC, Risk Factor, CLTAR
and CR were ranked to find out whether all of these measure the risk
in the same way or vice versa.
The rankings were given in the ascending order, i.e., from lowest
value to highest value for NWC, CR and Risk Factor whereas for
CLTAR ranking was done from highest to lowest. This is because
lower the NWC, lower is the CR and so is the Risk Factor, however,
higher is the risk and vice versa whereas higher the CLTAR, greater
the use of CL to finance TA, higher is the risk and vice versa. The
results of ranks assigned are presented in Table 8.
726
Year
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Research
TABLE 8
Ranking s of Measures of Risk of overall working capital policy
Risk
NWC
Rank
Rank CLTAR Rank CR
Rank
Factor
11
11
1.79
11
1268.31
11
0.44
0 .27
6
5
1.16
6
396.95
6
0.13
0 .35
191.27
-511.19
-151.51
879.34
1439.81
1754.18
2299.03
-1307.09
71.84
5
2
3
7
8
9
10
1
4
0.06
-0.14
-0.04
0.18
0.24
0.25
0.28
-0.17
0.01
5
2
3
7
8
9
10
1
4
0 .37
0 .39
0 .31
0 .31
0 .30
0 .30
0 .30
0 .39
0 .38
4
2
6
7
8
9
10
1
3
1.06
0.88
0.96
1.21
1.31
1.33
1.39
0.86
1.01
5
2
3
7
8
9
10
1
4
From the analysis of Table -7, it can be observed that CR,

NWC and Risk Factor measure risk in the same way as the rankings for
each of them is same. CLTAR gives similar ranking except for 4 years.
Further, Pearsons Correlation Matrix is constructed as
presented in Table 9, to examine the correlation amongst the variables
measuring working capital policy risk. This is done to select the variable
representing working capital investment as well as financing policy
risk.
.TABLE 9
Pearsons Correlation Matrix
CATAR
CLT AR
CR
NWC
Risk
Factor
CL/CA
CAT AR
1
-0.48 568
CLTAR
CR
NWC
0.870808
0.646913
-0.83634
-0.80003
1
0.794794
0.849182
-0.84 918
-0.85856
0.858562
0 .96897
-0.96897
0.892648
-0.89265
Risk
Factor
CL/CA
1
-1
In order to examine the relationship between working capital

policy risk and profitability, CATAR is considered as a measure of risk
in investment policy whereas CLTAR is considered as a measure of
risk in financing policy and ROTA as a measure of profitability. CLTAR
as a measure of risk in working capital financing policy is selected for
2 reasons, viz, (a) CATAR and CLTAR have common denominator so
is a more appropriate measure as compared to its counterparts and (b)
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Research
CLTAR has the least value of correlation with CATAR as compared to

other variables as evident from Pearsons correlation matrix. Thus,
CATAR is 1 whereas CLTAR is 2.
The results of multiple regression examining impact of working capital
policy risk on profitability are presented in Table 10.
TABLE 10
Results of Multiple Regression on ROTA
Slope
Slope t sta tistic t statistic
F
R2
Intercept
1
2
1
2
Statistic
1.111
1.4189
1.0273
0.204
23 .39
14.931 -3.822
(0.300) (0.808)
t = 2.262 at 5% significance
F = 5.32 at 5% significance
The positive coefficient of CATAR indicates that as current

assets share in total assets increases, risk decreases and
profitability as measured by ROTA increases thereby indicating
a negative relationship between the degree of aggressiveness of
investment policy and profitability. The negative value of
coefficient for CLTAR also points out the same negative
relationship between the aggressiveness of working capital
financing policy and profitability which agrees with the results
of Afza and Nazir (2007)15 & (2009)16.
However, the relationship was found to be statistically

insignificant indicating that the differences in results can exist
when the study is conducted taking all the units of the entire
industry. Also, the value of R2 is observed to be very low.
5. Conclusions and Recommendations
In ITC Limited, inventories formed major share in current
asset followed by debtors, cash and loans and advances and
prepaid expenses.
The inventory and cash management of ITC Limited has
deteriorated over the study period which should be improved.
Receivables management including loans and advances
have improved over the study period and have been very well
managed.
728
Research
The firm followed an aggressive current asset investment and

financing policy which is a risky proposition.
WCL of ITC Limited was found to be less than unity for the
entire study period indicating less than proportionate change
in ROTA to change in current asset structure.
ROTA was not sensitive to WCL for the food and beverages
industry which suggests that the change in current asset
structure does not affect the profitability of the industry. The
profitability may be affected by the efficiency of operations or
other factors which needs to be discovered.
A negative relationship was found between risk and profitability
for ITC Limited which indicates that the higher is the risk taken,
the lesser is the profitability and the firms should take measures
to reduce the aggressiveness of its working capital financing
and investing policy. However, the relationship was statistically
insignificant so this finding cannot be applied to the entire
food and beverages industry.
Limitations of the Study
There are so many factors that affect the profitability. However,

in this study, the objective was examining the impact of working
capital policy risk on profitability only the other factors were
eliminated which is a major limitation of this study. Also, the
analysis is based on one company of Food and Beverages Industry
due to which the results are observed to be insignificant.
729
Research
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731
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Research
Emotional Intelligence in Doctors and Nurses
EMOTIONAL INTELLIGENCE IN
DOCTORS AND NURSES OF
EMERGENCY MEDICINE UNITS IN
TERTIARY HOSPITALS
Department of Health and Hospital Management
Institute of Business Management, (IoBM), Karachi
Abstract
Emergency medicine staff of Karachi has the emotional
competency to manage patient care. Emotional Intelligence Score of
nurses was comparatively higher than doctors (p< 0.01). There was
no significant difference between the scores of males and females
when dealing with medical emergencies (p = 0.057). Emotional
intelligence increases with years of clinical experience (p<0.01). Score
of doctors and nurses in the public sector was higher as compared to
hospitals in the private sector (p=0.002). Workload was rated as the
most common factor for affecting their emotional strength and
recommendations were provided. This is a preliminary study to assess
Emotional Intelligence in order to identify the levels of emotional
intelligence in health care practitioners of an emergency unit. The
results will assist the management to identify areas of improvement
to develop effective performance and good communication with
patients, while the hospital can design strategies for the right career
placement for its personnel and provide training to emergency
medicine staff to facilitate quick decision making skills.
Keywords: emotional intelligence, emergency medicine, SEIS, work
performance, emotional competency
732
Research
Introduction
Emotional Intelligence (EI) is the understanding, managing
and controlling our own emotions and recognizing the emotions of
others. Asan (2003) has described the importance of emotional
intelligence in identifying an individuals success in work, family, and
social life and an individuals ability to manage his/her relations
efficiently with the environment. This includes the awareness and
judgment of the knowledge related to the emotion, and operating on
the emotional knowledge as a part of problem solving in daily life.
According to Goleman (1996), EI is defined as the capacity
for recognizing our own feelings and those of others, for motivating
ourselves, and for managing emotions well in ourselves and in our
relationships. In everyday language, EI is what typically referred to
as street smartness or common sense.
Wagner et al. (2002) published the first study that focused
on a state of a physicians emotional strength and the relationship
between physician and the patient. They found that only one subscale of emotional intelligence (i.e., happiness) was related to higher
patient satisfaction; the other sub-scales (i.e., interpersonal skills,
adaptability, stress, and mood) were unrelated. Stratton et al. (2005)
conducted a study on medical students and found that attention to
feelings, empathic concern, and perspective were positively correlated
with communication skills, while emphatic concern did not have a
positive correlation with physical examination skills.
Salovey and Mayer (1990) state that EI has been described
as social intelligence which is the ability to monitor ones own and
others emotions, segregating emotions and using the information
generated to guide ones thinking and actions. A person who is
emotional intelligent is skilled in identifying, using, understanding,
and regulating his emotions. According to Goleman (1996), self
awareness, management of emotions, motivating oneself, identifying
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emotions in others and handling relationships are component of

emotional intelligence.
Success is positively related to the level of strength of EI
which helps a person become a better parent, employee or a manager.
Ngah (2009) explains that regulation of ones own emotion and moods
can result in positive and negative affective states and affect work
behaviors. This is the requirement of the changing paradigms of the
world. Viriyavidhayavongs (2001) mentioned that it is important for
the business environment and organizations to hire leaders with
enriched leadership effectiveness requiring strong managerial skills
and emotional intelligence. Goleman (1996) also stated EI can be as
powerful as Intelligence Quotient (IQ) and sometimes even more so.
Today when an individual is expected to be rated as having a good IQ
score for success in career, companies are looking for managers to
have a high EQ score as well. Geiser (2001) said that IQ remains
stagnant after teen years; however, EI can be learned continuously.
People with high EI are more likely to succeed in personal and
professional pursuits than those with low EI regardless of their level
of IQ.
Birks (2009) describes that EI has a significant role in the
field of medicine, nursing, and other healthcare disciplines, both for
personal and professional practice. Medical fields deal with human
lives and therefore it is important to hire medical personnel with the
aptitude for emotional competence. Pau (2003) studied the level of
stress amongst medical students and found out that level of EI and
stress was different amongst different disciplines of healthcare
profession including dental, nursing and mental health workers. Razzak
et.al (2008) mentioned that emergency medical care is a significant
component of healthcare system. In low income countries, it is an
ignored though. His study was on the availability and quality of
facility-based emergency medical care in the government healthcare
system at district level in a low income country like Pakistan and was
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analyzed that 40 out of 44 healthcare providers (98%) were of the

opinion that their medical facilities were inadequately equipped to
treat emergencies. 31 out of 42 (74%) state that no budget had been
allocated for emergency care. Many critical supplies like medications
and equipment facilities needed in an emergency were not found in
these facilities. This resulted in low satisfaction with workplace.
The purpose of choosing the emergency medicine staff for
this study mainly served the purpose of analyzing the dynamics and
diverse working schedules of the staff. EI and competencies are highly
required for doctors and personnel attending the acute patient care
delivery. Workload, personal stress and work environment are
contributing factors to yield in mood fluctuations causing emotional
variations which affect work performance. Behaviors and attitudes in
critical situations for maximal performance and higher productivity
which will leverage a patient focused image of the institution managed
by an emotionally competent staff. Sovie and Jawad (2001) found that
the relationships between nursing staff from different units was a
strong predictor of patient satisfaction and hard evidence also exists
for the value of relationships in the delivery of patient care.
The objective of the study was to assess the emotional
quotient of doctors and nurses of emergency medicine wards of tertiary
hospitals of Karachi.
Methodology
The study is based on analytical cross sectional survey
conducted on 2 private and 2 public tertiary care hospitals in Karachi
from April 2010 to June 2010. A sample of 100 was drawn at a confidence
level of 95%. Considering the availability of emergency medicine nurses
and doctors due to varied shifts convenient sampling was used with
inclusion criteria of clinical experience in the emergency ward of not
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less than six months during the study period. Out of 150 respondents,
120 gave consent to the study. A sample of 100 gave complete
response. Nurses also included paramedics operating in the wards
while doctors included house officers and post graduates level
attending the ward at the time of data collection.
Data collection tool was in form of a questionnaire with of
the Schuttes Emotional Intelligence Scale. According to Jonker and
Vosloo (2008), the scale is a 33-item self-report questionnaire with the
highest EI score of 165 and lowest score of 33. The scores were
totaled of each respondent. Demographics were extracted after a focus
based interview with two doctors and two nurses from emergency
medicine set up. An interview based questionnaire was developed
with an attached disclaimer and consent form. Data collection was
mainly done in the low traffic morning hours, the time where the
frequencies of casualties are low. Data was tabulated on SPSS 17 and
analyzed and results summarized. P value was used to find out
relationship between demographics and EI scores were analyzed using
independent t test while p value of workplace variables was calculated
using Fisher Exact test.
Results
There were 55 female and 45 males respondents. Majority of
the respondents belonged to age group 25-40 years. From private
hospitals, there were 43 respondents and 57 from public hospitals. 30
respondents had a clinical experience of 1-5 years. Around 34
respondents were attending more than 20 emergency cases per day.
(Table 1)
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Table 1: Demographics of the study participants (N=100)

Parameters
Gender
Age (years)
Hospitals
Staff
Clinical Experience (years)
No. of casualties seen per day
Male
Female
<25
2 5-30
3 1-40
4 1-50
>50
Private
Public
Nurses
Do ctors
<1
1-5
6-10
>10
<10 cases
1 0-15
1 6-20
>20
Frequency (n)
55
45
23
24
25
14
14
43
57
59
41
19
30
26
25
3
33
28
34
A significant difference was found in gender. EI score of

private and public hospitals was significant. Score between nurses
and doctors was significant along with clinical experience of less than
and greater than 10 years.
Table 2: Emotional Quotient (EQ) among study subjects (N=100)
Gender
Hospitals
Staff
Clinical
experience
(years)
Male
Female
Private
Public
Nurses
Doctors
< 10 years
Mean SD
127.25 19.93
120.04 16.88
117.44 20.38
128.96 16.13
135.63 10.57
107.29 15.30
109.44 13.52
>10 years
137.41 11.89
P value*
0.057
0.002
<0.01*
<0.01*
* Independent sample t test. Values less that 0.05 are considered to

be significant
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The emotional strength analysis using chi square (Table 3)

shows that 21 nurses (35.6%) and 31 doctors (75.6%) say that their
emotional strength is affected by workload. 15 nurses (25.4%) and 6
doctors (14.6%) say that their emotional strength is affected by
personal strength. 10 nurses (16.9%) and 2 doctors (4.9%) say that
their emotional strength is affected by colleagues at work. 9 nurses
(15.3%) and 2 doctors (4.9%) say that their emotional strength is
affected by recognition from seniors. 4 nurses (6.8%) state that
monetary incentives from pay affect their emotional strength.
Table 3: Comparison between Staff members on reasons behind
disturbances in their emotional strength
P value*
Emotional strength most affected by
Workload
Nurses
Doctors
Frequency
(n)
Percentage
(%)
Frequency
(n)
Percentage
(%)
Monetary
Recognitio incentives
Personal Colleagues n from
from
stress
at work
seniors
hospital
21
15
10
35.60%
25.40%
16.90%
15.30%
6.80%
31
75.60%
14.60%
4.90%
4.90%
0.00%
0.002
* Fisher Exact
Discussion
The duty of emergency medicine staff is to stabilize patients
who have a life-threatening injury or illness. In contrast to medicine
or primary care, emergency medical care focuses on the provision of
immediate or urgent medical interventions. Emergency medicine staff
needs to work like critical managers practicing medical decisionmaking and executing the actions necessary to prevent life risk or
disability because of time-critical health problems whatever the age,
gender or demographics of the patient may be.
EI is recognized as an important personal attribute involved
in nurturing the patient physician relationship and is thus
increasingly included in the medical education curriculum. Medical
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education should include practical work related to self-awareness about

emotional management. Doctors need to think and work like managers
as well and patient management is the prime nature of their jobs. Guthrie
(1999) describes that lack of self management and emotional
competence may yield in barriers to effective communication between
physicians and executives. This will result in difference of opinions
regarding the importance and a direct conflict between reasonable
objectives of a hospital or health system and the success of physicians
work. Physicians and healthcare executives often view the same issue
through different views and, as a result, arrive at different reasons and
seek different alternatives.
Goleman (1996) pointed out that at a time of heightened
competition for patient loyalty, those physicians who are more aware
of their patients emotions are more successful in treating them than
their less perceptive colleagues.
The highest factor which affects emotional strength was
workload which is evident from the fact that due to inadequate staffing
and resources, work is shared by an average of 5-6 doctors per call.
This is an area of improvement mandatory for hospitals to consider
improving their level of staffing to decrease the burden on staff during
heavy traffic hours. Personal stress was higher in nurses as compared
to doctors. Colleagues at work might be a positive or negative
implication. Most respondents when interviewed stated good
colleagues to have a very significant impact on their working
environment. Recognition from seniors was an explanatory requirement
from nurses which affects their emotional strength. It is interesting to
note that there were hardly any substantial responses of monetary
incentives from the hospital. Behaviors and attitudes in critical
situations for maximal performance and higher productivity will
leverage a patient focused image of the institution managed by an
emotionally competent staff.
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According to Razzak (2002) training of healthcare

professional is important to help them handle their critical situation
better and for this the training requires a critical mass of physicians,
nurses and other paramedical staff who are deep rooted with the
principles of emergency care and should exert pressure for such a
training needs inclusion in the curricula of their respective fields.
Weng and Chen (2008) say that an underlying capacity for EI is
necessary for a successful physician to manifest a competency in the
medical profession.
Perez (2009) analyzed the relevance of EI in managerial and
non managerial staff of the pharmaceutical and medical devices
industry in Puerto Rico found that younger employees and those
with lower educational level tend to have lower EQ scores. Pau (2003)
studied EI has a significant role in medicine, nursing, and other
healthcare disciplines, both for personal health and professional
practice. There was no significant difference between males and
females between professional groups for the EI measure.
Shih and Hsu (2007) conducted a study in Taiwan between
physicians and nurses in a study population. Physicians were
evaluated to have lower scores of EI opposed to nurses. Our study
shows that nurses had higher scores than doctors. Nurses had better
ability in self-emotion appraisal than physicians which may be due to
gender difference that females were more sensitive to emotional
perception than males. There is a significant difference in the
perception of EI with respect to male and female supporting staff. Our
study does not show a significant difference between scores of males
and females and the nature of work attitude is the same for both men
and women.
Gadot and Galit (2010) showed that the levels of EI in private
sectors are higher as compared to those in public sectors, and
therefore, empowers positive attitudes towards the workplace and
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decreases negative behavior. Our study illustrates that EI of public

hospitals staff was higher owing to more exposure of critical emergency
cases reported to public hospitals than private.
Conclusion
This was just a preliminary study to assess EQ in order to
identify the levels of EI in healthcare practitioners of an emergency
unit. The results will help the staff to identify areas of improvement to
develop effective performance and good communication with patients.
The hospital can design strategies for the right career placement for
its personnel and provide training to emergency medicine staff to
improve quick decision making skills. Behaviors and attitudes in critical
situations can be developed for maximal performance and higher
productivity which will create a patient focused image of the institution
managed by an emotionally competent staff. The results of this study
will build a pilot platform for other such studies and assessment in
fast paced competent fields other than healthcare in Pakistan.
This survey can extend its analysis to assess the reliability
of EI in hospital staff and evaluate patient outcome and service
satisfaction. Emergency medicine is the hub of acute clinical
procedures and a lot of multitasking is involved due to low human
resource. More staff in case of doctors and nurses should be hired
and rotated into emergency medicine units to help reduce workload in
the emergency units.
Working hours vary from 8 12 hrs for emergency medicine
staff. Most of the staff stated that their timings are not fixed and often
work overtime without any remuneration or recognition of the
additional hours spent. This causes distraction of the work life. Exertion
levels are very high due to working overtime. The working hours should
be followed with timely management. Young staff needs to be trained
to manage their emotional strength in times of emergencies. EI should
be educated and built into the recruitment and training facilities of
nurses and doctors. This way the hospital workforce will develop its
emotional competencies to perform efficiently and can deliver quality
care in highly demanding emergency medicine units.
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References
Asan, . & zyer, K., (2003). To identify demographic factors that
influence emotional intelligence an empirical study. H. . Journal of
Economics and Administrative Sciences, 21,1, 151-167.
Birks Y, Mc Kendree J, Watt I: (2009) Emotional intelligence and
perceived stress in healthcare students: a multi-institutional, multiprofessional survey, BMC Medical Education, 9:61
Geiser J, (2001) An Analysis of Emotional Intelligence with relation to
Sales Professionals, Unpublished Honors, Ohio University
Goleman D, Emotional Intelligence, (1998); Why It Can Matter More
Than IQ, Bantam Books. ISBN 978-0-553-38371-3
Guthrie, M.B. (1999). Challenges in developing physician leadership.
Frontiers in Health Services Management, 15: 3-28.
Jonker, C.S.& Vosloo, C. (2008) The psychometric properties of the
Schutte emotional intelligence scale. SA journal of industrial
psychology, 34(2):21-30.
Meisler G., Gadot EV., (2010) Emotional intelligence empowers positive
attitudes in private sector; not in public sector.PHYSorg.com. Last
retrieved: www.phys.org/pdf212328722
Ngah R, Jusoff K,(2009) Emotional Intelligence of Malaysian Academia
towards Work Performance, International Education Studies, 2, 2
Pau AKH, Croucher R: (2003) Emotional intelligence and perceived
stress in dental undergraduates. J Dental Education , 67(9):1023-28.
Prez ZA; (2009) Evaluating Emotional Intelligence in the Workplace:
A selected sample, University of Puerto Rico, ISBN 1109304803
9781109304800
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Razzak J, & Arthur L. Kellermann; (2002) Emergency medical care in

developing countries: is it worthwhile?, Bull World Health Organ, 80,
11
Salovey, P., & Mayer, J. D. (1990) Emotional Intelligence. Imagination,
Cognition and Personality, 9(3): 185-211
Shih CP & Hsu KH. (2007) The construct validity of emotional
intelligence (EI) measurement among medical staffs of an emergency
room in Taiwan. The XVII ACME international conference on pacific
rim management, Las Vegas, USA. July 12-14.
Stratton, T. D., Elam, C. L., Murphy-Spencer, A. E., & Quinlivan, S. L.
(2005). Emotional intelligence and clinical skills: preliminary results
from a comprehensive clinical performance examination. Academic
Medicine, 80 (10): S34-S37.
Sovie, M.D. & Jawad, A.F. (2001). Hospital restructuring and its impact
on outcomes: Nursing staff regulations are premature. Journal of
Nursing Administration, 31(12), 588-600.
Viriyavidhayavongs V, Jiamsuchon S; (2001); The Relationship
between Emotional Quotient (EQ) and Leadership Effectiveness in
Life Insurance Business Organizations, ABAC Journal, 2, 1-12
Weng HC, Chen CH MD, MS, Han-Jung Chen, MD, PhD, Shu-Ching
Chi, RN, MS, (2008); Emotional Intelligence competencies in Physician
Leaders: An exploratory Study, Taiwan, Department of Health
Management, I-Shou University; Medical Education, 42: 703711
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Research
AFRs FOR MSEs in Pakistan Challenged By IFRs for SMEs
AFRs FOR MSEs IN PAKISTAN

(2006) CHALLENGED BY IFRs
FOR SMEs (2009)
Department of Commercial and Professional Studies
Institute of Business Management,(IoBM), Karachi
Abstract
This research paper shows that the AFRS for SMEs, introduced
by The institute of Chartered Accountants of Pakistan (ICAP) in 2006,
served a very useful purpose by providing a framework, which was less
onerous than the International Accounting Standards (IAS) to comply with,
but at the same time included the key elements required to provide clarity,
transparency and comparability of the financial statements, to investors
and other users. However, with the release of IFRS for SMEs, by the
International Accounting Standards Board (IASB) in 2009, the earlier
introduced AFRS for SMEs have become albeit redundant.
Key words: Accounting Financial Reporting Standards (AFRS) for Medium
Sized Entities (MSEs) and Small Sized Entities (SSEs), International Financial
Reporting Standards (IFRS) for Small and Medium Sized Entities (SMEs),
International Accounting Standard Board (IASB), The Institute of Chartered
Accountants of Pakistan (ICAP)
JEL Classification: M410
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Research
Introduction
AFRS for Medium Sized Entities (MSEs) and Small Sized
Entities (SSEs) were approved, by the Council of ICAP on July 28,
2006, and is applicable on or after July 1, 2006. As stated in the
preamble This Framework sets out the conceptual basis for the
preparation of general purpose financial statements of Medium-Sized
Entities (MSEs). The said Standards have been notified by the
Securities and Exchange Commission of Pakistan (SECP), and
compliance is mandatory, for qualifying companies registered under
the Companies Ordinance 1984.
The Standards are in two parts, one for MSEs and the other
for SSEs. The Standard for MSEs has 17 sections spread over 104
pages (refer Annexure 1) whereas the Standard for SSEs has 50 clauses
and are spread over just 5 pages. Clause 14 of the Framework, that
precedes the Standard for MSEs, suggests that where a transaction
falls outside this Standard, guidance be obtained from International
Accounting Standards (IAS) and International Financial Reporting
Standards (IFRS) and related documents. Clause 22 of the Standards
for SSEs suggests that where transactions and events fall outside
this Standard guidance be obtained from the Standard for MSE. For
the purposes of this paper and for comparisons with IFRS for SMEs,
only the Standards for MSEs, which are more comprehensive, have
been used.
As per Clause 1 of the preamble to AFRS for MSEs headed
Qualifying Entities (QE) compliance with MSE Framework and
Standard is necessary in order to give a true and fair view . As per
Clause 2 of the QE: A Medium-Sized Entity (MSE) is an entity that:
(a) is not a company that is listed on the Stock Exchange, or a
subsidiary of such company;
(b) has not registered, or is not in the process of registering, its
financial statements with the Securities and Exchange
Commission of Pakistan (SECP) or other regulatory body, for
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the purpose of issuing any class of security in a public market;

(c) does not hold assets in trust, for an external group, financial
institution, securities broker/dealer, pension fund, mutual
fund or similar organization;
(d) is not a utility company or similar enterprise that provides
an essential service to the public;
(e) is not economically significant on the basis of criteria as
defined in the Standard; and
(f) is not an SSE as defined below.
As per Clause 3 of the QE: An entity is considered to be economically
significant if it has:
(i) sales in excess of Rs. 1 billion excluding other income;
(ii) more than 750 employees ;
(iii) aggregate borrowings (excluding creditors and accruals) of more
than Rs. 500 million.
In order to be treated as economically significant any two of the
criterion mentioned in (i), (ii) and (iii) above have to be met. The
criteria followed will be based on the previous years audited financial
statements. Entities can be delisted from this category where they do
not fall under the aforementioned criteria for two successive years.
As per clause 4 of the QE: an SSE is an entity that:
(i) has paid up total equity of not more than Rs. 25 million and
(ii) has sales not exceeding Rs. 200 million per annum, excluding other
income.
In order to be considered as an SSE, both of the above conditions
must be fulfilled.
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Problem Statement
Pakistan has been committed to implementing IAS since the
mid 1970s, and had adopted most of the 48 IASs and IFRS released by
the IASB up to the mid 2000s. However, ICAP realized that the IASs
and IFRSs adopted in Pakistan were generally much too complex and
cumbersome to implement by the MSEs and the SSEs. Thus ICAP
took the initiative to develop the AFRS for MSEs and SSEs which
were released by ICAP in July 2006 and notified by the SECP.
The IASB, also realized the need for having separate IFRS
for SMEs, and in July 2009 released the IFRS for SMEs. The latter is
designed for SMEs to meet the needs of the investors, creditors and
other users, for information about cash flows, liquidity and solvency.
It takes into account the costs, and the resources of SMEs to prepare
financial information. As per the Guide to the IFRS for SMEs issued in
March 2012, in comparison to the full IFRS there are considerable
fewer disclosures required (estimated 90% elimination), and the
standard has been written to enable easy comprehension. and facilitate
translation for various countries . To additionally lighten the burden
for SMEs, amendments to the IFRS for SMEs would be made only
once every three years.
The IFRS for SMEs were released by the IASB in July 2009.
As the name indicates these are meant for use by smaller enterprises,
and have 35 sections and a glossary of terms spread over 231 pages
(refer Annexure II).
As per Section 1 of the IFRS for SMEs, this standard is
applicable to organizations that (i) do not have public accountability*,
and (ii) publish financial statements for general use.
The basis to qualify as an SME thus depends on the nature
of the entity, and not on how big the entity is projected.
* An entity has public accountability if:
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(a) its debt or equity securities are traded in a stock exchange or it

is in the process of issuing such securities for trading in public ,
local or overseas markets or an over-the-counter transactions,
or
(b) it holds assets in a trust for an external group as one of its main
operations. This is generally done by financial institutions, stock
brokers/dealers, and mutual funds.
The AFRS for MSEs and SSEs were issued in July 2006, whereas
the IFRS for SMEs were released in July 2009; over the three years
considerable changes in accounting standards have been introduced;
consequently the latter is likely to be more up to date. Furthermore
IASB plans to carry out the required amendments to the IFRS for
SMEs every three years or so, but no such commitment has been
expressed by ICAP. Thus it is inferred that the IFRS for SMEs would
be more current and reliable and also be acceptable internationally.
Literature Review
ICAP Technical Directors presentation on IFRS (2010)
indicates that certain well established international accounting bodies,
including the Institute of Chartered Accountants in England and
Wales (ICAEW), American Institute of Certified Public Accountants
(AICIA) and the Canadian Institute of Chartered Accountants (CICA)
met in 1966. These accounting bodies decided to establish an
International Study Group (AISG) which was founded in 1967, and
initiated the publication of papers on important accounting related
topics. His presentation on IFRs (2010) further states that in June
1973 it was agreed by the AISG members to establish an International
Accounting Standards Committee (IASC) to develop and release the
accounting standards capable of rapid acceptance and implementation
worldwide. During the period 1973 to 2001 the latter released a number
of International Accounting Standards. In April 2001 the IASC was
renamed as the International Accounting Standards Board (IASB),
which commenced to release International Financial Reporting
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Standards (IFRS) in addition to the IASs already released, which

continued to be applicable, with necessary changes notified from time
to time.
Schutte and Buys (2010) in the Abstract of their paper state
that the IFRS for SMEs was meant to assist, SMEs all over the world,
but may not necessarily have an international focus. Furthermore,
SMEs from various parts of the world face different conditions and
environments. Although the IFRS for SMEs was not developed for a
specific user group, it would appear that responses to the Exposure
Draft on IFRS for SMEs were from Europe and other developed
countries, whilst only few people from Africa and developing countries
appeared interested. In conclusion they state that the main user
groups, for their research included public or tax offices; creditors
(including financial institutions); investors; and managers.
Deloitte (2010) in their publications Forward has advised
that the newly formed IASB in its transition report of December 2000
to the outgoing Board of the International Accounting Standards
Committee, said that worldwide requirement was expressed, for a less
complicated version of International Accounting Standards for small
enterprises. The IFRS for SMEs, issued by the IASB in July 2009,
responds to this demand. It is self-sufficient, designed for the needs
and resources of smaller businesses and is understandable to all.
Compared with full IFRSs (and a number of local GAAPs), the IFRS
for SMEs is written in clear, easy to comprehend and translatable in
different languages and is less complicated in many ways, including
the restricted accounting policy choices, eliminating topics that are
not required by SMEs, making the principles for recognition and
measurement easier, and making less mandatory disclosures.
Pascu and Vasiliu (2011) state with reference to the global
economic crisis, that smaller enterprises are most affected. That is the
reason that more uniformity of national legislation with the European
legislation is required. The need to implement only specifically required
standards for SMEs appeared in order to provide them a beneficial
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framework for better economic and financial market positioning. In

this context, the IASB issued in 2009 IFRS for SMEs, which attempts
at simplification of accounting procedures, reconciliation and increase
of confidence of potential investors (stakeholders). The researchers
query compatibility of these standards with the European Accounting
Directives in situations where they may choose to use IFRS for SMEs.
Ionesco and Ilincuta (2011) conclude that International
Financial Reporting Standards for SMEs have initiated one of the
steps of the accounting harmonization in the international accounting
system. The development of IFRS for SMEs takes into consideration
the needs and abilities of the small and medium enterprises, which are
estimated to constitute over 99% of all worldwide companies. IFRS
for SMEs were approved and released by IASB, in order to improve
the accounting regulations all over the world. In Europe, most of the
businesses are SMEs, and IFRSs for SMEs are simplified to
accommodate the SMEs that qualify to use these standards.
Stephen Coetzee (2007) concludes Of particular interest to
IFAC is less developed economies in which low literacy levels, lack of
accounting education and absence of computerized accounting
systems, amongst other things, may be impairing the ability of such
entities to produce fairly presented financial information in accordance
with IFRS.
Review of the field testing results carried out by ACCA in
UK in early 2008 indicated the following implications:
Overall the field tests of the 25 UK entities indicated that
conversion from UK GAAP to IFSME could be accomplished quite
easily, as there were very few variations in the accounting systems
As the field tests did not include many of the well-recognized areas
of complexity in accounting (hedging, derivatives, share-based
payments, defined benefit pension obligations etc.) this may have
been underestimated; however, these tests suffice to indicate that for
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the majority of smaller companies the overall conclusion is not

seriously erroneous.
In terms of presentational changes the requirement for a cash
flow statement for small companies will be a change, but not one that
proved noticeably onerous.
The changes in format, layout and nomenclature may be rather
less significant when example accounts are prepared based on the
existing UK practice and utilizing the flexibility in the IFSME.
There will be a new or amended disclosure requirements in
areas such as lease and related party transactions, and again these
may have been understated in these results. These do not however
appear to be on such a scale with this sample that would provide a
major obstacle to the adoption of IFSME in the UK.
Framework and Research Methodology
Develop a Research Question which is - Should AFRS for

MSEs in Pakistan (2006) be replaced with International
Financial Reporting Standards (IFRS) for SMEs (2009).
Develop a Problem Statement.
Search for related literature.
Evaluate documentation on AFRS for MSEs and IFRS for
SMEs.
Select 5 important Sections of AFRS for MSEs in Pakistan,
and consider how these differ from IFRS for SMEs to assess
the effect on Financial Statements of MSEs with respect to
(a) producing harmonious financial statements (b) providing
investors and other users adequate information for taking
effective financial decisions.
Analyze each of the selected 5 Sections of AFRS for MSEs,
in comparison with appropriate section of the IFRS for SMEs;
and draw a conclusion on each Section, whether the IFRS for
SMEs have an advantage over the former in meeting the
objective, as stated above, of using the Standards.
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Research
Prepare Appendices of Financial Statements prepared using

(a) AFRS for MSEs and IFRS for SMEs to exhibit the
differences in the two sets of Financial Statements.
Give an overall conclusion on which of the two Standards is
the preferred one and make a submission whether Pakistan
should continue with the AFRS for MSEs and SSEs or should
replace the same with IFRS for SMEs.
Analyses of important Sections of AFRS for MSEs in comparison

with IFRS for SMEs
Some of the important sections of AFRS for MSEs in Pakistan and the
IFRS for SMEs are discussed and compared below:
Presentation of Financial Statements
Section 1 of the AFRS for MSEs in Pakistan is devoted to
Presentation of Financial Statements Presentation. Clause 1.1 of this
section requires inclusion of the five main statements including (a)
balance sheet; (b) income stament; (c) statement showing either (i) all
changes in equity; or (ii) changes in equity other than those existing
from capital transactions with owners and distributions to owners (d)
a cash flow statement; and (e) accounting policies and explanatory
notes.It may be approved that above financial statements have not
been referred to by their correct revised names.
There are 11 overall considerations listed for the financial
statements, which are the regular requirements;
The Standard includes the structure and contents of the
financial statements, which are very similar to IAS/ IFRS. There are
minor differences like reduction in number of line items on the face of
the balance sheet and income statement. However, an important
omission is that there is no mention of the requirement for a Statement
of Comprehensive Income; neither is there a mention of disclosing
profit or loss/ comprehensive income attributable to non-controlling
interests and owners of parent. These items were not required at the
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time of release of the AFRS for SMEs, in July 2006, and reflects that
the latter is no longer current.
Section 3 of the IFRS for SMEs deals with Financial
Statement Presentation, and requires that the financial statements
present fairly the financial position, financial performance and cash
flows of an entity. The standard further elaborates that these include
the five main financial statements, by their revised names, including
the Notes comprising of a summary of accounting policies and
explanations to the financial figures in the statements; there is also
mention of requirement of the statement of comprehensive income.
Section 3 of the IFRS for SMEs includes requirements for
going concern (clauses 3.8, 3.9), frequency of reporting (clause 3.10),
consistency of presentation (clauses 3.11, 3.12, 3.13), comparative
information (clause 3.14), materiality and aggregation (clauses 3.16).
However, the IFRS for SMEs does not address presentation of segment
information, earnings per share, or interim financial reports (clause
3.25); an entity making such disclosures shall describe the basis for
preparing and presenting such information (clause 3.25).
It would appear that the IFRS for SMEs is more current and
more comprehensive than the AFRS for MSEs in Pakistan. It specifies
(clause 3.17) the concept of comprehensive income and other essential
reporting features such as (clause 3.14) requirement for previous
comparative results, and (clause 3.25) specific omission of certain
disclosures.
Cash Flow Statement
Section 2 of the AFRS for MSEs in Pakistan deals with the
cash flow statement, and summarizes the main features of IAS 7 in 2
pages. The AFRS mentions the three classifications of cash flow i.e.
Operating, Investing and Financing Activities, and briefly describes
in general what is to be included in these classifications. The AFRS
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(clause 2.5) also indicates that the cash flow from operating activities
is to be reflected either by the direct method or indirect method, and
describes the same.
The AFRS (clause 2.15) requires that an enterprise shall give
a Note indicating the amount of cash and cash equivalent that cannot
be used by the enterprise. However, there is no mention of what is to
be specifically disclosed in each of the three classifications of the
cash flow statement.
Section 7 of the IFRS for SMEs describes the requirements
for the statement of cash flows. It details the scope of this section,
description of cash equivalents, information to be presented in the
cash flows under its three activities. The IFRS (clauses 7.7, 7.8, 7.9)
also indicates that operating activities may be presented using either
the direct method or the indirect method, and specifies details of
these two methods.
The IFRS states (clause 7.10) that total cash flows arising
from acquisition and disposal of subsidiaries or other business units
be presented separately and classified as investing activities (as per
amendment to IAS 7 effective April 2009).
The IFRS also describes the treatment of foreign currency
cash flows, as well as specifies alternatives allowed for reflecting
interest and dividends.
Upon reviewing the above two standards, it is observed
that both the AFRS for MSEs in Pakistan and the IFRS for SMEs have
largely adopted IAS 7 as their standard, and there is no change for
the users of the respective users of these standards. However, the
IFRS for SMEs has been presented in a more comprehensive manner,
and is more current with recent changes.
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Property, Plant and Equipment

Section 3 of AFRS for MSEs in Pakistan deals with property,
plant and equipment, and includes requirements on recognition;
measurement at initial recognition, measurement subsequent to initial
recognition using the cost model and the revaluation model;
depreciation (including methods to be used); impairment; derecognition; and disclosure (including that related to revaluation).
The standard is substantially similar to IAS 16 with some differences,
where the standard specifies that methods of depreciation to be used
should be straight-line or the diminishing balance or sum of the units,
whereas the IAS 16 indicates that the depreciation method used
should reflect the pattern in which the economic benefits of the assets
are consumed by the entity. Furthermore IAS 16 in relation to
revaluation requires information to be provided on (a) how the revalued
has been arrived at, and (b) the comparative cost of the items before
revaluation.
Section 17 of the IFRS for SMEs specifies the accounting
requirement for property, plant and equipment. This section is divided
under the following headings: scope, recognition, measurement of
cost, exchanges of assets, measurements after initial recognition,
amount and depreciable period, depreciation method (in principle),
recognition and measurement of impairment; compensation for
impairment; property plant and equipment held for sale; de-recognition;
and disclosures. This standard covers in general the requirements of
IAS 16, except that the disclosure requirement for revalued property
has been left out.
Both the AFRS for MSEs in Pakistan and the IFRS for SMEs
include the general provisions of IAS 16. However the latter appears
to have covered it in a more concise manner important topics, such as
scope, exchanges of assets, amount and depreciable period,
compensation for impairment, property plant and equipment held for
sale.
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AFRS for MSEs in Pakistan specifically allows three methods

for depreciation, regardless of whether the selected method is
appropriate or not. This may result in erroneous calculation of
depreciation.
The IFRS for SMEs has deleted the IAS 16 requirements of
disclosures on revaluation, which are fairly onerous to comply with,
and should be acceptable; the SMEs do not have public accountability
and their accounts are published only for limited external use by
stakeholders who can generally obtain additional information if
required. Thus omitting disclosures on revaluation, should be
acceptable.
Intangible Assets
Section 5 in AFRS for MSEs deals with intangible assets.
This section gives guidance and requirements for recognition and
initial measurement; including, internally generated intangible asset
including the research and development phases; recognition of an
intangible item as an expense, measurement after recognition using
the cost model and revaluation model; amortization intangible assets
with finite useful lives; residual value, review of amortization period
and amortization method; intangible assets with indefinite useful life,
review of useful life assessment; review of carrying amount:
impairment losses, retirements and disposals; and disclosures.
Section 18 in the IFRS for SMEs deals with Intangible Assets
other than Goodwill, and covers topics including scope; recognition
(i) general principles and (ii) acquisition as part of a business
combination; initial measurement including (i) separate acquisition,
(ii) acquisition as part of a business combination and (iii) acquisition
by way of a government grant; exchange of assets; internally
generated intangible assets; past expenses not to be recognized as
an asset; measurement after recognition; internally generated
intangible assets; past expenses to be recognized as an asset;
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measurement after recognition; amortization over useful life;

amortization period and amortization method; Residual value; review
of amortization period and amortization method; recoverability of
carrying amount impairment losses; retirement and disposals; and
disclosures.
AFRS for MSEs in Pakistan, as well as the IFRS for SMEs
cover most of the requirements for Intangible assets, included in IAS
38. However, it would appear that Section 5 of the AFRS for MSEs in
Pakistan includes goodwill, whereas goodwill is specifically
excluded from Section 18 of IFRS for SMEs and IAS 38, and dealt
with separately.
Clause 5.6 of AFRS for MSEs in Pakistan recognizes an
intangible asset arising from the development (or from the development
phase of an internal project) upon fulfillment of certain conditions;
whereas clause 18.14 of IFRS for SMEs clearly states that all
expenditure internally incurred on research and development activities
be treated as an expense unless it forms part of the cost of another
asset that meets the recognition criteria. This conflict in criteria can
result in material difference in financial results, particularly so as there
is a very fine line of distinction between research and development
expenditure. IAS 38 permits the capitalization of development costs
under some very stringent conditions.
Inventories
Section 6 in the AFRS for MSEs deals with inventories and
includes matters relating to measurement of inventories, including
cost formulas; recognition as an expense; and disclosures.
Section 13 in IFRS for SMEs on inventories includes scope;
measurement of inventories; costs of purchase; costs of conversion;
allocation of production overheads; joint products and by-products;
other costs included in inventories; costs excluded from inventories;
costs of inventories of a service provider; cost of agricultural produce
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harvested from biological assets; techniques for measuring cost, such

as standard costing, retail method and most recent purchase price;
cost formulas; impairment of inventories; recognition as an expense;
and disclosures.
Both the standards cover the essential provisions of IAS 2.
However, it would appear that the AFRS for MSEs in Pakistan has
made the standard very brief and missed out certain important areas
which needed elaboration, as apparent from the above comparison.
Disclosure requirements are the same as required by IAS2 in both the
Standards.
Overall Conclusion
AFRS for MSEs in Pakistan were approved by the ICAP
Council in 2006, and since then there have been considerable changes
and development in the accounting field. However, no attempt has
been made to update this document, and neither is there a specific
commitment to periodically do so.
The ICAP decided to have two separate documents, one set
of standards for Medium-sized Entities (MSEs) and another document
for Small-sized Entities (SSEs). Usually Small and Medium-sized
Entities are grouped together. Having separate Standards makes
compliance more cumbersome, particularly so as those qualifying for
compliance with standards for SSEs are required to refer, for guidance,
to AFRS for MSEs in the event that a transaction falls outside the
scope of the Standards for SSEs.
The AFRS for SMEs reduce the requirement for disclosures
on the financial statements, and this makes the preparation of these
less onerous. However, this may result in some important disclosure
being omitted, which may be required by users for a business decision.
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The AFRS for MSEs suggest that where a transaction falls

outside these Standards guidance be obtained from International
Accounting Standards (IAS), International Financial Reporting
Standards (IFRS) and related documents. This provision indicates
that the Standards are not self contained, and to an extent defeats the
purpose of making it less onerous.
The qualifying criteria for the use of AFRS for SMEs are
based on both the nature and size of the entity, and thereby making
the use of the same more restrictive. There is a qualifying requirement
that not only should a company not be listed on the stock exchange,
but it should also not be an economically significant company.
Each individual section of the AFRS for SMEs does not
provide the scope of the standard, and thus at times make it difficult
for the user to comprehend whether accounting requirement for a
particular transaction or event has been intentionally omitted, and the
user is expected to refer to the IAS / IFRS for guidance. An example of
this is that Section 5 of AFRS for MSEs deals with Intangible Assets,
but the Section does not indicate whether or not the accounting
standard specified is to be used for goodwill or financial assets or
mineral rights.
The AFRS for SMEs has only 17 sections, and at times these
are not very comprehensive. Important sections have been omitted.
These include those for statement of financial position; statement of
comprehensive income and income statement; statement of changes
in equity and statement of income and retained earnings; notes to the
financial statements; consolidated and separate financial statements;
basic financial instruments; other financial instruments issues;
liabilities and equity; share-based payments; impairment of assets;
and specialized activities.
The financial statements and ratios derived as a result of
compliance with AFRS for MSEs, would be comparable only with
prior year statements of the same entity. Comparisons may not be
possible with international data as IFRS for SMEs are not used, and
Financial Statements of local MSEs are not generally available, for
comparison purposes.
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IFRS for SMEs released by the IASB in 2009, and are self
contained and fairly comprehensive. This makes it user friendly.
IFRS for SMEs are designed for use by entities that do not
have public accountability, with no limitation on size of the entity.
Thus, the standards can be used by a larger and less restrictive group.
IASB is committed to regularly update the standards, and
has the resources to do so. We understand that over 80 countries
have adopted the IFRS for SMEs or proposed to do so. These included
Nepal and Sri Lanka in South Asia. The IFRS Foundation and IASB
are providing implementation support including formal training, and
publishing a monthly newsletter, IFRS for SMEs Update.
A large number of entities would be using these standards
and thus comparative financial statements and related ratios and
statistics may be available for comparison. The international ratios
and statistics that would be available could be used as a benchmark,
after necessary adjustments, if required, for comparison.
Submission
The AFRS for MSEs and SSEs were approved by the ICAP
Council in July 2006, at which time the IFRS for SMES were not
available. However, six years have elapsed since the issue of this
Standard, which is now no longer current, and has outlived its
usefulness. It is suggested that consideration be given to replacing
this with IFRS for SMEs issued by IASB, with any modifications if
required. This would give additional credibility to financial statements
issued in Pakistan as well as enhance international credibility of the
accountancy profession in Pakistan. Now that the IASB has issued
the IFRS for SMEs and have the resources to keep these current,
Pakistan should adopt the same. The financial statements produced
in compliance with IFRS for SMEs would produce more reliable
financial statements that would be acceptable internationally, and
would not be more onerous to prepare. These would be comparable
to international financial statements, and better serve the users
including present and potential investors, management, lenders, and
others.
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References
Coetze Stephen, 2009 IFRS for SMEs IS small, small ENOUGH?
Accountancy SA; Accounting & Tax Periodicals pg. 32.
Deloitte UK GAAP, 2010 IFRS for SMEs in your pocket UK edition.
Deloitte, 2011 onwards, Summaries of IAS and IFRS.
International Accounting Standards Board (IASB), Illustrative Financial
Statements and Presentation and Disclosure Checklist accompany the
International Financial Reporting Standard for Small and Medium-sized
Entities.
IASB, 2012, A Guide to the IFRS for SMEs IASB
IFRS Foundation; issues for January, February and March 2012
IFRS for SMEs update.
International Accounting Standards Board (IASB), 2009 International
Financial Reporting Standard (IFRS) for Small and Medium-sized
Entities (SMEs).
Ionescu, Cicilia, 2011, International Financial Reporting Standards
For SMES, Professor PhDFaculty of Financial-Accounting and
Management Bucharest Spiru Haret University Lucian Dorel
ILINCU, Lecturer PhD. Faculty of Financial-Accounting and
Management Bucharest Spiru Haret University.
Pascu, Ana-Maria, 2011 International Financial Reporting Standard
For Small And Medium-Sized Entities- A New Challenge For The
European Union Alexandru Ioan Cuza University of Iai CES Working
Papers, III, (1).
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, Danie and Buys, Pieter, 2011, A Critical Analysis Of The

Contents Of The IFRs For SMEs -A South African Perspective School
of Accounting Sciences, North-West University Accepted October
2010. South African Journal Economic and Management Sciences, Vol
14, No. 2.
The Institute of Chartered Accountants of Pakistan, July 2006,
Accounting and Financial Reporting Standards for Medium - Sized
Entities (MSEs) and Small - Sized Entities (SSEs).
The Institute of Chartered Accountants of Pakistan, 2009, Financial
Statements Disclosure Check List for Medium Sized Entities.
Zindagi Trust Annual Report for 2008-09, including Financial
Statements prepared in accordance with AFRS for MSEs, and audited
by A.F. Ferguson & Co.
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ANNEXURE I
CONTENTS
Accounting and Financial Reporting Standard for Medium-Sized
Entities (MSEs)
Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... . . . . 1
Qualifying Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..7
Sections
1. Presentation of Financial Statements . . . . . . . . . . . . . ... .. . . . . . 9
2. Cash Flow Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . 19
3. Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . .21
4. Leases . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .. . . . . 29
5. Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .33
6. Inventories . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . ... . . . . 41
7. Accounting for Government Grants and Disclosure of
Government Assistance . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . 43
8. Provisions, Contingent Liabilities and Contingent Assets . . . . . 45
9. Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... ... . . . . . 51
10. Borrowing Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... . . . . 55
11. Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . .57
12. Accounting Policies, Changes in Accounting Estimates
and Errors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
13. The Effects of Changes in Foreign Exchange Rates . . . . . .. . . . 65
14. Events after the Balance Sheet Date . . . . . . . . . . . . . . . . . . .. . . . 67
15. Related Party Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
16. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 75
17. Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 81
Annexures
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
2 . Examples . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . .... . . . .97
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ANNEXURE II
IFRS FOR SMES JULY 2009
CONTENTS
INTRODUCTION
INTERNATIONAL FINANCIAL REPORTING STANDARD
FOR SMALLAND MEDIUM-SIZED ENTITIES (IFRS for SMEs)
PREFACE ..6
Sections
1 Small And Medium-Sized Entities 10
2 Concepts And Pervasive Principles .....12
3 Financial Statement Presentation ..22
4 Statement Of Financial Position 27
5 Statement Of Comprehensive Income And Income Statement ....31
6 Statement Of Changes In Equity And Statement Of Income
And Retained Earnings 34
7 Statement Of Cash Flows ..36
8 Notes To The Financial Statements .41
9 Consolidated And Separate Financial Statements .43
10 Accounting Policies, Estimates And Errors ..49
11 Basic Financial Instruments .54
12 Other Financial Instruments Issues 69
13 Inventories .....76
14 Investments In
Associates........................81
15 Investments In Joint Ventures ....85
16 Investment Property .....89
17 Property, Plant And Equipment ...92
18 Intangible Assets Other Than Goodwill 98
19 Business Combinations And Goodwill 104
20 Leases ..... 110
21 Provisions And Contingencies 118
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Research
Pay Satisfaction And Organizational Commitment
PAY SATISFACTION AND

ORGANIZATIONAL
COMMITMENT IN UNIVERSITY
FACULTY
Nadia Ayub (Dept of Psychology), Shagufta Rafif (Dept of Management),
Institute of Business Management, (IoBM), Karachi Pakistan
Shahid Iqbal
Dept of Psychology, Federal Urdu University
Karachi, Pakistan
Abstract
This study highlights the role of pay satisfaction and
organizational commitment in faculty of different private business
universities located in Karachi, Pakistan. Based on previous literature,
it was assumed that pay satisfaction will predict organizational
commitment. A survey of 80 faculty members (47 males and 33 females)
of different private business universities was conducted. To assess
pay satisfaction, Pay Satisfaction Questionnaire (PSQ; Heneman, &
Schwab, 1985) was used. The Organizational Commitment
Questionnaire (OCQ; Mowday, Steers, & Porter, 1979) was employed
to assess organizational commitment. Linear regression analysis
suggests that pay satisfaction influences organizational commitment
among business university faculty.
Keywords: Pay satisfaction, Organizational Commitment, Private
Sector University
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Introduction
Private sector universities are facing challenges in retaining
the faculty and research findings also highlighted this view. Sumita
(2004) emphasizes that to maintain workforce has remained a problem
for the human resource management specialists. According to Lavy
(2007), Variety exists in terms of working conditions, pay packages,
recognition, fringe benefits, and incentives. The influence of these
variables on organizational commitment is significant to investigate
in educational organizations, particularly universities which are
responsible for educating the intellect of the countries. Faculty is an
essential part in educational structure which holds a variety of
responsibilities. In particular, performance of universities is based on
their teachers and their level of commitment. This commitment can be
influenced by different variables and pay satisfaction is one of the
imperative variables. Therefore, understanding the relationship among
faculty pay satisfaction and commitment require more consideration
in higher education institutions. This research was an attempt to
explore the role of pay satisfaction on organizational commitment
among private business universities faculty of Karachi.
Pay or salary is a periodic reimbursement from an employer
to its employees, which is clearly stated in workers agreement. Pay is
believed to be single most imperative organizational compensations
(Heneman & Judge, 2000). It is evaluated with portion of pay, where
every work, time of job or other piece of work is compensated on a
periodic basis. Pay is conceivably prominent element to the majority
of individuals as it proposes them a corresponding level of purchasing
power. Wage, salary or pay is considered a significant reward to
motivate the workers and their behavior towards the goals of employer
(Oshagbemi, 2000). Pay dissatisfaction can lead to job dissatisfaction,
turnover, less interest in their work, more absenteeism, decreased
motivation and low commitment level with organization. It is also
extensively studied that pay satisfaction positively influences overall
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organizational contentment, motivation and performance which leads

to less absenteeism and turnover behaviors of employee (Judge,
Cable, & Higgins, 2000).
In modern times, it is growing and in development process
for private and public organizations to apply further innovative and
enthusiastic course of actions of pay incentive. In Pakistan, public
sector university faculties have been paid on a grade based scales or
tenure track system. Whereas, private sector university faculties have
been paid on some predetermined standards set by the institutes
independently. Performance based salary also increases pay
satisfaction. According to Clark and Oswald (2002), the receiving of
performance-based rewards include pay increases, bonuses,
absolutely affected pay-system responses. So, they recommended
that founding a pay-for-performance salary scheme may be the most
active way to encourage pay satisfaction.
Organizational commitment has emerged as a promising area
of research within the study of industrial/organizational psychology
in recent time (Adebayo, 2006; Meyer & Allen, 1997; Morrow, 1993).
It is an employees level of identification and involvement in the
organization (Mullins, 1999). A three dimensional construct of
commitment was proposed by Meyer & Allen (1991) which was
comprised of normative commitment, affective commitment, and
continuance commitment. In affective commitment, workers work with
great dedication on voluntary basis. Meyer & Allen (1997) suggest
that employees with high affective commitment have the high emotional
attachment, involvement and identification with the organization, and
therefore are not likely to leave. Continuance commitment makes sure
that workers maintain their organizational association; nevertheless,
those who are normally committed generally experience commitment
on their part to remain in the organization. Each of these three
commitments are independent types of commitment experienced at
different levels by all individuals of an organization.
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Teaching is the vocation that is shaping learning and molding the

talents of the potential workers and place for the groundwork for highquality. Teaching is a profession which requires determination and
dedication. In this framework, university teacher organizational
commitment can be analyzed as: (1) His or her firm confidence in and
approval of the university values and goals; (2) Readiness to apply
dedicated efforts for the university; and (3) Strong aspiration to sustain
his or her university membership.
Teaching requires a great deal of commitment and carefulness,
thus in teaching it is more important to have loyalty and mental
commitment than physical appearance. Teacher commitment has been
acknowledged as one of the most significant features for the future
accomplishment of learning. It emerges that a professional requirement
for teachers to be emotionally committed to their work, because
without this emotional relation, teachers will experience the constant
risk of burnout in an increasingly intensified works condition. In
academics, high levels of dissatisfaction exist due to compensation
related factors of the job (for example, pay, fringe benefits, and
performance standard). Moreover, the pay level of public and private
sector employees in Pakistan is one of the sources of less commitment
with their jobs. Previous literature also suggests positive association
between pay satisfaction, commitment, motivation and performance.
Employees who get performance based salaries experience more
commitment, satisfaction in their work, esteem, and feeling of
belongingness.
High level of commitment will consequently lead to lower
absenteeism, less intention to leave the workplace. In turn, the
employees will be able to make more positive contributions towards
organizational effectiveness (Chen & Chen, 2008; Liu, Fellows, & Chiu,
2006). It is considered that faculties who are committed are those who
dedicate themselves completely to the teaching profession and to the
educational organization. They exert effort to the optimum level.
Organizationally-committed teachers are satisfied teachers who display
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regularity and truthfulness. They have a good record of attendance

and are willing to adhere to university policies.
On the basis of some related literature review following
hypothesis was formulated that pay satisfaction will predict
organizational commitment among faculty in private sector business
universities.
Methods
Sample
This study took a sample of 80 faculty members (47 males &
33 females) of different private business universities of Karachi,
Pakistan. Fifty seven percent of the participants were married, 34.4%
were single, and 8% were divorced. They were from 22 to 77 years old,
with an average age of 39 years. The participants were divided into
following academic positions: lecturers (35.75%), senior lecturers
(19.4%), assistant professors (8.75%), associate professors (13.2%),
professors (8.8%), and senior fellows (15%). Academic qualifications
of the participants were as follows: Masters (70.4%), MS/M.Phil
(21.6%), and PhD (8%). The average income of the faculty members
was more than Rs 60,000, within a range from Rs 20,000 to 60,000.The
length of service ranged from less than one year to more than five
years, with an average of more than five years of service
Measure
A demographic form was developed that includes information
about age, gender, income level, length of service, and marital status.
Pay Satisfaction Questionnaire (PSQ; Heneman & Schwab, 1985)
consists of 18 items relating to the compensation was used to asses
pay satisfaction faculty. Participant rated their responses on a 5point rating scale (very dissatisfied=1, to very satisfied=5). Overall,
coefficient alpha reliability was 0.89.
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Organizational Commitment was assessed by using, The

Organizational Commitment Questionnaire (OCQ; Mowday, Steers,
& Porter, 1979). It is a 7-point Likert scale ranging from strongly
disagree (1) to strongly agree (7). The OCQ measures individuals feeling
about their organization. In this sample the reliability coefficient was
0.77.
Procedure
All participants were given a brief introduction about the
study and a written consent was taken. Then questionnaires were
distributed to faculty members from various reputed private business
universities of Karachi who completed them manually. The data was
collected individually. Participation was voluntary and the responses
were anonymous. All study participants were informed that their
information would be kept confidential. All respondents were required
to fill in a demographic form which includes information on age, gender,
income level, length of service, and marital status. The researcher
gave guidelines for the Pay Satisfaction Scale (PSQ; Heneman &
Schwab, 1985) and Organizational Commitment Questionnaire (OCQ;
Mowday, Steers, & Porter, 1979).
Statistical Analysis
Descriptive statistics was applied for all demographic
information. Linear Regression Analysis was employed to test
hypothesis that Pay satisfaction will predict organizational
commitment among faculty in private sector business universities.
The finding indicate pay satisfaction as a statistically significant
predictor of organizational commitment [(R =.103, F (1, 78) = 8.930, p
<.05)] in faculty of private sector business universities. In addition,
linear regression analysis was also applied on three elements of
organizational commitment (i.e., affective, continuance, normative).
Among three elements of organizational commitment, the statistical
analysis suggests that affective commitment significantly predicts
770
Research
pay satisfaction [(R =.113, F (1, 78, 79) = 9.905, p <.05)], while
continuance commitment [(R =.010, F (1, 78, 79) = .790, p e.05)] and
normative commitment [(R =.016, F (1, 78, 79) =1.261, p e.05)] reveal
insignificant prediction with pay satisfaction.
Results
Table 1 Demographic Information of respondents
Demographic Variables
Percentage
%
Demographic Variables
Qualification
Masters
MS/M.Phil
PhD
70.4%
21.6%
8%
Length of
Service
Gender
Female
Male
58.75%
41.25%
Marital Status
Income Level
20,000 -30,000 Rs
31,000-40,000 Rs
41,000-50,000 Rs
51,000-60,000 Rs
61,000 Rs or above
20.6%
32%
18%
12%
17.4%
Designations
Less than One year

1-2 Years
2-3 years
3-4 Years
Mor e than 5 years
Married
Single
Divorced
Lecturer
Senior Lectur er
Assistant Professor
Associate Professor
Professor
Senior Fellows
Percent
age %
19.6%
12.8%
24.4%
16%
27.2%
57.6%
34.4%
8%
35.75%
19.4%
8.75%
13.2%
8.8%
15%
Note. Demographic information of participants in percentage.
Table 2 Summary of Linear Regression with Pay Satisfaction as

predictor of Organizational Commitment among private sector
business universities faculties
Dependa ble Variable
R2
Adj R
Organizational Co mmitment
.321
.103
.091
df= 78
a.
b.
771
Predictors: (Constant), Pay Satisfaction

Dependent Variable: organizational Commitment
Research
Table 3 Analysis of Variance for Linear Regression with Pay satisfaction

as predictor of Organizational Commitment among private sector
business universities faculties
Model
SS
df
MS
Regression 588.528
1
588.528
Residual 5140.672
78
65.906
Total
5729.200
79
a . Predictors: (Constant), Pay Satisfaction
b. Dependent Variable: organizational Commitment
Organizational
Commitment
F
8.930
Sig
.004
Table 4 Coefficients for Linear Regression with Pay Satisfaction as

predictor of Organizational Commitment among private sector business
universities faculties
Model
Un-standardized
Coefficient
B
SE
Constant
19.166
3.608
Pay Satisfaction
.207
.069
Standardize
Coefficient
Sig
5.3 12
.000
2.9 88
.004
Organizational
Commitment
.3 21
a. Dependent Variable: organizational Commitment
Table 5 Summary of Linear Regression with Pay Satisfaction as

predictor of Organizational Commitment (Affective, Continuance,
Normative) among private sector business universities faculties
R
R2
Affective Commitment
.336
.113
.101
Continuance Commitment
.100
.010
-.003
Normative Commitment
.126
.016
.003
Dependable Variable
Adj R
df= 78
a. Predictors: (Constant), Affective Commitment, Continuan ce
Commitment, Normative Co mmitment
b. Dependent Variable: Pay Satisfaction
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Research
Table 6 Analysis of Variance for Linear Regression with Pay

satisfaction as predictor of Organizational Commitment (Affective,
Continuance, Normative) among private sector business universities
faculties
Model
SS
df
MS
Regression 1538.188
1
1538.188
Residual 12112.800
78 155.2992
Total
13650.988
79
Regression
136.810
1
136.810
Continuance
Commitment
Residual 13514.177
78
173.259
Total
13650.0988 79
Regression
217.113
1
217.113
Normative
Commitment
Residual 13433.874
78
172.229
Total
13650.988
79
a. Predictors: (Constant), Affective Commitment, Continuance
Normative Commitment
b. Dependent Variable: Pay Satisfaction
Affective
Commitment
F
9.905
Sig
.002
.790
.377
1.261
.265
Commitment,
Table 7 Coefficients for Linear Regression with Pay Satisfaction as

predictor of Organizational Commitment (Affective, Continuance,
Normative) among private sector business universities faculties
Model
Pay Satisfact ion
Un-standardized
Coefficient
Standardize
Coefficient
Sig
6.960
.000
SE
Constant
35.275
5.0 69
Affective
Constant
.518
45.991
.165
5.4 05
.336
3.147
8.509
.002
.000
Continuance
Constant
.154
43.015
.173
6.9 24
.100
.889
6.213
.377
.000
.200
.126
1.123
.265
Pay Satisfact ion
Pay Satisfact ion

Normative
.224
a. Dependent Variable: Pay Satisfaction
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Research
Discussion
The main hypothesis of this study was to explore that whether
pay satisfaction would predict organizational commitment among
faculty in private sector business universities of Karachi. The statistical
analysis [(R =.103, F (1, 78) = 8.930, p <.05)] of current study revealed
that pay satisfaction emerges as one of the significant variables which
appreciably contribute in organizational commitment of faculty
members. The result are in line with numerous preceding findings
which suggest that pay satisfaction has a positive influence on
organizational commitment (Heneman & Judge, 2000; Lee & Martin,
1996; Shapiro & Wahba, 1978). Furthermore, this contention has been
supported in a meta-analysis (Mathieu & Zajac, 1990) and various
empirical studies (Huber, Seybolt, & Veneman, 1992). In other words,
people with a high level of pay satisfaction are highly committed to
the organization, (Cohen-Charash & Spector, 2001; Hom & Griffeth,
1995).
The rationale of the current finding is that the mean age of
the sample group (i.e. 39 years) highlights that young university faculty
has a higher organizational commitment when pay satisfaction is also
high. This postulates that the young faculty does not regard teaching
as a rewarding profession in terms of salary and remuneration. The
recent rise in pay scale of university faculty in Pakistan has given a
boost to facultys higher satisfaction with remuneration. This higher
level of monetary satisfaction with the job resulted in higher
organizational commitment. Academically inclined, the young faculty
relates prestige, monetary rewards and prospects of professional
growth to university teaching. They feel that they are well-placed in
society as teachers of universities. Moreover, once committed to
university teaching, they show commitment to their chosen university.
Additionally, regression analysis was performed to explore
which of the three dimensions of organizational commitment (affective,
continuance, normative) signified pay satisfaction. Results suggest
that only affective commitment is a proven statistically significant
predictor of pay satisfaction. The possible reasons of this findings is
that affective commitment will be associated to the affective part of
pay satisfaction because affective commitment assesses an employees
attachment to the organization apart from its instrumental or economic
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Research
worth (Buchanan, 1974). An individual is not attached to the

organization due to what the organization gives the employee in
exchange for work, but because of their identification and involvement
in the organization (Porter, Steers, Mowday, & Boulian, 1974). This
involvement and identification in the organization may be related to
employee satisfaction with the methods used to determine pay. In
contrast, continuance commitment is based on an individuals
perception that he or she has sunk costs in the organization that
cannot be recovered if he or she leaves the organization (Allen &
Meyer, 1990). Similarly to turnover intentions, an employee will
evaluate his / her present condition in the organization. If this
estimation proposes that the existing state is the greatest, an employee
experiences superior intensity of continuance commitment. If other
alternatives are more attractive, continuance commitment will drop.
Part of this purpose will relate to satisfaction with procedures used to
determine pay in the organization.
There are some limitations like other researches. The data
was collected only from private sector business universities faculties
of Karachi. Although these private sector business universities were
diverse with respect to demographic information, qualifications, pay
scale, designation, age, and length of service, it is still one sector.
Therefore, the findings cannot be generalizable to public sector
university faculties. Future studies should investigate the pay
satisfaction and organizational commitment of public sector university
faculties. Since self-report questionnaires were used in the study
there was a possibility of business in them. For future research other
scientific method may be used to reduce risk of business.
The implications of the finding suggest that if university
management is concerned in retaining faculty members, it is important
to focus on increasing pay satisfaction. In todays highly competitive
environment, performance based pay is very important in enhancing
facultys job commitment level. Gerhart & Milkovich (1992) suggest
that satisfaction with pay has significant effect on group and
organizational outcomes and individual. The management should
design training programmes for young faculty in which experienced
faculty should mentor them to increase organizational commitment.
In particular, university management should provide essential facilities
and encouraging work environment. They should take actions for the
well-being of the faculties and organizational commitment. In addition,
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the results can be used in designing polices for improving

organizational commitment.
Conclusion
In summary, the aim of the research was to analyze the role of
pay satisfaction on organizational commitment. The findings of the
study support this view that the pay satisfaction predicts
organizational commitment. The results further support that affective
commitment is significantly associated with organizational commitment.
Thus, the effort into the development of pay satisfaction consequences
among university faculty will encourage other investigators to
construct on its groundwork sequentially to expand a better perceptive
of pay satisfaction on organizational commitment.
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Research
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Gerhart, B., & Milkovich, G. T. (1990). Organizational differences in
managerial compensation and financial performance. Academy of
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Hom, P., & Griffeth, R. (1995). Employee Turnover, South-Western

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Judge, T., Cable, D., & Higgins, C. (2000). The employment interview:
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Research
Feasibility Of Application of IFRS On Companies
FEASIBILITY OF APPLICATION
OF IFRS ON COMPANIES
OPERATING IN DEVELOPING
COUNTRIES WITH FOCUS ON
PAKISTAN
Mehboob Moosa
Department of Accounting & Finance
Abstract
This study examines the feasibility of application of
International Financial Reporting Standards (IFRS) on companies
operating in developing countries with focus on Pakistan. It has
been a challenge to present financial information in a manner
understandable globally to the users of financial statements. In this
respect, IFRS has become the only globally accepted source of uniform
understanding to follow in the presentation of financial information.
This study strongly recommends application of IFRS which is not
easy for a swift process because of the current non-availability of
human capital trained to apply IFRS in required volume. Implementing
IFRS will need revision in presentation of accounts, revision in
different accounting policies and disclosure requirements. A very
crucial aspect of the application of IFRS is that it brings more
transparency to the presentation of financial information which
necessitates greater measure of integrity of the accountants and
auditors.
Keywords: IFRS, IAS, IASC, IASB, ICAP, ICMAP.
JEL Classification: G000
780
Research
Introduction
The present study examines the feasibility of application of
International Financial Reporting Standards (IFRS) with the objective
of studying the challenges and risks specific to companies operating
in developing countries with focus on Pakistan in implementing IFRS.
IFRS is considered a principles based set of standards in
that it establishes broad rules and specific treatments for different
issues in accounting.
International Financial Reporting Standards comprise:
International Accounting Standards (IAS) issued before the
year 2001
International Financial Reporting Standards (IFRS) issued
after the year 2001
Interpretations given on different issues by Standing
Interpretations Committee (SIC) issued before 2001
Interpretations originated from the International Financial
Reporting Interpretations Committee (IFRIC) issued after the
year 2001
Framework for the Preparation and Presentation of Financial
Statements
II
Literature review
In this part of the paper, we shall study the results of

application of IFRS in developing countries. Nobes (1998) identified
various points about the appropriateness of IFRS for developing
countries. He was of the opinion that implementing IFRS in developing
countries may not be appropriate, specially IASs 22 to 38 may be
irrelevant, as far as presenting the financial information for taxation
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purposes is concerned. He stated that due to under-developed

accounting profession in developing countries, the judgmental and
interpretation aspects of IFRS may not be appropriately dealt with.
In their study of 1996, Garrod and McLeay explained how
the states have implemented the accounting systems to meet the
demands of corporate sector as well as governments demands for tax
collection. They also explained the way governments have obtained
the objectives of financial reporting which are not in conformity with
the presentation requirement of IFRS. They explained the problems
of maintaining the appropriate balance between state and profession
in the regulation of accounting systems and policies and the reporting
formats required by IFRS.
In 1997 in Kenya, the Council of the Institute of Certified
Public Accountants decided to implement IASs (now IFRSs) for all
the accounting periods commencing on or after 1st January1999 but
potential problem arose due to lack of developed accounting
profession to interpret and apply the more judgmental aspects of
IFRS. When an entity has to prepare its financial statements in
accordance with IFRS, it must ensure that the financial statements are
in accordance with all the applicable IFRSs.
Many developments have been made in Kyrgyzstan
pertaining to its statutory framework for reporting financial information
to the users of financial statements. They made changes in the Laws
of Accounting (2002) which required the companies to prepare their
financial statements on the basis of IFRS. The also issued the decree
of Government on IFRS which required the companies to implement
the IFRS gradually in preparing the fianancial statements, but they
lack in adopting the IFRS when the IFRS as and when they are
revised.
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Research
In this study in 2009, Mustafayev stated that due to lack of

desired level of development of accounting profession in developing
countries, the problem of implementing IFRs will continue in future.
He suggested that those interested in implementing the IFRS in
reporting format of financial information must bring in the solution
acceptable to the users of financial statements. He suggested that
those interested in implementing IFRS must get an inside access to
the standard-setting process to achieve this aim, because there are
possible advantages of adopting IFRS from the perspectives of
investors and adopters. These advantages have been summarized in
an attached Annexure A.
Research Limitations The above literature review limits
the research on implementation of IFRS on companies operating in
developing countries to the documentary analysis and therefore is
subject to the known limitations of published project documentation
in accounting standard-setting.
In this part of the literature review, we shall study the effects
of introducing IFRS on different areas of financial statements.
In a study by Cifuentes in 2006, he showed that about 70%
companies who have adopted IFRS for implementation usually buy
back their preference shares or change the category of preference
shares in such a way that the classification of preference shares as
equity is maintained. He concludes that IFRS did not only lead to a
decrease in the use of financial instruments that otherwise would
have added to the capital structure diversity but also changes firms
real capital structure.
In their study in 2008, Daske and Hail argued that the reporting
requirement of IFRS with reference to capital structure will change the
current format of reporting thereby resulting in the increase of market
liquidity of a company. A companys decrease in cost of capital and
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Research
increase in the valuation of equity based capital structure will be

seen on implementation of IFRS based reporting of financial
information.
In 2008, Carmona and Trombetta after studying and
assessing the application of IFRS on the principles based system and
suggested that a principles bases approach to the IFRS and its inner
flexibility would enable the application of IFRS in developing countries
with different accounting assumptions and varied conditions of the
companies applying IFRS for their corporate reporting. They also
argued that the above mentioned approach changes the exposure of
professional accountants and their academic education and extended
training in the professional audit companies.
In 2009, Ramanna and Sletten studied over hundred countries
in order to verify whether they are IFRS compliant or not and found
that the developed countries are less willing to adopt IFRS because
in this case they have to surrender their own standard setting
authority to an international standard setting body i.e. International
Accounting Standard Board (IASB). Moreover, they found that the
companies of a country, which is located in a geographical region
where other countries are IFRS compliant, are more willing to implement
IFRS requirements in their corporate reporting.
In 2009, Lantto and Sahlstrom studied that which accounting
ratios are affected if the financial statements are presented with the
reporting requirements of IFRS. They found that application of IFRS
is corporate reporting that increases the operating ratios and decreases
the turnover ratios. They concluded that the implementation of IFRS
changes the key accounting ratios of the companies.
III
Challenges faced by Pakistan in the application of IFRS
Pakistan has the same challenges to face as are faced by other

developing countries in the implementation of IFRS. All the
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companies that are required to implement IFRS in their financial

reporting do not have the professionally qualified people who may
appropriately comprehend and interpret the true requirement of the
IFRS due to lack of desired level of judgmental aspects needed to
apply IFRS.
Even after the introduction of IFRS, the accountants and
auditors will continue to face the challenges in the application of IFRS.
As a result of this application, the users will need to understand the
far wider financial reporting issues and it will extend to various
significant business and regulatory matters like training of employees,
tax planning, and modification of IT system and so on.
In Pakistan, the local laws are inspired by IFRS, therefore only few
differences exist between Pakistans local laws and the requirements
of IFRS for financial reporting. However, the serious efforts are needed
to bring the local laws in line with the requirements of IFRS. Attached
Annexure B details the differences between the requirements of local
laws and IFRS along with the comments of ICAP on this. (Pakistan
Accountant: July-Sept2009)
The accounting professionals feel that the biggest risk in converging
Pakistans local laws with the IFRS is the underestimation by the
accountants of the complexities involved in the application of IFRS.
Although implementation of IFRS by companies operating in Pakistan
will create some teething problems, for example, the introduction of
concepts such as present value and fair value. There will be differences
in the interpretation of IFRS with reference to the measurement and
recognition of certain financial statement items. Moreover, the
adjustments that are made through court schemes are not recognized
by the IFRS, therefore these adjustments would be required to be
made through income statements. The reporting requirements of IFRS
also differ in treating the premium expense paid on redeeming the
debentures, discount expense and underwriting commission expense
paid on issuing the debentures.
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The application of IFRS will also change the definition and

concept of equity which will result in treating the interest received on
hybrid capital as dividend. Therefore, it will be challenging for the
companies intending to implement IFRS in their corporate reporting
to keep the proper pace with the application of IFRS.
VI. Successful implementation
In order to bring harmony in accounting policies and
disclosure requirements in line with the global standards, the
companies operating in Pakistan must implement the IFRS. They must
realize that Pakistan is a part of global economy and it has witnessed
a good growth with the globalization and this growth has helped the
companies operating in Pakistan to raise funds from international
capital market. Therefore, the accounting professionals emphasize
on facing the challenges that may be faced by the Pakistani companies
in applying IFRS for their financial reporting.
The government should also play a vital role in getting the
companies operating in Pakistan implement the IFRS by explaining
the effects of IFRS compliant financial reporting on direct and indirect
taxes. It must provide appropriate guidance to companies from the tax
perspective.
The accountancy professional institutions like ICAP and
ICMAP must make special efforts to train and upgrade their members
to be able to appropriately apply IFRS in their companies financial
reporting. ICAP has taken initiative in this regard by giving awards to
companies converging into IFRS compliant reporting of their financial
statements. The list of companies awarded by ICAP for their best
credit rating has been attached as Annexure C.
Successful implementation of IFRS would require companies
to fully use IFRS as their basis of daily primary financial reporting as
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well as for performance tracking in the form of budgets, forecast and

management accounts. IFRS requires industry specialization. But due
to lack of industry specific guidance in IFRS and general reliance on
Pakistans local laws, there are no industry specific themes in IFRS.
Implementation in other countries has not revealed any visible pattern
in industry wise adoption of these standards. There is need to improve
upon the disclosures which may help to view financial statements not
only from compliance perspective but also as a way of communicating
and explaining performance.
At a later stage, it should be made compulsory for the companies
to prepare IFRS compliant statements along with Pakistans local laws
compliant statements so that the likely problems can be traced in
advance and corrected as far as possible. In this connection, review
of differences made by ICAP between Pakistans local laws and IFRS
is vital. (Refer Annexure C) (Pakistan Accountant:July-Sept2009)
V
Suggestions
In order to bring the harmonization in the financial reporting by all

the companies operating in Pakistan, the accounting professionals
have given certain suggestions as follows:
1.
International Accounting Standards Board (IASB)

responsible for the finalization and issuance of IFRS must
not accept the political pressures by different interest groups
like private sector and government agencies.
2.
IASB should arrange to publicize the accounting standards

developed and should get the support from the accounting
professionals, member countries of IFAC and corporate
management all over the globe.
3.
IASB must encourage the application of IFRS to the member

bodies of IFAC and convince them to formulate and
reformulate their local laws in line with the requirements of
IFRS for uniform financial reporting globally.
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4.
The local regulatory authority should also be empowered to

issue timely directives for making changes in the reporting
formats of financial statements in order to comply with the
amendments made in IFRS by IASB
5.
The stock exchanges should be given authority to check

the application of IFRS by the companies in reporting their
financial information and take appropriate actions against
companies who do not comply with the directives issued by
the regulatory authority.
6.
The concerned regulatory authorities of the developing

countries should make the application of IFRS mandatory
for reporting financial information to the users of financial
statements.
Conclusion
In the light of global development of accounting profession,
it is strongly recommended that not only Pakistan but the entire
developing countries must implement the requirements of IFRS for
financial reporting. Although this implementation will not be a swift
and painless process, it will bring in conformity with the global
standards of reportig financial information to the users of financial
statements. For example, application of IFRS will require change in
accounting formats, change in different accounting policies as well
as change in disclosure requirement. Therefore, those responsible
for financial reporting - e.g. directors of companies, Securities and
Exchange Commission of Pakistan, members, specially practicing
members of ICAP and ICMAP must contribute towards global
harmonization of financial reporting and convergence of local laws
with IFRS. They must also ensure that the subsequent amendments
in IFRS are also incorporated in the application of IFRS for financial
reporting of future periods.
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Effect on the comparability and relevance of financial reporting,
Journal of International Accounting, Auditing and Taxation, Vol.
16, No.2, pp. 148178.
Damant, D., (2006). Discussion of International Financial Reporting
Standards (IFRS): pros and cons for investors, Accounting and
Business Research, Vol. 36, pp. 29-30.
Daske, H., Gebhardt, G., (2006). International Financial Reporting
Standards and experts perceptions of disclosure quality, Abacus,
Vol. 42, No. 3-4, pp. 461-498.
Daske, H., Hail, L., Leuz, C., & Verdi, R., (2008). Mandatory IFRS
reporting around the world: early evidence on the economic
consequences, Journal of Accounting Research, Vol. 46, No.5, pp.
1085-1142.
Giner, B., Rees, W., (2005). Introduction to special section on IFRS
adoption, European Accounting Review, Vol. 14, No. 1, pp. 95-99.
Goodwin, J., Ahmed, K., (2006). The impact of international financial
reporting standards: does size matter, Managerial Auditing
Journal, Vol. 21 No. 5, pp. 460-475.
http://www.icap.org.pk BCR awards 2010
Pakistan Accountant: July-Sept2009
Lopes, P.T., Viana, R.C., (2008). The transition to IFRS: disclosures
by Portuguese listed companies,
Working Paper no 285,
University of Porto, (Previous version presented at the European
Accounting Associations conference,Lisbon, Portugal, May 2007:
1-21.)
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Spathis, C., Georgakopoulou, E., (2007). The adoption of IFRS in South

Eastern Europe: the case of Greece, International Journal of
Financial Services Management, Vol. 2, No. 1, pp. 50-63.
Teixeira, A., (9 January 2009). International spread of IFRS: challenges
and opportunities, presentation at FARSIG symposium Vroustouris,
P., (2007). The technical support of listed companies and auditors,
strong and weak points from IFRS implementation [Translation],
Presentation at the 3rd conference The interaction between
supervisory and supervised bodies and market competition, organised
by the HCMC and the Federation of Greek Manufacturing held between
the 16 and 18 January 2007 in Athens.
AccountancyAge [2004a]; Why is the City in a panic over IFRS?, 4
November 2004
AccountancyAge [2004b]; Poor preparation rampant with two months
until IFRS, 4 November 2004
Finn, A. & Zoon, A.; Get set for IFRS, PricewaterhouseCoopers,
2004.
Jopson, B.; IFRS changes securitisation on continent, Financial
Times, February 22 2005
Meall, L.; IFRS transition Will your systems be ready?,
Accountancy, Oct 2003, Vol. 132.
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Tricks, H.; Impact on sectors shows plenty of differences, Financial
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791
Research
ANNEXURE A
Advantages of IFRS adoption relating to the investors and adopters respectively.
Investor Perspective
Adopter Perspective
Financial statements prepared based on IFRS promise more

accurate, comprehensive and timely financial information.
Increase in transparency.
The application of IFRS/IAS
promotes transparency in financial
rep orting.
Accounting
policies
applied, and financial statements
prepared and presented according to
IFRS/IAS is advantageo us over
accounting policies applied, and
financial statements prepared and
presented according to national
accounting regulation and practices.
Financial statements p repared based on IFRS reduce

international differences in accounting standards and
increases the comparability of financial statements.
Financial statements prepared based on IFRS reduces the
work of an investor. An investor willing to invest in the
entity has to evaluate an entity for decision making
purposes. Thus he has to understand the accounting policies
and procedures that are used in the preparation of financial
statements. This procedure increases costs for the investor.
On the other hand, preparation of financial statements based
on IFRS eliminates extra effort and costs associated with
the decision making process.
Financial statements p repared based on IFRS reduce
investor risks, and information risks.
Increase in quality of financial

rep orts.
Application of IFRS/IAS provides
decision
makers
with
more
qualitative financial information.
Since IFRS/IAS has been engineered
for the needs of an entity operating in
the market economy, the adoption of
these standards is mandatory in order
to achieve a high quality financial
rep orting. Facilitates the quotation of
entity shares on foreign stock
exchanges.
Introduction of fair and relevant
financial statements. Entity which
prepares its financial statements
based on IFRS presents more fair and
relevant financial information. One
of the characteristics of a relevant
financial
statement
is
the
consideration of present economic
environment
in
the
financial
information. IFRS achieves this
through the application of fair value
accounting.
Benchmark
with
international
competitors.
Availability of internal comparison.
In ad dition to the benefits of
international comparison, an entity
operating in different countries
(owning subsidiaries, joint-ventures)
might use IFRS/IAS for internal
comparison.
792
Research
ANNEXURE B
LIST OF BCR 2010 WINNERS
RANK
SECTOR / COMPANY
Overall 1st Position
Fauji Fertilizer Co mpany Limited
Chemical and Fertilizer

1
2
3
4
5
Fauji Fertilizer Co mpany Limited

Engro Polymer & Chemicals Limited
Sanofi-aventis Pakistan Limited
Abbot Laboratories (Pakistan) Limited
ICI Pakistan Limited
Fuel and Energy

1
2
3
4
5
Pakistan Petroleum Limited

Pakistan State Oil Company Limited
Oil & Gas Development Company Limited
Sui Northern Gas Pipelines Limited
Pakistan Oilfields Limited
Miscellaneous
1
2
3
4
5
Security Papers Limited

Rafhan Maize Prod ucts Limited
Packages Limited
Pakistan Tobacco Company Limited
Century Paper & Board Mills Limited
Textile
1 Gul Ahmed Textile Mills Limited
2 Kohinoor Textile Mills Limited
Bank
1
2
3
4
5
MCB Bank Limited

Askari Bank Limited
Allied Bank Limited
Faysal Bank Limited
United Bank Limited
NBFIs
1
2
3
4
5
New Jubilee Insurance Company Limited

Arif Habib Securities Limited
First Habib Modaraba
IGI Insurance Company Limited
Atlas Insurance Company Limited
793
Research
Annexure C
COMPARISION BETWEEN 4TH SCHEDULE OF COMPANIES
ORDINANCE & IFRS/IAS
Fourth
Schedule
Companies Ordina nce
of
IFRSs/ IASs
Additional Disclosures
ICA P Comments
RESERVES:
(A) "revenue reserve" means
reserve that is normally
regarded as available for
distribution through the profit
and loss account, including
general r eserves and other
specific reserves created out of
profit and un-appropriated
profit i.e., credit balance of
profit and loss account after
appr opriations for the period to
the date of balance sheet;
Para 79(b) of IAS 1 is

reproduced
below:
'a description of the nature and
purpose of each reserve within
equity'.
IAS 1 does not restrict the
classification of the reserve
into revenue and capital
reserve but allow showing as
many types of reserves.
(i) the name of each borrower

together with the amount of
loans and advances, the terms
of loan and advance and the
particulars
of
collateral
secur ity held, if any; and
IFRS 7.14 for Collateral is

reproduced below:
(C) There shall be disclo sed

separ ately in r espect of subhead 3(A) (i) the maximum
aggregate amount of loans and
advances outstanding at any
time since the date of
incorporation or since the date
of the previous balance-sheet,
whichever is later. Such
maximum amounts shall be
calculated by reference to
month-end balance.
Refer IAS 24.17 for disclosure

of the nature and amount of
related party
(D) Provision, if any, made for

bad or doubtful loans and
advances shall be shown as a
deduction under each clause of
sub-head 3(A).
Refer IFRS 7.20(e) for

impairment loss in Financial
assets:
An entity shall disclose the
following items of income,
expense, gains or losses either
in
the
statement
of
comprehensive income or in
the
notes:
(e) the amou nt of any
impairment loss for each class
of financial asset.
794
Definition of 'Revenue reserve' is

not given in IAS 1 but Para 65 and
66 of Fr amework says that reserve
is a part of retained earnings:
Par a 65 ..........For example, in a
corporate entity, funds contributed
by shareholders, retained earnings,
reserves
representing
appropriations of retained earnings
and reserves representing capital
maintenance adjustments may be
shown
separately.
Such
classifications can be relevant to
the decision-making needs of the
users of financial statements when
they indicate legal or other
restrictions on the ability of the
entity to distribute or otherwise
apply its equity...........
An entity shall disclose:

(a) the carrying amount of
financial assets it has pledged
as collateral for liabilities or
contingent
liabilities,
including amounts that have
been
reclassified
in
accordance with paragraph
37(a) of I AS 39; and
Not required by IFRS.
It may be retained in revised

Fourth Schedule or covered in the
Illustrative Financial Statements
Refer IFRS 7.37(b) for

impairment in Financial
assets and IAS 36.126
for
Disclosure
of
impairment.
IFRS provides fo r a separate

allowance account for this purpose
but
encourages
to
apply
impair ment test.
NON
LIABILITIES
CURRENT
Non-current liabilities shall b e

classified under appropriate
sub-heads, duly itemized such
as:
(i) long term f inancing;
(ii)
debentures;
(iii) liabilities against assets
subject to finance lease;
(iv) long term Murabaha;
(v) long term deposits; and
(vi) deferred liabilities.
IAS 1.54( m-p) relating to noncurrent

liabilities
is
reproduced
as
follows:
As a minimum, the statement
of financial position shall
include line items that present
the
following
amounts:
(m)
financial
liabilities
(excluding amounts shown
under (k) and (l);
(n) liabilities and assets for
current tax, as defined in IAS
12 Income Taxes;
(o) deferred tax liabilities and
deferred tax assets, as defined
in IAS 12;
Research
Refer IAS 1.55 for

presentation
as
additional line items.
Refer IFRS 7.14 for
Collateral, IFRS 7.25 for
Fair value and IFRS 7.31
for N ature and extent of
risk
arising
from
Financial
Statement
Refer IAS 17.31 for
Disclosure of Finance
Lease.
Refer 12.81(g)(i) for
Disclosure of Def erred
tax liability and 19 .120120A for Disclosure of
Defined benefits plan
The terminologies of 'debenture',

'long term deposits' and 'long term
Murabaha' are not covered in 1.54
but 1.55 allows to present
additional line items or headings.
Refer IAS 24.17(b) for

disclosure of o utstanding
balances with related
parties
Disclosure of IAS 24 is more

comprehensive than the existing
4th Schedule
IAS 7.24 for Disclosure

and IG 31 of IFRS 7
The term 'Deposits' not specifically

covered, may be included in
Illustrative Financial Statements.
These terminologies may be

retained in revised Fourth Schedule
or covered in the Illustrative
Financial Statements.
(p) liabilities included in

disposal groups classif ied as
held for sale in accordance
with IFRS 5.
(ii) loans from r elated parties;

and
(iii) other loans.
Long-ter m deposits shall be

classified according to their
nature.
Refer IAS 1.54(m) for

presentation
of
finance
liabilities as above
CURRENT LIABILITIES
Refer IAS 1.60 for Current

/Non-current Distinction as
defined above
Current
liabilities
and
provisions shall, so far as they
are
appropriate
to
the
company's
business,
be
classified under the following
sub-heads, namely:__
(i) Trade and other payables,
which shall be classified as:
(a) creditors;
(b) Mur abaha;
Requirement to disclose Murabaha,

accrued
liabilities,
advance
payment and unpaid dividend are
not specifically co vered but Para
55 of IAS 1 allows companies to
present additional line items or
headings. Para 71 of IAS 1
specifies some examples of Current
liabilities and it is reproduced as
follows:
IAS 1.54(k-m) relating to noncurrent

liabilities
is
reproduced as f ollows:
(k) trade
and
other
payables;
(l) provisions;
(m) financial
liabilities
(excluding amounts
shown under (k) and
(l);
"O ther current liabilities are not

settled as part of the normal
operating cycle, but are due for
settlement within twelve months
after the reporting period or held
primarily for the purpose of
trading. Examples are financial
liabilities classified as held for
trading in accordance with IAS 39,
bank over drafts, and the current
portion of non-current financial
liabilities,
dividends
payable,
income taxes and other non-trade
payables. Financial liabilities that
provide financing on a long-term
basis (i.e. are not part of the
working capital used in the entitys
normal operating cycle) and are not
due for settlement within twelve
months af ter the reporting period
are non-current liabilities,.
(c ) accrued liabilities;
(d) advance payments;
(e) payable to employee
retirement benefit funds;
(f) unpaid and
dividend; and
unclaimed
(g) others ( to be specified, if

material) ;
(ii) where practicable the

aggregate amount or estimated
amount, if it is material, of
contracts
for
capital
expenditure, so far as not
provided for or a statement
that such an estimate can not
be made; and
(iii) any other commitment, if
the amount is material,
indicating the general nature of
the commitment.
Para 86 of IAS 37
reproduced as f ollows:
is
Unless the possibility of any

outflow in settlement is
remote, an entity shall disclose
for each class of contingent
liability at the end of the
reporting period a brief
description of the natur e of the
contingent liability and, where
practicable:
Refer IAS 16.74 (c) for

Disclosure
of
commitment
for
acquisition of PPE, I AS
38.122(e) for Disclosure
of
commitment
for
acquisition of intangible
assets and IAS 17.35(a)
for
Disclosure
of
Operating Lease.
795
Engro Foods Prized Stallion In The Making
Case Study
Study
Case
ENGRO FOODS PRIZED

STALLION IN THE MAKING
Ahmed Mushtaq, Ali Raza, Roma Ramani, Sana Sheikh,
Shazia Farooq
Department of Accounting and Finance
Ticker: EFOODS
Price: P KR 23.22 as of 20 Dec, 2011
Forecast
Summary
Net Revenue (PKR Mn)
EBITDA (PKR Mn)
Recommenda tion: BUY

Price Target: PKR 30 .05
2010A
2011F
2012F
2013F
2014F
20,945
30,195
38,025
46,295
69,054
1,761
2,917
4,321
5,362
6,564
Source: Companys Financials, IoBM Estimates

Highlights
Initiate with Buy; 29.41% upside to target price of PKR 30.05:
We rate Engro Foods Ltd (EFoods) Buy and set 12-month target
price of PKR 30.05 based on DCF (Discounted Cash Flow). EFoods is
Pakistans largest UHT player with strong growth prospect in dairy
and other segments. We believe EFoods has a convincing investment
case premised on (1) strong industry backdrop, (2) EFoods market
leadership position while competing with likes of Nestle and ULever,
(3) impressive sales and earnings growth outlook, (4) Skilled
Management and (5) Trading on cheaper regional PEG multiples
(EFoods PEG 0.26 vs. average regional PEG 0.47)
Pakistan dairy potential to propel growth: With only 7% penetration
of processed milk, worlds 3rd largest milk producer and 4th largest
milk consumer, dairy segment of Pakistan offers huge untapped growth
potential in a strong population of 180mn believed to have one of the
highest per capita milk consumption. Ambient UHT segment has
undergone 5-year CAGR of 14% with industry growth momentum
likely to continue.
796
Case Study
Market leadership position: Within 5 years of operations, EFoods

has secured a commanding position with 44% market share in the
Ambient UHT segment (89% of topline). Growing trend of
urbanization, focus on hygiene and non-cyclicality of the industry
backed by company efforts for product innovation should enable
EFoods to consolidate its position while expanding the industry pie.
EFoods foray into Ice cream segment has paid huge dividend with
market share of 23% within 3 years, only behind Unilevers Walls.
Impressive growth in sales and earnings growth: EFoods sits on

sweet spot to leverage its future earnings following heavy investment
in marketing and supply chain. We conservatively estimate CAGR of
60.39% outpacing sales CAGR of 22.8% over CY11-14. EFoods entry
in Halal food market in North America, new product launch in dairy
(powder, chilled dairy) and Juices remains the key upside.
Key risks to our investment case: are (1) Differing tax treatment
for loose and UHT milk, (2) Increase in level of competition, (3) failure
Market Profile
12 M High/Low (PKR)
25.97/21.8
Avg Daily Volume (000)
208
Market Cap (US$ Mn)
Market Cap (PKR Mn)
191
17,129
Shares Outstanding (Mn)

Main Shareholders:
Engro Corp
Private Placement
General Public
748
Free Float (Mn/%)

Exchange
Reuters Code
27/4
KSE
EFOODS.KA
Bloomberg Code
So urce: Bloomberg, KSE
EFOODS.PA
89.97%
6.42%
3.61%
Key Financial Ratios

Return on Assets (ROA)
5.48%
Return on Equity (ROE)
14.85%
12M Forward ratios:

P/E (x)
17.13
P/B (x)
2.4
PEG (x)
0.26
EV/EBITDA (x)
7.3
Source: Blo omberg, KSE
797
Case Study
EFoods vs. KSE
Source: Bloomberg, KSE
Business Description:
Engro Foods Limited (EFoods), initially founded as a wholly owned
subsidiary of Engro Corporation in 2005, started commercial operations
in 2006. It was listed in August 2011 through an offer for sale of
shares by shareholders of Engro Corporation. The company is listed
on Karachi, Lahore and Islamabad stock exchanges. It is well known
in Pakistan for its various brands including Olpers, Tarang, Omore
and Olfrute.
EFoods operates on its strengths of skilled management, strong brand
equity, diversified product portfolio, state-of-art production facilities,
specialized supply chain management and an international presence.
It is currently the market leader in the packaged milk industry with a
share of 44%, beating giants like Nestle and Haleeb which respectively
accounted for 35% and 13% of the market as of November 2011.
EFoods also emerged as the 2nd biggest player in the ice cream industry
in just three years of operations, with its brand Omore gaining 23%
market share as of November 2011. The company posted CAGR of
93% in topline revenue during CY06-10; its peer Nestle registered a
CAGR of mere 24% during the same period.
798
Case Study
The following are the details of various business units of EFoods:

Ambient UHT
This segment is the highest contributor towards revenue with a share
of 89% in total sales for 9M2011. EFoods leads the UHT milk market in
Pakistan with 44% market share. The company produces a wide variety
of ambient UHT products including Olpers (full cream milk) the
flagship brand of the company, Olwell (low fat milk), Tarang (Liquid
Tea creamer), Owsum (flavored milk) and Dairy Omung (the budget
milk brand).
Powder Milk
EFoods entered in the powder segment in May 2010 and has so far
captured 1% share of the market. Currently this segment consists of
powder tea creamer which has only 0.5% contribution in sales.
Milk Procurement EFoods mainly procures milk through its Milk
Collection Centers (MCCs) and its own dairy farm. Currently the
company has over 900 MCCs which it plans to increase by 200 MCCs
per annum. MCCs are equipped with milk chillers, generators and
insulator tanks for safe transportation to the plant facility. Due to the
parent companys long term relationship with farmers, EFoods has a
competitive advantage in milk collection through self-reliance rather
than dependence on external contractors.
Dairy Farm The dairy farm was established in 2008 and it is one of
the largest in Pakistan with imported breeds totaling 2,591 animals to
date. The farm produces 20,000 liters per day (LPD) which is sold to
EFoods for use in production of ambient and powder dairy products.
Going forward, the management believes that the dairy farm will be a
significant contributor in production of infant nutrition products and
dairy exports.
Juices, Nectars and Value Added Still Drinks (VASD)
Efoods controls 3% of this market segment which accounts for about
0.5% of sales revenue.
799
Case Study
Ice-cream
Ice-cream segment ranks second in terms of contribution towards
sales, 10% in 2011. Ice cream is marketed under the brand name Omore
which was launched in March 2009. The company has managed to
become the 2nd largest player in the industry attaining market share of
23% to date.
Global Business Unit (GBU)
GBU was formed in 2009 in line with the companys vision to expand
into global markets. As the first venture, ECorp acquired Al-Safa, the
oldest Halal meat brand in North America, at a total cost of US$6.3
million. The business is currently owned by ECorp for regulatory
reasons, but under management of EFoods, and as soon as Efoods
obtains approval from State Bank of Pakistan, it will purchase AlSafa at cost from the parent company. This step towards international
diversification has made EFoods the first Pakistani company to target
Halal meat market to cater to Muslim minorities in the West.
T able 1: B ran d C at eg ory
U H T W h ole M ilk
O lp ers
H i- C al L o w F at
O lw ell
(H C L F )
F lavo re d M ilk
O w sum
C re a m
O lp ers Cr ea m
O lf ru te
Juic es
G he e
T arr ka
G lo rious
Sk im m e d M ilk p o wde r
Liq uid T ea W hit en er
T ar ang
Te a W h ite nin g Po w de r
T ar ang P ow de r
Ice C r ea m
O mor e
So urce : Com p an y P ro spe ctu s
Table 2: EFood s C apacity

E Foods Am bi ent UHT
(M illi on Lite r)
E Foods Pow der
(Tons/y ea r)
E Foods Ice Cr ea m
(M illi on Lite r)
20 09
2010
368
401
8,760
10.29
19.03
Source: Com pany Prospec tus
Table 3: Produc tion Centers

UHT Milk Plants
D air y Fa rm
Ice Cream Plant
Powder Plant
1.4 Mn Liters/ Day

0.2 Mn Liters/ Day
0 .0 6 Mn Liters/D ay
24 T onnes / Day
Source: Com pany Prospectus
800
Case Study
Strong Industry Backdrop

Growing population and Per Capita Income
Growing population will continue to expand consumer base while rising
incomes will strengthen buying power. According to Pakistan Economic
Survey (PES), total population is expected to grow at a CAGR of 2.1%
from 2011-15. Per capita income has been increasing at a higher rate
than population growth in Pakistan. According to PES, per capita income
increased at a CAGR of 6.86% while total population increased at a
CAGR of 2.8% during the period CY06 10.
Rapid Urbanization Trend
Increasing trend in urbanization serves as the major growth driver for
FMCGs. According to Tetra Pak Dairy Index (Issue 3 dated July 2010),
urban population increased at a CAGR of 5.3% during the last five
years and will further stage growth of 3.10% during CY11-15. The
statistics reveal that as people have moved further from the rural areas
where most of the dairy farms are found, their access to good quality
loose milk has been restricted due to lack of a cold supply chain. This
has provided packaged milk manufacturers with an opportunity to
offer an alternative in the form of good quality, safe milk. The Urban to
rural ratio will grow to 67% in CY15 as compared to 62% in CY10.
Changing demographics bring new opportunities
According to PES, 30% of Pakistans population is currently under 9
years of age while 47.2% fall under 19 years. Producers are now
promoting their dairy products to young consumers by introducing
801
Case Study
different flavors of milk and ice cream. The demographic profile also
provides business opportunity to FMCGs to penetrate further into
infant and nutritional market segment.
More educated, sophisticated consumers
As people are becoming more aware, they value safety, hygiene and
convenience resulting in increasing dissatisfaction with unpackaged
milk. Consumers now appreciate the fact that packaged milk does not
need to be boiled before use, which is the case for loose milk. In
addition, packaged milk can be stored for up to three months before
opening.
Rural consumption of packaged food to accelerate
Demand for packaged food is on the rise, even in rural areas where
mothers want to ensure that their children receive a balanced diet.
According to PES 2011, 49% of total average monthly per capita
expenditure is spent on food. Of this total expenditure, rural
population spending constitutes around 55% while that of urban is
about 41%. Higher expenditure on food by rural population augurs
well for FMCGs as majority of the population belongs to his group.
With Pakistan average monthly income increasing to PKR 21,785 from
PKR 14,456 during CY08-11and rural income increasing to PKR 18,712
as compared to PKR 12,625 during the same period registering CAGR
of 13.8%, exhibiting a rise in their purchasing power. This growth in
rural income further enhances FMCG opportunity to expand into these
areas.
Non-Cyclical Industry
The food industry is relatively insensitive to economic conditions
and the consumers keep on spending on premium products despite
slowing economy. This can be witnessed from the fact that average
monthly income grew at a CAGR of 14.65% where as per capita
expenditure on food, milk & dairy products and package milk grew at
a CAGR of 20.08%, 18.22% and 27.07%.
Liquid Dairy Products (LDP) Consumption
According to Tetra Pak dairy Index, LDP consumption increased at
CAGR of 2.8% in Pakistan through CY09-12 which is higher than
many other countries as can be seen in Figure 3. The packaged LDP
consumption grew at a CAGR of 8.4% during CY06-09 and is expected
802
Case Study
to grow at 10.4% during CY09-12 due to changing demographic drivers.

Penetration of organized supermarkets
Organized supermarkets are increasing which allow consumers to
purchase branded packaged food from one place. The large European
food retail giants such as Makro, Metro, and Hyper star have all opened
stores in Pakistans major metropolitan cities (Karachi, Lahore,
Faisalabad, and Islamabad) in the past 6 years. These large retail stores
have been able to tap into the changes in consumer lifestyles
(convenience and hygiene) and higher disposable income.
Figure 1: Population & Per Capita
Income Growth
Source: Pakistan Economic Survey, 2011
Figure 2: Urban & Rural Population
Source: Government Publications
803
Case Study
Figure 3: Global Dairy Consumption
Source: Tetra Pak Dairy Index Issue 3 2010
Industry Structure
Currently, EFoods has presence in the following segments within
the food industry:
Ambient UHT
Ice cream
Powder
Juices Nectars and VASD
Industry structure of each segment is explained below:

Ambient UHT
This industry is currently worth about PKR 46 billion with a volume
of 838 million liters. The segment consists of milk (whole fat, diet and
flavored milk), cream and tea whiteners. The industry has grown at a
CAGR of 14% from CY06-10 and is expected to show a CAGR of 10%
from CY2011-14. (Refer to Figure 4 for Industry Players)
Ice cream
Ice cream industry is fragmented into branded and unbranded
segments. Branded ice cream segment accounts for 78% of the total
market which was valued at PKR 8.7 billion in 2010. Branded ice cream
segment is mainly dominated by established brands which target
upper and middle class. Unbranded segment includes local ice cream
804
Case Study
parlors, shops and carts. Unilevers Walls controls 75% of the market
followed by EFoods at 23% while the rest 2% belongs to the unbranded
segment and small brands (Hico, Igloo etc). The target market of ice
cream industry is a wide consumer segment encompassing kids, teens,
and families.
Powder
This industry, with a total worth of PKR 26 billion, is divided into three
main segments including Growing up and all purpose (27%), Infant
Nutrition (55%) and Tea Whitening (18%). EFoods is currently present
in only tea whitening segment with a market share of 1%, with Nestle
controlling 98% of the total market.
Juices, Nectars and Value Added Still Drinks
This market is divided into Juice and Nectar (JN), Still Drinks (SD) and
Value added Still Drinks (VASD). These products vary in fruit content
with that of juices at 100%, nectars at 25-99% and SD at 0-24%. VASD
is SD with value addition such as innovative packaging or addition of
pulp. The total JNSD market stands at 507 million liters out of which
EFoods focuses on JN and VASD at a market size of PKR 11.4 billion
with total volume of 114 million liters. Nestle is the market leader with
66% share, Shezan at 19% and Engro foods at 3% in 2011 while
remaining 12% belongs to the unbranded fresh juice market.
(Please see Appendix for Snapshot of Key Dairy Producers)
Investment Summary
EFoods is the fastest growing FMCG in Pakistan in the last 5 years
and one of the leading players in the food industry. It has successfully
fended off competition from market giant Nestle and Unilever to become
market leader in Ambient UHT industry and 2nd biggest player in the
ice cream industry. EFoods with its skilled management, powerful
business model, diversified product portfolio and specialized supply
chain should maintain its competitive position. The company has the
capacity to face current and future industry competition and it will
remain a premier growth company in the food industry, in our view.
Increasing urbanization, changing life styles and a large untapped
branded food segment bode well for industry demand. We rate EFoods
a Buy and set DCF based target price of PKR 30.05 for 31st December
2012. Our Buy rating is premised on;
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Case Study
Figure 4: Current UHT Industry Players
Source: IoBM Research
Figure 5: Current Juice Industry Players
Figure 6: EFoods Sales & EBITDA Margin
Source: IoBM Research, Company Accounts
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Case Study
Pakistan dairy potential to propel growth

With only 7% penetration in the worlds 3rd largest milk producer and
4th largest milk consumer, dairy segment offers huge untapped growth
potential in a strong population of 180mn believed to have one of the
highest per capita milk consumption. Ambient UHT segment has
undergone 5-year CAGR of 14% with industry growth momentum likely
to continue. EFoods other operating segment i.e. Ice Cream and Juice
are equally attractive supported by rapid urbanization, large young
population and rapidly changing life styles.
Market leadership position
Within five years of operations, EFoods has secured a commanding
position in the Ambient UHT segment with 44% market share (89% of
E Foods topline). Growing trend of urbanization, focus on hygiene
and non-cyclicality of the industry backed by company efforts for
product innovation should enable EFoods to consolidate its position
while expanding the industry pie. E Foods foray into Ice cream segment
has paid huge dividend with market share of 23% within 3 years, only
behind Unilevers Walls.
E Foods has so far launched only seven flavors in 23 cities in juices,
nectars and VASD segment which are less than Nestls offering. The
management plans to increase the number of flavors and geographical
penetration to match that of Nestle. The company has launched its
budget milk Dairy Omung which is priced lower than fresh milk and is
going to target the unprocessed part of milk industry which is hefty
93%, Tarang liquid and powder are only present in 8 and 6 cities
respectively. We expect the geographical coverage of this segment to
expand further into provinces of Sindh, Punjab further strengthening
its UHT leadership.
Omore ice-cream, which is currently present in only 1 city of Sindh, is
expected to expand into other major cities of Sindh and Khyber
Pakhtunkhuwa in the coming years. In order to support this expansion,
EFoods has currently increased UHT and ice cream plant capacity by
27% and 15% respectively. To further strengthen market status of
Omore, management plans to aggressively improve the ice cream
supply chain through increase in cold-chain deployment, partnering
and acquiring local distributors and a possibility of acquisition of icecream production facility near Karachi.
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Case Study
Impressive sales and earnings growth

EFoods sits on sweet spot to leverage its future earnings following
heavy investment in marketing and supply chain. We conservatively
estimate CAGR of 60.39% outpacing sales CAGR of 22.8% over CY1114 on the back strong sales growth CAGR of UHT and Ice Cream
segment. EFoods entry in Halal food market in North America, new
product launch in dairy (powder, chilled dairy) and Juices remains the
key upside.
We estimate net margins for E Foods to expand to 4.54% in CY14 from
0.84% in CY10, on the back of increasing cost efficiency, business
synergies, sales and decreasing financial charges. EBITDA margins
are expected to increase by 370bps by CY14. ROE as result of increasing
net margins are expected to expand to 24.49% in CY14 as compared to
only 4% in CY10. ROA is expected to increase to 11.27% in CY14 as
compared to only 1.64% in CY10. OCF will grow at CAGR of 68%
during CY11-14 with OCF to sales ratio reaching 5.89% in CY14 against
1.38 in CY11.
Growth strategy of EFoods is to acquire and build new/innovative
brands with a global perspective. In this pursuit, EFoods targets the
North American Halal food market through an acquisition of a Halal
meat company, Al Safa in Canada. The company will be acquired from
ECorp after regulatory approvals. Using a conservative approach, we
have not incorporated revenues from Al-Safa in our projections since
no time frame for acquisition has been specified by the management
and no business plan has been presented to the investors.
Skilled Management
EFoods is being led by Mr. Afnan Ahsan who has 20 years experience
with multinationals like Pepsi, Coca Cola and Nestle. The senior
management brings vast experience in FMCG companies in marketing,
human resource and supply chain. The board of directors consists of
10 directors out of which 4 are independent with members comprising
of Ex CEOs of Gillette, Unilever China and Kraft. The management
with its skill set has made EFoods the market leader in UHT segment
and second biggest player in ice-cream industry.
(Please see Appendix for snapshot of management profile)
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Case Study
Figure 7: EFoods Milk Share Trend
Figure 8: Milk Composition
Source: Industry Sources
Figure 9: Net Profits & Net Margin
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Case Study
Valuation
EFoods attractive investment story comes at an undemanding
valuation, suggesting market is yet to fully appreciate companys
growth potential. We have set target price of PKR 30.05/share for 31
December 2012 based on DCF method. Our target price offers an
upside potential of 29.41% over its 20 December 2011 price of PKR
23.22.
Methodology
Given EFoods dynamics (growing company with limited price and
financial history); we believe DCF is the most suitable method to
value the company. For FCFF valuation, we have discounted the
projected free cash flows using the weighted average cost of capital
of 13.47%. The cost of debt represents average interest costs on all
long-term and short-term loans taken by the company based on current
rates.
We have used required rate of equity return of 20.40%, derived
through Capital Asset Pricing Model. The risk free rate in the model is
the prevailing discount rate in the country i.e., 12%. Recently, the
State Bank of Pakistan (SBP) slashed the discount rate by 150bps in
the monetary policy announced on 08 October 2011. In the last
monetary policy announcement on 30 November 2011, the rate
remained unchanged. Going forward, we believe that SBP will keep
the discount rate at current levels.
EFoods has recently turned public (Offer for sale on July 5-7, 2011)
and does not have much of a trading history so beta calculation
would not be reflected in our view. Hence, we assumed a beta 1.2x as
the company is moderately leveraged that exposes it to interest rate
risk, and is still in its infancy stage, promising high growth.
Moreover, we have taken a conservative approach and have assumed
that Employee Stock Ownership Scheme (ESOS) will be exercised
fully by December 2011. The impact of this dilution is incorporated in
our Target Price.
Risk to Target Price
A50bps increase in the Cost of Capital will still give an upside of 15%.
(Please see Appendix for a Detailed Sensitivity Analysis)
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Case Study
Relative Valuation
Local Peers
Lack of investable stocks in the local market limits the comparison
with domestic peers. Nestle and Unilever are two big names, however,
liquidity in both the stocks is low. Following should serve only as a
reference point for EFoods. It is currently trading at 51% and 25%
discount to Nestle and Unilever EV/EBITDA multiples respectively.
On a similar note, EFoods is also trading 77% and 69% cheaper to the
P/S multiple of Nestle and Unilever respectively.
Regional Peers
EV/EBITDA and PEG multiples of EFoods is lower than most of the
regional companies in comparison, trading at 7% and 45% discount to
12 months forward respective average regional multiples. All of these
companies are engaged in dairy business and are big market players in
their local markets.
(Please see Appendix for Detailed Table of Regional Analysis)
Table 4: Assumptions
CAPM Calculation
Risk Free Rate (S BP DR)
Risk Premium
Beta
Required Rate of Return
12.00%
7.00%
1.2
20.40%
WACC Calculation
Cost of Debt
Cost of Equity
Weight of Debt
Weight of Equity
Tax rate
WACC
13.26%
20.40%
0.59
0.41
35%
13.47%
Source: IoBM Research, Co mpany Accounts
811
Case Study
Table 5: DCF Valuation Summary*

Discounted FCFF
PKR -2,118
Enterprise Value
PKR 30,678
PV Debt
PKR 7,550
Equity Value
PKR 23,128
Shares Outstanding (Mn.)
769
Target Price Per Share
PKR 30.05
Source: Io BM Research
*See Appendix for Detailed Table
Table 6: Domestic Multiples (CY 11)

EV/EBITDA
P/S
NESTLE
19.26
2.56
ULEVER
12.64
1.88
EFOODS
9.5
0.59
Table 8: Regional Multiples

(12M Forward)
PEG
EV/EBITDA
Chin a Mengniu
0.59
10
Almarai
Juhayna Food
Industries
Modern Dairy
0.48
10.7
0.2
4.4
0.17
12.2
Saudi Dairy
1.21
7.2
Chin a Mizhong Food
0.15
2.6
Ind ustry Average
0.47
7.83
EFoods
0.26
7.32
Source: Bloomberg, IoBM Researc h
Investment Risks
Likely imposition of GST on processed milk
Food segment is not affected by government regulations but it is
likely that the Government of Pakistan may impose General Sales Tax
on processed milk in order to generate taxes at time when the
government is faced with tight fiscal position. This can potentially
create divergence on tax treatment for fresh and processed milk prices
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Case Study
and may threaten the gross margins in case GST is not fully passed on
to end consumers. We believe EFoods and other players enjoy pricing
power and should be able to pass through any new tax. We have
calculated the impact of 1% change in gross margin and estimate
bottom-line impact of average PKR 0.30/share from every 1% move in
gross margin on our future estimates.
Intensifying competition
Current and future competition in the foods industry among key major
players may negatively affect EFoods margins as each will be competing
to attain highest market share, which will lead to higher product price
pressures leading to lower margins. For now, we see low risk of increase
in competition as existing players are focused on increasing overall
industry sales due to low penetration. Secondly, heavy investment
requirement also creates an effective barrier for the new entrant.
Failure of acceptance of new products
EFoods intends to launch new products in various food segments,
making it vulnerable to risk of failure of new offerings. So far, the
company has launched 10 brands which have enabled EFoods to gain
a strong position in the market. We see low risk of the same happening.
Raw material cost hike
Rising energy and input costs can increase cost of production leading
to lower gross profit margins. EFoods is investing heavily in dairy
supply chain in the form of Milk Collection Center. Furthermore, the
company operates a dairy farm to partially meet its fresh milk demand.
We believe EFoods will remain exposed to the risk as the company is
unlikely to increase own milk production.
Interest rate risk
All of the debt financing is based on floating rate loans and currently
the company is highly leveraged so any hike in interest rate will squeeze
net margins. However, the impact on bottom line of any increase in
interest rate should remain limited, in our view. We estimate downside
to our estimate of PKR 3.4 from 50bps increase in interest rate.
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Case Study
Financial Analysis
Sales growth driven by product line and market share expansion
Ambient UHT UHT sales grew at a CAGR of 89% during CY06-10,
with the most significant contribution to total revenue. Going forward
we expect sales growth of this segment to ease down as the
competition from peer companies including, Nestle and Haleeb,
stiffens. UHT sales volume is expected to reach 490 million liters by
CY14, contributing 85% share in total revenue. Steady growth in
market share is expected to be fuelled by budget milk brand Dairy
Omung which is priced at 7.5% discount to fresh milk and will target
the unprocessed segment of milk industry i.e.93%.
Powder Milk Powder milk business, commenced in the year 2010,
has a market share of a mere 1% and contributes only 0.50% to revenue.
However, it is expected that the contribution will increase to 2.93% by
CY14. Currently, the business has presence in only six cities. Following
expansion, sales of this segment are projected to grow at a CAGR of
80% during CY11-14 reaching PKR1.6 billion while volumes are
projected to show a CAGR of 62% increasing to more than 2500 tons
during the same period.
Juices & Nectars Initiated in 2010, this business segment has been
successful in gaining a 3% market share with a presence in 23 cities.
Sales are expected to grow at 74% CAGR during CY11-14 reaching
PKR 1.78 billion in CY14 following the introduction of new brands/
flavors and geographical regions.
Ice Cream EFoods is the 2nd largest player in the ice cream market.
Sales are expected to grow at a CAGR of 23.7% during CY14 and will
reach PKR 4.8bn by the end of CY14. Ice cream revenue will be
primarily driven by a thrust on kids and teen segment since significant
percentage of population is under 15 years of age. Sales volume of
this segment is expected to grow at a CAGR of 12.50% reaching 24.8
million liters by CY14. The management plans aggressive expenditure
to improve supply chain of ice cream business which also includes
geographical expansion plan. Ice cream segment is expected to break
even by end of CY12.
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Case Study
Net Margins- Net profit is expected to grow at a CAGR of 60.39%

during CY11-14 as net margins expand to 4.54% in CY14 from 0.84% in
CY10 due to the following factors:
Robust sales Growth - Sales are expected to grow at a CAGR of 22.85%
during CY11-14 as result of growth in market share of Ambient UHT,
powder milk, juices & nectars, and ice cream as detailed above.
Efficiency Improvements The management aims to increase efficiency
to improve the profitability of its existing and new segments, with
special consideration towards juices and ice cream. EBITDA margins
are expected to improve by 370bps from 8% in CY10 to 11.7% in CY14.
Capacity and product line expansions The company plans total
capital expenditure of PKR 4.6 billion, which includes capacity
expansion for dairy, juices, ice cream and dairy farm to enhance market
share. UHT plant capacity will be increased to 1.4 million liters per
annum by end of CY11 and further increase to 1.9 million liter per
annum next year, at a total cost of more than PKR 4 billion. The ice
cream shortage that occurred in Ramadan CY11 due to supply chain
inefficiency is being countered with aggressive capacity and supply
chain expansion at expenditure of PKR 1.091 billion during CY11. The
expansions will be financed by internal cash generation (PKR 1.4 billion),
private placement proceeds (PKR 1.2 billion) and debt (PKR 1.925
billion).
Strong Cash flows Sales and margin growth will increase cash flows
from operations. According to our estimates, the company will generate
PKR 2.04 billion of operating cash flows on average for the next three
years. The operating cash flow to sales ratio is expected to reach
5.89% by CY14 as compared to 1.38% in CY10. The company does not
plan to give dividends in the foreseeable future.
Solvency
The debt to equity ratio will remain above 1 due to heavy expenditures
on capacity and sales infrastructure development. The CY10 debt to
equity ratio of 1.43x is expected to decline to 0.97x in CY14 when the
company starts to moderate its expenditure. This decrease in debt to
equity ratio will decrease financial charges thus improving solvency
of the company which is witnessed by an increase in solvency ratio to
0.34 in CY14 as compared to 0.12 in CY10 and the interest coverage
ratio improving to (0.44x in CY10) to 3.41x by CY14.
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Case Study
Figure 10: Revenue Breakup
Figure 11: Segment Contribution in Sales

in CY10
Source: Annual Accounts 2010
Figure 12: ROA and ROE
Source: IoBM Research, Annual Accounts
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Case Study
APPENDIX
DCF Valuation (PKR/Million)
Cash Flow from
Operations
Less: Other Income
on Ca sh
Capital
expenditure
Add: After Tax
Interest Expense
FCFF
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
1,693.52
2,476.87
3,316.89
4,210.38
5,153.90
(139.17)
(50.55)
(67.53)
(75.87)
(89.97)
(4,883.79)
(784.69)
(765.34)
(3,781.32)
(406.1 0)
933.64
792.50
633.06
624.70
419.90
(2,395.80)
2,434.12
3,117.08
977.89
5,077.73
Discounted FCFF
(2,118)
1,896
2,140
592
2,707
Enterprise Value
30 ,677.83
PV Debt
Equity Value
No of Shares
Outstanding (Mn.)
Target Price Per
Share
Source: IoBM
Research
7,550.00
23 ,127.83
769.00
30.05
DCF Sensitivity Analysis (WACC ? Terminal Growth ? )

TP
4%
5%
6%
7%
8%
10.47%
4 4.67
54.29
68.24
90.26
130.15
3 4.93
41.54
50.58
63.68
84.34
11.47%
12.47%
2 7.68
32.42
38.63
47.12
59.42
2 2.10
25.61
30.05
35.90
43.88
13.47%
13.97%
1 9.78
22.83
26.65
31.57
38.15
1 5.85
18.19
21.06
24.65
29.28
14.97%
15.97%
1 2.67
14.50
16.70
19.40
22.78
817
Case Study
818
Case Study
Snapshot of Key Dairy Producers
Sponsors
Sponsor key
business
Flagship
Brand
Plant
Location
Year of
Launch
Current
Market Share
Milk
Procurement
Method
(Main)
Bottom-line
Other
segments
Expansions in
pipeline
Expected Size
(o n
completion)
ltrs/day
Key Dairy
Brands
Nestle
Pakistan
Nestle SA/
Packages
group
Processed
Foods;
Consumer
packaging
Haleeb
Foods
Shakarganj
Foods
Chaudhry
Illyas
Cresent
group
Nil
Sugar &
Allied
MilkPak
Haleeb
Good Milk
Olpers
Kabirwala &
Sheikupura
(Punjab)
Rahimyar
Khan &
Bhai Peru
(Punjab)
Faisalabad
(Punjab)
Sukkur
(Sindh) &
Sahiwal
(Punjab)
1981
1986
March-06
March-06
36-35%
30-35%
5%
44-45%
Self
Co llection
3rd Party
Contractors
Self
Collection
Self
Collection
Positive
Beverages,
Infant food,
Confectionary
Positive
Positive
Juices
Juices
Positive
Juices,
Powder, Icecream
3x
Expansion
in
powdered
milk
3x
3x
3,000,000
300,000
850,000
Good Milk
Olpers Milk
Good Milk
Cream
Olwell Milk
Ghee
Olpers
Cream
MilkPak
Nesvita
Nido
Milk Pak
Cream
Nestle Yogurt
Everyday tea
whitener
Nestle Butter
Nestle Raita
Haleeb
Milk
Haleeb
Butter
Haleeb
Cream
Candia
Milk
Dairy
Queen
Milk
Labban
Lassi
Haleeb
Ghee
Chedder
Cheese
Engro
Foods
Engro/
Dawood
group
Fertilizers,
Energ y
Tarang
Nestle Fruit
Skimz
Yogurt
Source: Company Publications, IoBM Research
819
Case Study
Management Profile
Name
Designation
Experience
Mr. Asad Umer
Chairman
25 years
Mr. Afnan Ahsan
CEO
Mr. Imran Anwer
CFO
Mr. Faud
Chund rigar
Qualification
20 years
Affiliated Companies
E ngro corp., Dawood Corporation,
Dawood Hercules, Engro fertilizers
Nestle, Pepsi and Coca Cola
20 years
PWC, Deloitte, Touche
CA
Unilever, Danone
MBA
GSK, Reckitt & Benckiser, Haleeb

Foods
MSC
E ngro Corp
MBA, MS
engineering
Vice president
19 years
Marketing
Vice President
Mr. Babur Sultan
25 years
sales
Vice President
Mr Ahmed Sheikh
20 years
Supply chain
Source: Comp anys Website and Publications
MBA
MBA
SWOT Analysis
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Case Study
Strengths:
Strong Sponsor Profile
Engro Foods operates under the parent company Engro Corporation.
Hence, when Engro launched Efoods, people instantaneously
associated it with well-established and successful brand Engro
operating in the fertilizer, IT and infrastructure sector. Strong brand
equity allows Engro Corporation to easily attract investments, as seen
in the case of Engro Rupiya Certificate. The offering received
overwhelming response from public, resulting in exercise of green
shoe option. A consistent funding stream and strong distribution
network in the agriculture sector are two key strengths of the parent
company that Efoods can capitalize upon.
Management
The company is being led by Mr. M.Afnan Ahsan who has 20 years
experience with multinationals including Pepsi, Coca Cola and Nestle.
The senior management brings vast experience in blue chip FMCG
companies in marketing, human resource and supply chain. The board
of directors consists of 10 directors out of which 4 are independent
with members comprising of Ex CEOs of Gillette, Unilever China and
Kraft.
Market Awareness due to Intensive Consumer Research
Engro conducted thorough consumer & product research before and
after entering the FMCG sector through well reputed global research
partners like AC Nielsen, Mindshare, JWT Asiatic and MARS
marketing and advertising agencies. Market research paved the way
for Efoods success in the business, making it a formidable player in
the FMCG sector previously dominated by with decades of operating
history. In its first year, EFoods crossed 1.4 billion in sales figure
reflecting customers satisfaction with its products.
Well established Linkages with Farmers and Dairy Dealers
EFoods has been doing business with the farmers in the fertilizer sector
with a good reputation in the market. Strong long term relationship
with the farmers has facilitated consistent supply of milk to the
company.
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Case Study
Dairy Farm
Dairy farm was established in 2008 and has more than 2500 animals.
This move is to help EFoods vision of future milk exports and
production of high quality infant and growing up milk powder.
Weaknesses:
Packaging
Efoods depends on Tetra pack for packing in case of milk and cream.
Since Tetra Pack has a monopoly in the market, the company is
vulnerable to high packaging costs resulting in a decline in margins.
Opportunities:
Enhanced Awareness about Consumption of Processed Milk
With the passage of time people have realized that loose milk termed
as khulla doodh in Urdu may not be as nutritious as it may sound.
Some decades ago processed milk was not considered good for health
due to the misconception that all of the nutrition is sucked out of the
milk by passing it through machines operated by electricity. This
mindset is changing now since consumers are more educated and
open to new ideas such as a separate milk brand especially for tea.
Pakistan, the third largest producer of milk
Pakistan ranks among the largest producers of milk in the world, with
a total production of 33.25 billion liters of milk per annum. Processed
milk is only 7% of total production which if enhanced can enable the
country to expand export volume of dairy products.
Threats:
Competition
Efoods has been successful in combating intense competition from
experienced players of the industry such as Nestle and Haleeb. Old
brands have been in the industry for quite some time with an
established clientele. EFoods will need to consistently come up with
innovative ways for dealing with competition from existing as well as
new players. With Nestle planning to double their milk output within
three years, EFoods is in for a market share war, the companys
introduction of low budget milk will help their cause.
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Case Study
Pricing
Price differentials pose a threat for the company. It is of vital importance
that Engro fulfills their customers expectations in terms of offering
quality products at competitive pricing. Since the company targets
middle class and the lower middle class, pricing will be a significant
factor to capture market share as these two income segments are
extremely price sensitive. In order to effectively capture these price
sensitive segments, the company has launched its low budget milk
which is priced even lower than fresh milk.
Outbreak of diseases in dairy animals
Almost a decade or two ago, the dairy dealers and farmers would not
have to worry about any outbreak of lethal and dangerous diseases in
the animal, but as the world turns into a huge global village, the
diseases have also found roads to travel and reach far and wide.
Various diseases in livestock such as the foot and mouth disease that
affect the productivity of farm animal are common these days. EFoods
having a commercial farm with more than 2500 animals is subject to
risk of diseases which can hamper farm productivity. In order to
effectively deal with this issue Engro foods has vaccination programs
to stop outbreak of livestock diseases.
Critical Success Factors for Dairy Business
1.
Independencein Milk Supply Chain
With rising pressure on supply management with everyone eyeing

the same farmers in Punjab (key milk producing area along the Ravi
river belt), the importance of an independent supply network is
becoming crucial. Greater reliance on third party contractors
(compared to a self-collection system) increases contractors
bargaining power to manipulate supply, erodes margins due to
high cost, deteriorates quality (mixing of water content and longer
delivery time) and weakens direct relationship with the farmer.
EFoods is rightly focused in this area and has adopted the following
measure to strengthen the supply chain.
823
Case Study
a)
Achieving maximum level of self-reliance

Efoods is emphasizing a self-collection system. It has more
than 900 milk collection centers with a goal to achieve
complete self-reliance on milk procurement. Self-collection
milk centers are equipped with milk chillers and generators
as well as insulated tanks for safe transportation to the plant.
The company has direct presence in 700 villages with state
of the art chilling equipment and is procuring milk through
over 50,000 farmers. It is also educating farmers in animal
and fodder management employing an Agri-Services team
of veterinary doctors in 144 villages. It has created direct
employment opportunities for over 1,500 individuals across
Pakistan.
b)
Building long-term relationships with farmers

Long-term relationship with farmers is another key area in
the entire strong supply chain which comes along with a
self-collection system. This is one of the key elements of
Nestls success story in Pakistan. With the Engro brand
already having a strong presence within the farmer
community through its fertilizer business over the last 40
years (especially in the Sindh province), the task of building
relationships and procuring milk from Sindh became a lot
easier for EFoods compared to other new entrants. This has
strengthened further with the parent company turning
aggressive in agri-services. The farmer-company relationship
weakens when the company collects milk indirectly through
contractors, which reduces farmers loyalty to the company
and increases the ability of contractors to bargain.
c)
Investing in cold chain system

Back-end investment in a cold chain system for milk
processing companies is becoming a must to ensure
824
Case Study
acceptable quality and timely delivery to the factory as the

company plans to expand its direct milk collection network.
d)
Commercial dairy farming the way forward

Commercial farming is the way forward in the dairy industry
to exploit the factors favoring its development including agriland, adequate water supply, ideal weather conditions and
availability of feed. EFoods investing in commercial dairy
farming will gain from economies of scale and cost and quality
control from backward integration. With a long-term vision
of becoming fully independent in milk collection, EFL is
currently running a model farm having more than 2,500
imported cows.
2.
Marketing Loyalty & Share of mind

The dairy industry operates in a highly competitive environment
where companies need to gain top of the mind share on a continuous
basis. EFL management has shown its commitment towards
investing in building the brand to gain a strong market position
with an average market expenditure of 11% during CY11-14.
Corporate Social Responsibility

Engro Corp and the Engro Foundation
The company believes in working with all the stakeholders to improve
their quality of life, in a way that is both good for business and
development. The company has been making sizeable contributions
for various CSR projects. ENGROs urea manufacturing site is located
in Daharki district Ghotki. The companys commitment to this part of
Sindh is evident in its social development projects as the bulk of
Companys contribution budget is spent in and around Daharki. The
company has intrusion in number of areas like education, health,
environment, sports, and infrastructural improvements.
825
Case Study
EFoods has joined hands to provide support to flood victims with

NGOs and other parties. For this project, they have helped in setting
up various tents, providing them with basic necessities like water,
milk, medicines, and food items. This ensures that EFoods has been a
great contributor towards helping poor and affected people by building
them up by fulfilling their necessities, some of their notable efforts
are towards educational development such as the Ali Institute of
Education made in collaboration with The citizens foundation and
program for empowerment of women. Beside educational programs,
Engro Corp through the Engro foundation has set up free snake bite
clinics, and dialysis centers
Engro Foods
EFoods works alongside with the Engro foundation to fulfill its social
responsibility. Some of initiatives that the company took are
highlighted below:
Khushal Livestock
USAID in collaboration with Engro foundation has started a scheme
to help the farmers that were affected by floods. Engro Foods will
oversee the implementation of the project through which Rs 78 million
will be given to over 15000 farmers reaching out to 100,000 dairy
animals in a span of 6 months. This initiative has been started so that
the pre-flood productivity of animals is restored. The package includes
provision of nutritional supplements, vaccination and fertilizers.
Dairy Hub
Engro Foods partnering with Tetra Pak Pakistan started the first dairy
in the country in Kassowal, district Sahiwal. The primary goal of the
project is to help the farmers in improving the productivity and
efficiency of the livestock. Through one herd concept, development
and organization of the small-holder farmer milk production is done.
This program provides agri-sevices, training and education on animal
feeding and deceases. This would lead to improved quality of milk,
efficient value chain, improved livelihoods in rural areas, increased
employment in agriculture and enhanced skills of farmers.
826
Case Study
EFoods Income Statement

Income Statement (PKR/Millions)
2006A 2007A 2008A
Net Sales
3,631
8,173 14,665
-Ambient
3,631
8,173 13,933
UHT
-Powder
0
0
0
-Juices
0
0
0
-Ice Cream
0
0
732
Cost of Goods
3,370
7,128 12,163
Sold
-Ambient
3,370
7,128 11,556
UHT
-Powder
0
0
0
-Juices
0
0
0
-Ice Cream
0
0
607
Gross Profit
261
1,046
2,502
-Ambient
261
1,046
2,377
UHT
-Powder
0
0
0
-Juices
0
0
0
-Ice Cream
0
0
125
Marketing &
Distribution
Exp.
Administrative
Expenses
Other
Operating
Income
Operating
Income/(Loss)
Depreciation
Expense
EBITDA
Other
Operating
Expenses
Finance
Charges
Earnings B/f
Tax
Taxation @
35%
Profit/(Loss)
for the year
EPS (PKR)
2009A
20,945
2010A
20,945
2011F 2012F
30,195 38,025
2013F
46,295
2014F
56,338
2015F
69,054
19,058
19,058
27,035 33,629
219
90
1,579
219
90
1,579
16,552
40,274
48,056
57,557
508
653
3,235
918
1,116
3,987
1,649
1,780
4,853
2,405
2,726
6,365
16,552
23,612 29,658
36,410
44,692
55,385
15,061
15,061
21,127 26,161
31,613
38,100
46,193
173
71
1,248
4,393
173
71
1,248
4,393
216
280
1,988
6,584
395
549
2,554
8,366
706
934
3,157
9,884
1,259
1,487
3,846
11,646
1,831
2,283
5,077
13,669
3,997
3,997
5,908
7,468
8,661
9,956
11,364
46
19
331
46
19
331
61
54
560
113
104
681
212
182
829
391
294
1,007
574
443
1,288
277
335
2,548
548
950
1,305
2,419
2,913
3,951
4,378
4,983
5,512
6,112
55
129
304
347
473
549
618
681
748
829
80
176
55
139
51
68
76
90
(340)
(31)
974
1,803
1,061
2,224
3,420
4,288
5,462
6,818
153
285
499
700
700
694
901
1,074
1,103
1,252
(187)
254
1,472
2,503
1,761
2,917
4,321
5,362
6,564
8,071
32
20
53
131
131
282
381
456
553
665
23
105
354
515
660
1,001
1,436
1,219
974
961
(395)
(157)
567
1,156
270
940
1,603
2,613
3,935
5,192
230
334
303
223
95
329
561
915
1,377
1,817
(165)
177
869
1,379
176
611
1,042
1,699
2,557
3,375
(2.82)
(1.29)
(0.80)
0.81
1.36
2.21
3.33
4.39
0.31
0.31
827
Case Study
EFoods Balance Sheet

Balance Sheet (PKR/Millions)
2006A
ASSETS
Property, plant and
1,309
equip ment
Long term investments
0
Biolo gical assets
0
Intangible assets
4
Long term advances,
4
deposits and prepayments
Deferred taxation
247
Non-Current Assets
1,564
Stores, spares and lo ose
tools
Stock-in-trade
Trade deb ts
Advances, deposits and
prepayments
Other receivables
Taxes recoverable
Derivative financial
instruments
Cash and bank balances
Current Assets
TOTAL ASSETS
EQUITY AND
LIABILITIES
Share Cap ital
Advance against issue of
share capital
Share Premium
Hedging reserve
Accumulated loss
Total Equity
Long term finances
Obligations under finance
lease
Deferred taxation
Deferred liabilities
Non-Current Liabilities
Current portion of
- long term finances
- obligations under finance
lease
Trade and other payables
Accrued interest / mark-up
on
- long term finances
- short term finances
Short term finances
Current Liabilities
TOTAL EQUITY AND
LIABILITIES
828
20 07A
2008A
2009A
2010A
2011F
20 12F
2013F
2014F
2015F
2,744
4,567
5,809
7,148
11,633
15,6 16
15,327
14,989
17,518
0
10
4
0
307
19
153
439
28
980
428
142
0
471
157
0
518
172
0
570
190
0
627
209
0
69 0
22 9
23
28
33
40
48
58
0
2,763
0
4,901
0
6,436
0
8,722
0
12,288
0
16,3 40
0
16,126
0
15,873
0
18,495
38
79
188
290
442
664
837
1,018
1,239
1,519
152
2
418
8
1,239
9
1,164
25
2,089
52
2,320
55
2,914
69
3,578
85
4,392
103
5,442
12 6
41
41
122
339
244
269
295
325
358
39 3
54
0
865
0
711
56
572
31
721
9
757
10
795
10
834
11
876
11
92 0
12
136
423
1,987
155
1,566
4,329
99
2,425
7,326
148
2,569
9,005
180
3,738
12,460
169
4,244
16,532
225
5,146
21,4 86
253
6,104
22,230
300
7,279
23,152
43 3
8,846
27,341
1,000
2,200
4,300
5,423
7,000
7,690
7,690
7,690
7,690
7,690
603
200
50
0
0
0
0
(444) (1,064)
1,158
1,336
0
0
(1,6 18 )
2,732
0
0
(2,052)
3,371
0
0
(1,876)
5,124
147
0
(1,265)
6,572
0
0
(223)
7,467
0
0
1,476
9,166
0
0
4,033
11,723
0
0
7,408
15,098
2,030
350
1,393
2,742
3,325
4,625
6,085
7,816
6,508
4,304
17
12
15
0
2
369
452
2
1,859
599
3
3,358
301
3
3,637
181
3
4,814
181
4
6,272
181
4
8,002
181
5
6,693
181
5
4,490
18 1
6
2,216
58
117
200
465
1,199
1,621
2,204
2,275
294
542
790
1,583
2,041
2,219
2,815
3,450
4,235
5,252
5
2
154
460
61
15
511
1,135
176
23
180
1,236
183
2
108
1,997
275
2
0
2,522
0
0
1,000
3,687
0
0
2,000
6,017
0
0
1,300
6,371
0
0
500
6,939
0
0
2,500
10,027
1,158
1,336
2,732
3,371
12,460
16,532
21,4 86
22,230
23,152
27,341
Case Study
EFoods Cash flow statement

Cashflow S tatement (PKR/Mi llions)
2009A
2 010 A
2 011 F
2012F
2 013 F
2014F
2015F
Net Profit/(Loss) for the year
(620)
(5 54 )
(433)
176
611
1,042
1,699
2,557
3,375
Depreci ation Exp ense

Stores, spares and loose tools
2007A
153
(41)
285
(1 09 )
499
(102)
700
(152)
694
(222)
901
(172)
1,074
(182)
1,103
(221)
1,252
(280)
Stock -in-trad e
Trade debt s
(267)
(6)
(8 21 )
(1)
75
(16)
(925)
(27)
(231)
(3)
(594)
(14)
(663)
(15)
(814)
(18)
(1,051)
(23)
Advan ces, deposi ts and prepayments

Other receivables
0
(811)
(82 )
154
(216)
139
94
(148)
(24)
(36)
(27)
(38)
(30)
(40)
(33)
(42)
(36)
(44)
0
0
(55 )
0
24
0
22
(1 )
(0)
1
(0)
0
(1)
0
(1)
0
(1)
0
248
69
248
123
792
(15)
458
93
178
(277)
597
0
635
0
785
0
1,017
0
Taxes recoverable
Derivative finan cial instruments
2008A
Trade and other payables

Accrued interest / mark-up on
Cash Flow From Opera ting
Activiti es
(1,274)
(8 12 )
747
290
688
1,694
2,477
3,317
4,210
Propert y, plant and equipment
(1,587)
(2 ,108 )
(1,741)
(2,040)
(5,178)
(4,884)
(785)
(765)
(3,781)
0
(10)
0
(2 97 )
(153)
(132)
(827)
11
980
(43)
0
(47)
0
(52)
0
(57)
0
(63)
Long term investments

Biological assets
Intangible ass ets
Long term advances, deposits and
prepayments
(15 )
(9)
(115)
(14)
(16)
(17)
(19)
(21)
(1)
(3)
(15)
(5)
(6)
(7)
(8)
(10)
247
(1,352)
(2 ,422 )
(2,034)
(2,986)
(4,260)
(4,952)
(860)
(849)
(3,874)
1,200
2,100
1,123
1,577
690
(403)
(1 50 )
(50)
0
0
0
0
0
0
0
0
147
(0)
(147)
0
0
0
0
0
0
0
1,043
(5)
1,407
6
642
(10)
1,383
(5 )
1,725
(2)
2,465
(3)
(886)
(3)
(1,621)
0
(2,204)
0
Deferred taxation
Deferred liabilities
452
0
147
0
(297)
0
(120)
1
(0)
0
0
0
0
0
0
0
0
1
Short term finances

Cash Divid end
Cash Flow From Financing
Activiti es
357
-
(3 32 )
-
(72)
-
(108)
-
1,000
-
1,000
-
(700)
-
(800)
-
2,000
-
Deferred taxation
Cash Flow From Investi ng
Activiti es
Share Capital
Advan ce against issue of share
capital
Share Premium
Hedging reserve
Long term finances
Obligation s under finance lease
2,645
3,178
1,336
2,728
3,560
3,315
(1,589)
(2,421)
(203)
Cash Balance - Starting
136
155
99
148
180
169
225
253
300
Net Change in Cas h

Cash Balance - End ing
19
155
(56 )
99
49
148
32
180
(12)
169
57
225
28
253
47
300
133
433
829
Approaches In Leadership
Discussion
Discussion
APPROACHES IN LEADERSHIP:
TRAIT, SITUATIONAL AND
PATH-GOAL THEORY:
A CRITICAL ANALYSIS
Adnan Khan
Nova Southeastern University Fort Lauderdale,
Florida, USA
Introduction
Since the advent of the industrial revolution, employees,
managers, psychologists and researchers have continuously asked
themselves and others one fundamental question, What makes a
good leader. Interestingly, although a plethora of research and data
now lies at our fingertips, it seems that the answer to the question is
much more varied, diverse and complex than previously imagined.
Northouse (2010) summarized, some researchers conceptualize
leadership as a trait or a behavior, whereas others view leadership
from a participative or relational standpoint. Moreover, a review of
scholarly research on leadership clearly indicates there to be a wide
diversification of thought in explaining leadership theory. (Gardner,
1990; Antonakis, Cianciolo, & Sternberg, 2004; & Mumford, 2006).
Also, a lot of new research has paved the way for fresh perspectives
in understanding the study of leadership since when it was first
investigated in the earlier half of the twentieth century. Thus, in light
of new advances, a clear need for re-examining three early approaches
in leadership, namely trait, situational and path-goal theories has
arisen. Taking a narrative approach, the author will examine the three
leadership approaches discussing their merits and drawbacks after
which findings will be summarized and conclusions drawn keeping in
view some of the latest research emerging from studies in leadership
science.
830
Discussion
Trait Approach
Initially studied and developed in view of certain
characteristics and qualities present in certain political and military
leaders, such as Mohandas Ghandi, Abraham Lincoln, and Napoleon
Bonaparte in the early twentieth century as a way of determining
what made them great. It was assumed that they reached their high
status or greatness only because of their being born with certain
traits. The traits as defined by Stodgill (1974) were being adaptable to
situations, alert to social environments, ambitious and achievementorientated, assertive, cooperative, decisive, dependable, dominant
(desire to influence others) ,energetic (high activity level), persistent,
self-confident, tolerant of stress and willing to assume responsibility.
Kirkpatrick and Locke (1991) stated that leaders differ from others on
mainly six traits, drive, motivation, integrity, confidence, cognitive
ability, and task knowledge. Zaccaro, Kemp and Bader (2004), identified
the following traits as being central to good leadership: extroversion,
emotional stability, openness, agreeableness, motivation, social
intelligence, self monitoring, and problem solving. Some of the traits
central to the lists of almost all the researchers studying trait leadership
over the years are intelligence, drive, integrity, and sociability. (Zaccaro
et al., 2004).
The Trait approach involves identifying and selecting leaders
based on the possession of certain prerequisite traits. This approach
is nowadays almost never utilized in isolation, although the
identification of certain traits certainly plays a part in assessing and
exemplifying a potential candidate for higher office, it is by no means
the sole criteria utilized. This is because the Trait approach suffers
from certain inherent weaknesses, the first being its rather
discomforting premise that good leadership can only arise from certain
traits which are themselves inherent and genetic, a statement which
leaves little room for motivation, advancement or growth in an
individual who feels that they do not match up to the required trait
831
Discussion
leadership criteria. Secondly, the theory fails to take into account any
situational, motivational, emotional, or contingency factors in its
evaluation of leadership. As we now know, these are all critical aspects
of leadership which cannot be sidelined both from a theoretical and
practical standpoint.
The theory remains alive however, and has even made
somewhat of resurgence in recent years, primarily (a) because of the
vast wealth of data and research that support its roots and (b) because
of recent research in genetics that suggest that we do in fact acquire
a large portion of traits from our ancestors. In an article in the Harvard
Business Review, Sorcher and Brant (2002) concluded, experience
has led us to believe that much of leadership is hardwired in people
before they reach their early or mid-twenties. Advances in recent
research in the field suggest two relatively new contributions to the
science, if included, would transform the trait approach into a more
powerful theory capable of explaining good leadership from the genetic
perspective in the twenty first century. First, recent research of
charismatic leadership suggests that certain leaders with charisma
consistently possess traits of self monitoring, confidence and
impression management to attain a vividly enhanced sense of being
in the public arena. (Jung & Sosik, 2006). Secondly, and more
importantly, Emotional Intelligence has emerged as a formidable asset
for managers and leaders not only because of the vast range of self
monitoring, relationship assessment and control mechanism it
possesses but also as it is increasingly being demonstrated as being
one of the key elements behind successful leadership practices.
Emotionally Intelligent leaders are more flexible, value driven,
informal, connected and especially exude resonance. Their excitement
and enthusiasm spread spontaneously invigorating those they lead.
(Goleman, Boyatzis, & Mckee, 2004, p.248)
A strong case can be made for emotional intelligence which
encompasses the abilities of understanding ones own and others
832
Discussion
emotions and then adjusting or tuning these emotions relevant to the

situation or person as being trait driven, that is, genetically or
inherently present in an individual from birth. In a major behavioral
genetic study of trait emotional intelligence, Vernon, Petrides, Bratko,
Denis, Schermer, and Aitken (2008) concluded that, findings are in
accordance with studies of the major personality dimensions and
provide further empirical support for the conceptualization of EI as a
personality trait. Emotional Intelligence has the distinct advantage
however, of being an intelligence or set of abilities and skills that can
be improved with training and other application mechanisms.
Situational Approach
As the name implies, the situational approach is focused on
leadership in particular situations. The theory is based on the premise
that each situation is different and thus, no one approach can fit all
situations, instead leadership complexities themselves have to cater
to the differences in situations and adapt accordingly. Essentially,
situational leadership stresses that leadership consists of two
interrelated dynamics, directive and supportive, and that each should
be applied appropriately in any given situation. The situational
approach assumes, that employees abilities, skills, motivations and
desires vary over time and according to the situations, thus leaders
instead of employees need to change their strategies shifting from
directive to supportive according to the prevailing needs of the hour.
The approach centers its theoretical basis on four leadership
styles which are to be used by leaders when assessing and managing
their employees. The first style is a high directive-low supportive style
in which a leader spends more time outlining his/her goals and relatively
little effort in supportive behaviors. The second style involves a high
directive high supportive style also at times called the coaching
approach. In this conceptual framework, the leader actively supports
employees as well provides goals and direction. In the third style the
leader adopts a high supportive-low directive posture and lays more
833
Discussion
emphasis on support and empathy than goals and achievement. The

fourth style also known as the delegating approach involves low
supportive and low directive behavior. These styles are then closely
linked with a particular subordinates level of development and they
are classified into their own range of development categories as such.
The situational approach has had considerable success
especially in the practical and applied area of leadership training.
Hersey and Blanchard (1993) reported, Situational Leadership has
been a factor in training programs of more than 400 of the fortune 500
companies and is perceived by corporations as offering a credible
model of training people to become effective leaders. Another strength
of the approach is in the flexibility of leadership. Yukl, (1989) stated,
A major strength of situational leadership is that it emphasizes leader
flexibility. Morever, situational leadership offers a unique perspective
in which to view the subordinate, in that, it helps subordinates learn
new skills and become more confident in their work. (Fernandez &
Vecchio, 1997).
This approach has its critics however, who contend justly
that relatively few comprehensive research studies have been
conducted to justify and validate the suppositions and assertions of
the situational approach theory. Vecchio & Boatwright (2002) and
Brazil (2006) are among many researchers who have questioned its
theoretical basis and asked whether it should be understood in the
framework of a theory at all. Graeff (1997) stated that conceptualization
in the approach is very unclear and Blanchard et al., (1985) summarized,
that subordinate commitment is composed of confidence and
motivation, but it is unclear how both combine to define commitment.
Also, situational leadership suffers from a serious weakness in that it
does not define how to distinguish between the issue of one to one
versus group leadership. There is a vast difference between matching
styles and behaviors to one employee than those of twenty. The
existing research in the field of situational leadership does not answer
this vital question. However, the situational approach has proven to
834
Discussion
be a vastly practical approach especially in occupational roles for

individuals involved in rapidly changing environments such as
emergency response units, airline operations, and certain military roles
where quickness and flexibility of leadership abilities are of paramount
importance. Also, the approach has the advantage of having a clear
set of prescriptions for action in a given situation, thus, leaders can
instantly adapt to developing scenarios and act accordingly. In
summary, the situational approach while easy to understand and
pragmatic in certain particular situations needs further empirical
investigation and research before it can be universally applicable.
Path Goal Theory
The Path Goal theory of Leadership was developed to
investigate and summarize previous findings resulting from empirical
research studies of leader task orientation and leader person
orientation on employee performance and job satisfaction. The theory
was stimulated by Evans (1970) paper in which he hypothesized that
leader behavior would be positively related to follower path-goal
perceptions in one organization. In short, the objective of the path
goal theory or approach is to improve employee satisfaction and
performance by focusing on various aspects of employee motivation.
(House, 1996).
Theoretically, the path goal approach posits that leaders need
to adopt a particular style or method that best suits the needs of
employees. It predicts that a directive style of leadership is best in
situations in which subordinates are dogmatic, organizational policies
unclear and the work assigned is complex in nature. In these situations,
directive leadership complements the work by providing guidance
and psychological structure for subordinates. (House & Mitchell, 1974,
p.90). For tasks that are highly structured, stringent, and the work is
unsatisfying and redundant, the path goal theory suggests, that
leaders adopt a more supportive stance. It hypothesizes, that in this
case the human element or empathy, that a leader demonstrates will be
835
Discussion
of vital consequence as related to employee job satisfaction and

performance. Furthermore, the approach calls for participative
leadership in cases where goals are ambiguous, and where
subordinates feel a strong need for having a role in the decision
making process and achievement oriented leadership in situations
where subordinates or employees favor more challenging and
demanding tasks.
The path goal theory has several positive aspects. First, it
was one of the first theories to specify four conceptually distinct
varieties of leadership, (e.g, directive, supportive, participative, and
achievement oriented) expanding the focus of prior research, which
dealt exclusively with task and relationship-oriented behaviors.
(Jermier,1996), second, the theory is a serious attempt at integrating
the motivation principles of expectancy theory into a theory of
leadership. (Northouse, 2010, p.133), third, the approach is practical
in nature, in that it is a readymade recipe for leaders to use in an
organizational setting.
Despite these advantages, the approach has its critics. The
most serious charge leveled against the theory is that large scale
empirical research studies have offered it partial support at best.
(Castro, Schriesheim & Kerr, 1977; Indvik, 1986; Wofford & Lisa,
1993; Zhou & DeChurch, 2006). The claims of path goal theory are yet
to be fully substantiated and remain tentative as the research findings
do not yet provide a consistent and unified picture of the basic
assumptions, associations and essentials of the path goal theory.
(Jermier, 1996; Schriesheim & Neider, 1996).
The research reflects that path goal theory fails to explain
the relationship between leadership behavior and worker motivation.
Although, it incorporates the tenets of expectancy theory, it does not
explain how leadership is related to these tenets. For example, the
approach does not explain how directive leadership during ambiguous
836
Discussion
tasks increases subordinate motivation. (Northouse, 2010, p.134).

Finally, Path goal theory seems to place the burden of responsibility
unequally on the leader as opposed to the worker or subordinate, and
for this reason is criticized as letting the worker become overly
dependent on the leader. Due to the overemphasis laid on the leader
adjusting his or her style according to the motivation levels of workers,
the approach assumes and expects far too much flexibility on the part
of the leader in an organization.
The author posits that path goal theory rather than
encapsulating the entire paradigm of a complete leadership theory, is
applicable only in part, particularly in informing a leader about when
to be directive, supportive, participative or achievement oriented. For
example, the approach is helpful in explaining that a leader should
adopt a directive style when goals are complex and a supportive style
when they are unchallenging, however, it leaves room open for other
leadership variables, contingencies and anomalies for which the theory
offers little recourse. Thus, although, the path goal theory is helpful
in the study and application of leadership in a contextual framework, it
does not provide for breadth or scope in some of the latest advances
in leadership research especially in areas such as visioning, social &
emotional intelligence, impression management, and charismatic
leadership.
Conclusion
In the 1990s neurologist Antonio Domasio during his studies
on emotions made a remarkable discovery. He found that people
who, because of a stroke, tumor or blow to the head, have damaged
certain parts of their orbitofrontal cortex lose most of their emotional
lives. As a consequence, these people are at a complete loss with
respect to decision making in their lives, even though their reasoning
and logical abilities are intact. (Haidt, 2006,). Even, though they perform
routine tasks well enough as before, when it comes to making even
simple decision, they simply go blank. This suggests that sound
837
Discussion
emotional input in decision making is not only fundamental to the

process but an essential commodity especially when tied to leadership
science. Unfortunately, none of the three theories or approaches we
have discussed so far address the importance or relevance of the
understanding and management of emotions in decision making and
leadership.
Moreover, although, the trait approach has more than a
centurys worth of data to support its central tenants, including recent
studies positing the importance of certain inherent characteristics
and traits, the situational and path goal approaches to leadership
have yet to be empirically affirmed in cross cultural research. Drenth
and Den Hartog (1998) concluded, organizations in different countries
have consistently different characteristics or patterns of member
behavior (or whether characteristics and behavior patterns interact
consistently within cultures and differently between cultures), and
we have to determine whether these differences are actually due to
differences between cultures, and this is largely determined by
whether there is theoretical rationale for expecting the differences.
Recent research in leadership theory also points to the role
of certain other vital attributes that influence leadership in many ways.
Research in charismatic leadership received a boost after President
Barak Obama ascended to the highest office of the United States in
record time having almost no political roots and having been a
Washington outsider. Charisma is now seen as an essential tool along
with others to enhance the prestige of the individual and transform
him/her to a pedestal where the leader is fundamentally inspiring to
followers or subordinates. Also, strategic visioning, innovation, and
the audacity for enterprise are proven attributes that have led
leadership thought in new directions. Apple CEO Steve Jobs, and
Facebook founder, Mark Zuckerburg being recent examples. The three
approaches have little to contribute in this changing dynamic of
leadership study. Impression Management and Image Manipulation
are two more fields in which there is a great deal of ongoing research.
838
Discussion
These and other areas are expanding and pushing leadership

approaches into unchartered and yet highly penetrable new turfs in
which the study of leadership has moved well beyond the limited
scope of the three approaches discussed so far. As leadership science
evolves, it seems that the paradigm will move even further away from
the scope of the three theories.
839
Discussion
References
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Drenth, P. J. D., & Den Hartog, D. N. (1998). Culture and organizational
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Goleman, D., & Boyatzis.R, & McKee. A. (2004). Primal Leadership.
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Haidt, J. (2006). The Happiness Hypothesis: Finding Modern Truth
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840
Discussion
Hersey, P., & Blanchard, K.H. (1993). Management of Organizational

Behavior: Utilizing
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Kirkpatrick, S.A, & Locke, E.A. (1991). Leadership: Do traits matter?
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Mumford, M.D. (2006). Pathways to outstanding leadership: A
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Northouse.P. (2010). Leadership: Theory & Practice, Thousand Oaks,
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Schriesheim, C.A., Castro, S.L., Zhou, X., & DeChurch, L. (2006). An
investigation of path-goaland transformational leadership theory
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841
Discussion
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Leadership theory: A replication in military setting. Small group
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Aitken.,Emotion, 8(5), 635-642.
Wofford, J.C. & Liska, L.Z. (1993). Path-goal theories of leadership: A
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Yukl, G.A. (1989). Leadership in organizations (2nd ed.). Englewood
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Zaccaro, S.J., Kemp, C., & Bader, P. (2004). Leader traits and attributes.
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of leadership (pp. 101-124). Thousand Oaks, CA: Sage
842
Book Review
What Is Global Leadership?
WHAT IS GLOBAL
LEADERSHIP?
Fareeda Ibad
Department of Communication
Institute of Business Management (IoBM), Karachi
The title of the book being reviewed is What is Global Leadership?

It was published by Intercultural Press, an imprint of Nicholas Brealey
Publishing, Boston and London in 2011. The authors are Ernest
Gundling, Terry Hogan and Karen Cvitkovich. All three authors have
been involved with the organization Aperian Global which seeks to
impart training in leadership development. The theme of the book
revolves around the question of what is global leadership, how it has
become crucial for managing change strategically through a global
mindset, what are the causes that have necessitated this change and
finally, how this kind of leadership is to be achieved.
In chapter one global leadership has been rendered a key
competency requiring global leaders to possess a particular skill set
which will facilitate change in the way business is done in global
markets taking into consideration innovation, market fluctuation,
demographics, culture, communication and strategies that prevail.
Apart from the skill set, what is needed is a global mindset, the capacity
to grasp complexity in reorganizing skill sets, the ability to adapt
behavioral practices and to possess the acuteness to perform in a
global locale where there is an abundance of diversity in culture and
business practices.
The book is a qualitative research study using interviews and
case studies to provide answers to the research questions. The
authors have provided the rationale for the book in Chapter One
where they have stated and identified the three megatrends that have
843
Book Review
resulted due a fast changing global landscape. This fast changing

global landscape calls for restructuring global leadership skills,
thereby equipping leaders with the vision and strategies to function
effectively in this new environment.
The three megatrends which the authors portend would influence
organizational survival and growth are namely, population growth in
the developing world; changes in the balance of GDP; and rapid
urbanization in Asia and Africa. In describing the three trends the
authors have not only provided a background for the research
initiative, but have also justified the need to change present leadership
styles to suit the global mindset. In the context of explaining the
global mindset, the researchers have given examples of global leaders
of the present day and their successes which qualify them to be
called as such. Thus, Chapter One justifies the need for the research
as timely and urgent.
In chapter two the concept of leadership and where it is derived
from is admirably discussed. The difference between leadership and
management is identified. Sufficient literature review has been
presented, specifically in regard to multiple intelligences and
neuroscience. The importance of these two areas is highlighted since
leadership development and training is based on how intellectual
development takes place. Another aspect of interpersonal perspectives
is also discussed. The authors describe intercultural training as crucial
to the global context of leadership. The importance of culture is
highlighted and a case explaining the connection between culture
and neuroscience is given to justify the importance of intercultural
development. The impact of the force of globalization affecting
leadership sets the stage for which research in this area has become
imperative.
Chapter two states the two research questions which are, what is
global leadership, and how is it different from leadership in general?
Answers to another question, how an effective global leadership
844
Book Review
behavior is disseminated as rapidly and efficiently as possible

throughout an organization? is also sought This makes for a clear aim
of the research; however, there is no single statement of purpose. In
fact, the entire background presented becomes adequate as the
purpose for the research.
The participants of the study were fourteen major organizations
from a wide range of industries and one nongovernmental organization.
The organizations selected were located in North America, Europe
and Asia with branches globally. The number of participants was
seventy and they were selected by their organizations and possessed
certain characteristics. Eighty percent of the participants were in senior
leadership positions, had been on more than one international
assignment and were successful in their roles. The participants
belonged to twenty-six different countries and had collectively served
on assignment to thirty-two different country destinations. In this
way the writers had presented an overall picture of participant
demographics. Upon looking at the aim of the study, the research
questions, the tools for the research, and the participants, it can be
said that the qualitative research methodology is appropriate for the
study. Since the data collection is in the form of interviews and case
studies, it can be said that the literature reviewed is helpful, yet sparse.
Chapter two also presents a brief overview of the research findings
which state that ten behaviors emerged as necessary for global leaders
if they could be called as such. These ten behaviors were categorized
into five major stages. In the overview given, the authors presented
direct quotes from the participants of the research regarding the
findings identified. The potential applications of the findings were
also discussed briefly which contributes significantly to the value of
the research.
To sum up, it can be said that the background provided was relevant;
however, literature reviewed was somewhat inadequate. The study
design is completely suited to the research questions and objectives.
845
Book Review
The theoretical perspective is abundantly identified, and is clearly

explained in every chapter throughout the book. To summarize the
research design, it can be said that participant demographics are made
abundantly clear, the methods used to generate data are mentioned
and they are suitable for the purpose, but how the interviews were
conducted all over the world and regarding the development of case
studies, nothing is mentioned. All in all, the stated methodology is
appropriate for the study design type.
With chapter three begins a series of chapters devoted to explaining
the ten key behaviors required of global leaders which can be acquired
in five stages. What emerges here is that the authors are of the view
that the process of global leadership acquisition is experiential in
nature, that is, learning by doing. In this chapter the first stage Seeing
Differences is presented in the form of case studies and examples of
global leaders and how learning by doing worked in each situation.
An emphasis is placed on two major aspects, namely cultural
awareness, and invite the unexpected. The authors view cultural
awareness as the first move to seeing differences. The leaders ability
to perceive cultural diversity as critical to recalibrating his expectations
is the first rung of the ladder to effectiveness in the arena of global
leadership. The authors identify areas of differences and provide views
of participants of the study to reinforce the importance of this behavior.
The second behavior in this stage is inviting the unexpected. This
is possible, according to the authors, when leaders adopt a learning
posture denoting openness to new learning and ideas. In this regard,
the importance of language and cultural insight is highlighted. The
authors substantiate these claims with comments of the participants
of the study and reference to literature from neuroscience and culture
studies. To sum up the chapter, the panorama of experiential learning
begins to unfold here and what can be expected to follow in this
context, the reader can well anticipate.
846
Book Review
Chapter four discusses the second stage in global leadership

development where the key behaviors of results through
relationships and frame shifting are described and discussed with
the help of case studies, data revealed through interviews in the form
of examples, and quotes of the interviewees. These two key behaviors
are a part of the second stage of Closing the Gap. The authors
assumptions that strong relationships across cultures will facilitate
getting the job done are supported via the above mentioned sources
of data. The importance of interdependence, leveraging of relationship
networks and finding a cultural guide are significant measures used
by global leadership to achieve organizational objectives.
The second important key behavior to be practiced by global
leaders is identified as frame-shifting. This is a strategy used to close
gaps when traversing national and cultural boundaries within which
major differences exist. The challenges in this area are in the context
of the communication style, leadership style, and leadership strategy.
The authors provide a theoretical connection of neuroscience and
culture in this regard, as well as communication techniques, leadership
styles emanating from the views of the participants of the study.
Leadership strategy is also identified by the authors by providing
examples from case studies. A meaningful picture of the phenomena
under study is being revealed and the authors are well on the way to
providing answers to the research questions in a well-documented
manner.
In chapter five the authors discuss the third stage of global
leadership development, Opening the System where two more
leadership behaviors are discussed, namely expand ownership and
develop future leaders. The authors maintain that after identifying
the differences that persist between markets and business practices,
it becomes necessary to examine systemic issues if businesses are to
grow and flourish. In this regard, leaders can minimize distances
between their global associates and themselves by breeding strong
relationships and frame shifting. All this is possible if the cache of
847
Book Review
ownership is expanded and the development of future leaders is

encouraged. To expand ownership means to establish a culture where
engagement in work and accountability for positioning and achieving
targets is shared between the leader and his counterparts in other
global locations. This can be achieved by updating systems in the
light of local culture and customs. This basically means that processes
that were viable at headquarters in a western location may not work in
a regional location and would need to be remodeled. Accountability
should also be shared by applying the diversity principle of
inclusiveness which means that the leader would adapt decisionmaking processes with input from regional counterparts.
In developing future leaders, another step to expanding ownership
needs to be taken, and that is of opening the system for new leaders
to emerge from global locales whose project leadership skills would be
honed to produce global leadership. In this context, high potential
individuals from all global regions be selected so that leadership
experience becomes more generic, i.e., having skills to deal efficiently
with headquarters. The authors used case studies and examples to
explain how ownership can be expanded. In discussing how future
leaders can be developed, the authors used data from neuroscience
and culture studies to support their assumptions. The chapter is amply
interspersed with examples and quotations from the data elicited in
the research and provide the ground for the authentication of the
study.
In chapter six the authors discuss Preserving Balance as a part of
leadership activity. It has always been maintained via previous research
that flexibility and adaptation are important for global leaders. The
authors of this book maintain that adaptation rests on the leader. The
local culture will not adapt, it is the leader who will have to adapt. This
stage of development discusses two more key behaviors, adapt and
add value, and core values and flexibility. These behaviors will help
preserve balance. How leaders adapt to the local culture will make for
constructive change which will add value. Further ways of achieving
848
Book Review
balance are by building mutual respect and devoting time to know the
new environment. This can be done by asking questions to challenge
the status quo and presenting new perspectives. Positioning the
leaders role was another adaptation technique where the leader drives
new initiatives with imposing his own expertise.
In regard to core values and flexibility, the data gleaned from the
research supported the notion that learning the values of the new
culture would help in establishing meaningful relationships which
would allow for support from local colleagues, thereby allowing the
leader to be flexible and effective in the new environment. Inability to
be flexible would never allow a leader to be successful. Another aspect
of dealing with core values was in regard to dealing with corruption
effectively. When this happens, an atmosphere of fairness, honesty,
respect, effective feedback, openness, respect for the law, allegiance
to common objectives and meaningful allocation of resources follows.
The authors have used case studies, examples and quotations to
support their views.
Chapter seven discusses the final stage of global leadership
development where Establishing Solutions emerges as a concept
when testing the effectiveness of leaders in global locations. Influence
across boundaries and third way solutions are key behaviors that
assist in the act of creating solutions. Influence across boundaries
refers to global leaders being able to work where support systems are
unequal to their home markets, having to work without direct authority
and being able to influence others across the organizational matrix.
Additionally, they need to serve as ambassadors of their country
both inside and outside the organization. Their influence must extend
across functional boundaries and they have to create solutions in an
atmosphere where there is freedom to experiment and follow a rapid
learning curve.
Third way solutions means being able to put everything together,
drawn on all the behaviors discussed earlier, and produce real
solutions. As usual, the authors use case studies, examples, and
849
Book Review
views of interviewees to support their assumptions. At this point the

authors mentioned a drawback of their research approach when they
state that they compared role expansion between global and domestic
leaders. However, they claimed that data from interviewees revealed
that the level of responsibility of global leaders far exceeded that of
local leaders.
Chapter eight, nine and ten deal with training, teaming and coaching
the ten key behaviors that global leaders must adopt. In this regard,
an experiential program design is outlined. The researchers bring to
light the fact that most leadership models, although labeled as global
are developed and shaped keeping in mind Western and U.S
perspectives and may not prepare leaders to function effectively in
other cultures which are hugely diverse. All training strategies to learn
these behaviors are supported with examples where they have
succeeded.
The final chapter of the book, entitled The Future of Global
Leadership once again emphasizes the concept of multiplexity as a
must have skill. The differences between domestic and global leaders
are highlighted. The authors recap the process by summarizing both
individual transformation and organizational transformation. The
learning by doing process transforms both the individual as well as
the organization. The outcome of in-depth interviews and focus group
outcomes is also discussed as a part of the research effort. This aspect
was spread over a period of two years involving senior leaders from
Fortune 100 companies where practitioners and academics were asked
to describe global leadership efficacy, distinguish global efficacy voids
in organizations and recognize impediments to closing these voids.
Data emerging from this strategy was surprisingly consistent and
participant answers were unanimous. As a result of these findings,
the organizational global mindset emerged as a phenomenon that
cannot be ignored and must be adopted if organizations are to survive
in the dynamic business landscape. Step by step strategies for
developing global leaders have been outlined and supported by case
850
Book Review
studies. The authors conclude that if business results are to be

achieved, the model companies of the future must build global
leadership by a focused development of their workforce spanning all
global locales.
The book presenting a true picture of global leadership
development experientially is a bold research effort which has changed
the way leadership has been perceived in the past into something
revolutionary, given the strategies outlined for its acquisition. The
writers not only have a command over the concept of global
leadership, but have a command over the writing style, language and
the research methods. The interspersing of research data findings
along with their views ably supports their belief about global
leadership competencies.
The authors use of hard science and organizational research
renders the book as an authoritative guide to global leadership
development. All in all, this highly readable, lucid and provocative
work does not disappoint the reader and serves as an excellent
resource for companies to use in employee training and leader-led
action learning.
851
January2013
Volume 14 Number 4
INSTRUCTIONS TO AUTHORS
(Research Section)
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Papers must be in English.

Papers for publication should be sent in triplicate or by e-mail to:
Managing Editor, Pakistan Business Review
Institute of Business Management
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E-mails: sabina@iobm.edu.pk, mec@iobm.edu.pk
Submission of a paper will be held to imply that it contains original unpublished work and is not
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PBR is a multi-disciplinary journal covering all subject areas of relevance to business in

Pakistan. Research in the areas of Finance, Human Resources, Management, Informatics,
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for monographs and books.
Ahmad, Jaleel, 1978, Import substitution, trade and development, Amsterdam: North-Holland,
For contributions to collective works
Newbery, Daved M.G., 1975,. The use of rental contract in peasant agriculture, in: Reynods,
ed., Agriculture in development theory, New Haven: Yale University Press p. 3-40.
Continued next page
Volume 14 Number 4
January 2013
INSTRUCTIONS TO AUTHORS
(Research Section)
From previous page:

For periodicals
Baumol, W.J., 1982, Applied fairness theory and rational policy, American Economic
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Prevalence of Risk Factors Of Non-Communicable Diseases

by translating the questionnaire in Urdu for the convenience of the

Tobacco Use (Section S)

Physical Activity (Section P)

PAKISTAN BUSINESS REVIEW JAN 2013

Prevalence of Risk Factors Of Non-Communicable Diseases

This section also includes questions involving history of

Measurement of height (in centimeters)

Measurement of weight (in kilograms)

Measurement of blood pressure (in mmHg)

Hip circumference (in centimeters)

Heart rate (Pulse per minute)

Research Study Design

PAKISTAN BUSINESS REVIEW JAN 2013

Prevalence of Risk Factors Of Non-Communicable Diseases

female prisoners were representing Central Jail, Quetta, depicting the

PAKISTAN BUSINESS REVIEW JAN 2013

Prevalence of Risk Factors Of Non-Communicable Diseases

Figure 1: Educational Status of Female Prisoners of Pakistan

PAKISTAN BUSINESS REVIEW JAN 2013

Prevalence of Risk Factors Of Non-Communicable Diseases

Amongst the daily smokers, 18% (n=12) of female inmates

PAKISTAN BUSINESS REVIEW JAN 2013

Prevalence of Risk Factors Of Non-Communicable Diseases

Figure 3: Percentage of female prisoners consuming fruit/week

Most of the inmates who had access to fruits were foreigners.

PAKISTAN BUSINESS REVIEW JAN 2013

Prevalence of Risk Factors Of Non-Communicable Diseases

Prevalence of Risk Factors Of Non-Communicable Diseases

had diastolic blood pressure greater than 89 mmHg. The Systolic

PAKISTAN BUSINESS REVIEW JAN 2013

Prevalence of Risk Factors Of Non-Communicable Diseases

The following table gives a comprehensive analysis of the

PAKISTAN BUSINESS REVIEW JAN 2013