volume 2 (issue 2) september 2018
TRANSCRIPT
University of Wah Journal of Management Sciences (UWJMS)
Volume 2, Issue 2, September 2018
ISSN (Print): 2521-5876 & ISSN (Online): 2523-0417
i
UNIVERSITY OF WAH
JOURNAL OF MANAGEMENT SCIENCES
Volume 2 (Issue 2)
September 2018
Department of Management Sciences
University of Wah, Wah Cantt
University of Wah Journal of Management Sciences (UWJMS)
Volume 2, Issue 2, September 2018
ISSN (Print): 2521-5876 & ISSN (Online): 2523-0417
ii
University of Wah Journal of Management Sciences
The ‘UW Journal of Management Sciences’ (UWJMS) is a bi-annual publication of the University of
Wah, Wah Cantt, Pakistan. UWJMS is an international journal dedicated to advancing the
understanding of the intricacies of management in private and public sector through empirical
investigations and theoretical analyses. UWJMS is a double-blind peer-reviewed journal that publishes
quality articles in the field of management sciences.
Aim and Scope
The Journal aims to provide a focus for worldwide expertise in the required techniques, practices and
areas of research; present a forum for readers to share common experiences across the full spectrum of
industries and sectors in which management research is conducted; cover all areas of industry and
management; and link theory with practice by publishing case studies and covering the latest important
issues in special series. The journal aims at wide circulation and visibility of its research to professionals
and practitioners both within Pakistan and internationally.
The editorial board welcomes quality research articles from all areas of management sciences. The
board also encourages quality research from the newly developing business and management fields.
Therefore, ‘UWJMS’ welcomes papers in the areas of:
Business,
Marketing,
Entrepreneurship,
Technology and Innovation,
Human Resource Management,
Finance,
Knowledge Management
Economics,
Employees/Consumers Psychology,
Business Ethics and
Sustainable Development etc.
University of Wah Journal of Management Sciences (UWJMS)
Volume 2, Issue 2, September 2018
ISSN (Print): 2521-5876 & ISSN (Online): 2523-0417
iii
EDITORIAL BOARD
Patron
Prof. Khaliq Ur Rehman Shad
Vice Chancellor, University of Wah
Executive Editor
Prof. Mushtaq Ahmad
Dean, Faculty of Management Sciences, University of Wah
Editor-in-Chief
Dr. Saman Attiq, Assistant Professor, UW
Associate Editor(s)
Dr. Nasir Mehmood, Assistant Professor & HOD, Faculty of Management Sciences, University of Wah
Assistant Editor(s)
Dr. Faiza Saleem, Assistant Professor, Faculty of Management Sciences, University of Wah
______________________________________________________________________
ADVISORY BOARD
INTERNATIONAL MEMBERS
Prof. Amin U Sarkar
Dean, College of Business and Public Affairs
Alabama A&M University Huntsville, USA
Prof. Muhammad Shahbaz
Professor
Montpellier Business School, France
Prof. ZHANG Xiaojuan
Professor
Wuhan University, China
University of Wah Journal of Management Sciences (UWJMS)
Volume 2, Issue 2, September 2018
ISSN (Print): 2521-5876 & ISSN (Online): 2523-0417
iv
Prof. Kubilay Ozyer
Associate Professor
Gaziosmanpasa University, Turkey
Prof. Sema Polatci
Associate Professor
Gaziosmanpasa University, Turkey
Prof. Balal
Associate Professor
University of Science & Technology, China
Prof. Rabia Imran
Associate Professor
Department of Management Sciences, Dhofar University, Oman
Dr. Abdul Karim Khan
Assistant Professor
UAE University, UAE
Dr. Amjad Shamim
Assistant Professor
University Teknologi PETRONAS, Malaysia
Dr. Muhammad Imran Qureshi
Director & Senior Lecturer
University Kuala Lumpur, Malaysia
Dr. Aila Khan
Senior Lecturer, School of Business
Western Sydney University, Australia
NATIONAL MEMBERS
Prof. Rauf I Azam
Vice Chancellor, Professor
University of Education, Lahore
Prof. Farzand Ali Jan
Vice Chancellor, Professor
IQRA National University, Peshawar
University of Wah Journal of Management Sciences (UWJMS)
Volume 2, Issue 2, September 2018
ISSN (Print): 2521-5876 & ISSN (Online): 2523-0417
v
Prof. Idrees Khawajah
Dean, Professor
Air University School of Management, Air University, Islamabad
Prof. Khurram Shahzad
Associate Dean, Department of Business Administration, RIPHAH, Rawalpindi
Prof. Abdul Raheman
Dean, Faculty of Management Sciences
University of Gujrat, Gujrat
Prof. Shujaat Mubarak
Dean, Faculty of Management Sciences
Muhammad Ali Jinnah University, Karachi
Prof. Mohsin Butt
Air University School of Management
Air University, Islamabad
Prof. Sajid Bashir
HOD & Associate Professor
Faculty of Management Sciences, Capital University Science & Technology, Islamabad
Dr. Imran Hameed
HOD & Assistant Professor, Lahore Business School
University of Lahore, Lahore
Dr. Farida Faisal
Director, University Institute of Management Science
PMAS Arid Agriculture University, Rawalpindi
Dr. Hassan Rasool
Assistant Professor, Pakistan Institute
of Development Economics, Islamabad
University of Wah Journal of Management Sciences (UWJMS)
Volume 2, Issue 2, September 2018
ISSN (Print): 2521-5876 & ISSN (Online): 2523-0417
vi
The Editor’s Note
I am pleased to introduce ‘University of Wah Journal of Management Sciences’, the emerging journal in the
field of management sciences. UWJMS will provide a platform for the original research in the field of
management, marketing, finance, human resource management and economics. The objective of UWJMS is to
publish up-to-date, high-quality and original research papers alongside relevant and insightful reviews. As
such, the journal aspires to be vibrant, engaging and accessible, and at the same time integrative and
challenging. Each issue of the journal will incorporate mix of qualitative and quantitative research papers
covering emerging aspects of management sciences.
Our editorial policy is governed by independent quality control, blind peer-review, strict adherence to HEC
policy requirements, zero tolerance to plagiarism and adherence to academic ethics in publishing. These
guiding principles are guaranteed by our Editorial/Advisory Board that contains world class national and
international scholars of high repute who have great contribution in the field of management sciences. This
issue contains the research related to the areas of marketing, management, finance, and organizational change.
We are grateful to our contributors of this issue. Our team led by imminent scholars and administrators aspire
to lead this journal to reach the height of perfection, and authenticity in the field of management sciences. We
are pleased to share that we aspire to make this journal a world-class publishing platform by producing
original research and getting membership in renowned abstracting agencies. Our goal is to make it recognized
journal by all regulating agencies including HEC very soon. It is only possible when the contributors of this
journal share their valuable wisdom in the shape of up-to-date knowledge in the form of research papers
whether qualitative or quantitative to this journal.
In conclusion, I would like to thank our Vice Chancellor (University of Wah) and all members of our Editorial
Board/Advisory Board and Contributors for joining us in this new fascinating and promising academic
project.
Dr. Saman Attiq
Editor-in-Chief
University of Wah Journal of Management Sciences
University of Wah Journal of Management Sciences (UWJMS)
Volume 2, Issue 2, September 2018
ISSN (Print): 2521-5876 & ISSN (Online): 2523-0417
vii
UNIVERSITY OF WAH JOURNAL OF MANAGEMENT SCIENCES
Volume 2, Issue 2, September 2018
Titles Page
1.
The Effect of Board Characteristics as Corporate Governance Attribute on Firm
Performance in Pakistan
Faiza Saleem
01-16
2.
3G/4G Mobile Network Band Wagon in Pakistan: A Mixed Method Inquiry into
Consumer Adoption Attitude
Moin Ahmed Moon1, Amna Farooq2, Ghazanfar Ali Abbasi3
17-35
3. Impact of Paternalistic Leadership on Project Success through Employee Creativity
with Moderating Role of Supervisor Expectations for Creativity
Asif Mehmood Rehmani1, Shabbar Hussain2
36-56
4.
Factors and Theories Determining Dividend Policy: Empirical Evidence from Pakistani
Banks
Nasir Nadeem1, Adnan Bashir2, Sumaira Gulzar3
57-72
5. Impact of Transformational Leadership on Project Success: Mediating role of Team-
Building and Moderating Role of Human Resource Management Practices
Khurram Yazdani1, Fuad Bashir2
73-90
6. Impact of Store Environmental Characteristics on Customers’ Impulse Buying
Behavior: Mediating Effect of Customers’ Positive Emotional Responses
Aneela Yaqoob1, Saman Attiq2, Nasir Mehmood3
91-105
The Effect of Board Characteristics as Corporate Governance Attribute on Firm Performance in Pakistan
1Faculty of Management, Universiti Teknologi Malaysia, Johor, Malaysia.
E mail: [email protected]&
University of Wah Journal of Management Sciences
Volume 2, Issue 2, September 2018, pp. 01-16
The Effect of Board Characteristics as Corporate Governance Attribute on
Firm Performance in Pakistan Faiza Saleem
Article History:
Received:
13 Jun, 2018
Revised:
20 Sep, 2018
Accepted:
30 Sep, 2018
ABSTRACT
Purpose: Most of the prior studies followed board characteristics as corporate
governance attribute, the study to follow on the basis of literature support to use
board characteristics as one of the corporate governance attributes. The objective of
this research study is to investigate the effect of the board of director's characteristics
on firm performance of the Pakistani oil and gas firms listed on Pakistan Stock
Exchange (PSX).
Methodology/Design: Data was collected from the annual reports of oil and gas
firms listed on (PSX). The study applies pooled OLS regression on all oil and gas
firms listed on PSX for the period from 2008-2015. Return on assets (ROA) is used
as a proxy for measuring firm performance which is the dependent variable. Whereas
the independent variables used in the study are board size, board independence, CEO
duality, board activity.
Findings: The board size and board independence are found significant factors of
firm’s performance in Pakistan. Whereas, CEO duality and board activity are
insignificant in determining the performance of firms in Pakistani oil and gas firms.
Implications: The outcomes and findings of the present study are significant for,
regulators, legislators and investors, in order to determine which governance
mechanism is important in improving firm performance in Pakistan.
Key Words: Return on assets, board size, CEO duality, board activity.
1. Introduction
The Corporate governance is a phenomenon in which corporations are controlled and
managed. The concept of corporate governance got rise in 1990’s due to occurrence of huge
bankruptcies and corporate scandals globally such as Enron, Xerox, WorldCom, Parmalat, Royal
Ahold, Flowtex are few examples of high profile cases and scandals (Ronen & Yaari, 2008).
These corporate collapse had decreased investors’ confidence and trust in financial statements
(Fodio et al., 2013) due to which it will be difficult for the companies to generate capital equity
Faiza Saleem
2
from investors and stock markets (Agrawal & Chadha, 2005). The criticism on the above said
corporate scandals indicates the lapse in appropriate supervision on management by the audit
committee and the board of directors (Al-Matariet al., 2012). In Pakistan, corporate scandals are
still there such as Taj company scandal, Mehran bank scandal, national bank scandal, Pakistan
Telecommunication Companies Limited (PTCL) privatizations are few cases. These corporate
collapses push the Security and Exchange Commission of Pakistan (SECP) regulatory authority to
develop a set of codes in order to increase governance practices, investor protection and reducing
the trust deficits among the owner, agent and business community.
Consequently, for long time survival of firms, the significance of corporate governance
attributes has been highlighted by these large world corporate frauds and scandals (Mokhtar et al.,
2009). So the first codes were issued in March 2002 and are revised and re-released in 2012.
Although the corporate governance codes in Pakistan are revised and re-released, but still the
corporate governance environment in Pakistan is not mature enough and most of the businesses
are controlled and managed my family members. In addition, in Pakistani companies the number
of independent directors is insufficient, CEO is in duality and ownership is concentrated and is in
the hands of a few large stockholders, mostly controlled by the family (Shabbir, 2012; Tahiret al.,
2012). Hence the conflict of interest is between large and small shareholders (Shleifer & Vishny,
1997). The reason for all these conflicts are due to the separation of ownership and control in
public companies which is called as agency problem (Jensen & Meckling, 1976).
Fama and Jensen (1983) suggested that firms need various monitoring and control
mechanisms in the form of corporate governance attributes in order to overcome agency problems
and increasing firm value. One of the control mechanism is board characteristics, as most of the
prior studies followed board characteristics as a corporate governance mechanism, the study to
follow on the basis of literature support (Brennan, 2006). The reason for choosing this attribute is
that the main decision-makers in the business are the board of directors because they have the
authority to revert all decisions that are made by the topmanagement (Fama & Jensen, 1983;
Hermalin & Weisbach, 2003). Agency theoryprophesies that boards will enrich the honor of a firm
financial reports by observing the management. Evidence from previous studies suggested that
various board characteristics such as board size, the composition of independent directors, the
CEO duality and board activity may power the effectiveness of their monitoring role (Blacket al.,
2006; Johlet al., 2015; Yermack, 1996). Moreover, the previous researches have shown that board
characteristics are positively related with a firm performance in various economies however
alternative crick of this research shown that there is no any association between board
characteristics and firm performance. To bring together the contradictions and indecisive findings
from the prior researches, this current research examined the association between board
characteristics and firm performance for the oil and gas firms listed on Pakistan stock exchange
(PSX).
The Effect of Board Characteristics as Corporate Governance Attribute on Firm Performance in Pakistan
3
In this research study, firm performance will be determined through board characteristics
as one of the corporate governance attributes. In Pakistan, corporate governance is at its
preliminary stage, although the codes of corporate governance in Pakistan are revised and
rereleased in 2012. Therefore, proper application of corporate governance and its practice is not
streamlined in Pakistan yet. Hence, the current research study will establish an empirical
association of board characteristics with firm performance in Pakistan. Board characteristics is one
of the important element of firm’s performance. This current research study is going to be
conducted in the oil and gas sector of Pakistan. The results obtained from this particular study will
help any other sector to obtain competitive edge by incorporating appropriate corporate
governance practices in the firms, also help to increasing the performance of the company.
Moreover, the results will provide important information to policy makers in order to take proper
measures to confirm the actual implementation of corporate governance practices in Pakistan. The
research objectives of the study are; (1). To determine the effect of board size on firm performance
in Pakistan. (2). To find out the impact of board independence on firm performance in Pakistan.
(3).To evaluate the effect of CEO duality on firm performance in Pakistan and finally (4). To
investigate the impact of board activity on firm performance in Pakistan.Generally, the significant
contributions of this study are twofold, namely theoretical development (knowledge) and policy
implication. In relation to theoretical development, this study fills the gap in the literature by
capturing the impact of various board characteristics on firm performance in oil and gas sector in
Pakistan. In relation to policy implication, the findings of the current study can be fruitful for
external auditors, regulators and legislators in their attempts to enhance the quality of monitoring
mechanisms. There are also implications for users of financial statements and investors, especially
for those who have keen interest on investing in oil and gas sector in Pakistan.
2. Literature Review
2.1 Board Characteristics and Firm Performance
Board characteristics are the most significant attribute of corporate governance due to its
relevance for planning and decision-making for organizations (Lam & Lee, 2012). The boards of
directors mitigate the grievances and improve the relations between stakeholders and firms in
order to improve the level of financial growth (Fama & Jensen, 1983). Thus, the effectiveness of
the board calculated through a number of parameters like independence, size, CEO duality, and
activity.
2.1.1 Board Size and Firm Performance
Board size refers to the total number of board members on the board (Gulzar & Wang,
2011; Iraya et al., 2015; Masood & Shah, 2014; Uwuigbeet al., 2014). According to Lipton and
Lorsch (1992), the best board size should make up of eight (8) or nine (9) directors, and greater
Faiza Saleem
4
numbers will decrease the effectiveness due to problems regarding the process and coordination
(Jensen, 1993). Board size seems to be different from one country to the other country, In case of
Pakistan the revision of codes of corporate governance in the year 2012 does not specify the exact
number of board members, the average number of members in the board are 6-7 in most of the
firms in Pakistan. According to Johl et al. (2015), the appropriate size of the board should be
determined how effectively the board is able to operate as a team.
The previous research studies provided mixed results on the association between board
size and firm performance. Sandaet al. (2010), Chan and Li (2008), De Andres et al. (2005), and
Mokhtar et al. (2009) revealed that large number of members on the boards are related with
weaker firm performance. Likewise, Yermack (1996) used Tobin’s Q ratio as a proxy for
determining the value of firm performance, the result shows that there is a negative relationship
between board size and firm performance. The previous studies which were conducted to analyze
the association between board size and firm performance revealed negative results (Eisenberg et
al., 1998; Mak & Kusnadi, 2005; Ujunwa, 2012), the result shows that larger board is ineffective
in improving the financial performance of the companies.
On the contrary, the other views also claimed that small board size shows more
competency to monitor the CEO's behaviors in addition to making appropriate decisions for the
firm and increase firm performance. The Meta-analysis technique has been used by Dalton et al.
(2003), revealing that larger the board size, greater the firm performance irrespective of the nature
of the business and which measure was used to determine financial performance. However, De
Andres and Vallelado (2008) favors for larger board to evaluate for creating more value for firm.
This finding. was also .supported by some other prior studies by Shukeriet al. (2012), Brennan
(2006), Daily and Dalton (1993) and Johlet al. (2015). There are some other similar researchers
who found that there is no significant association between board size and firm performance
(Bhagat & Black, 2002; Connelly & Limpaphayom, 2006). On the basis of the above-mentioned
facts and empirical evidence, the study proposed the following hypothesis for empirical testing:
H1: There is a negative association between board size and firm performance.
2.1.2 Board Independence and Firm Performance
Board independence means the percentage of independent non-executive directors in the
total number of members in the board (Irayaet al., 2015). The independent directors play a major
role in arbitrating the conflicts. between management and shareholders and enhancing the
transparency and compliance of accounting reports (Kent et al., 2010). According to Jensen and
Meckling (1976), transparency of boards to monitor and control the opportunistic behavior of
management is more concerned with pressure of outsiders. The board consists of executive and
non-executive directors who are either non-independent or dependent directors. The Pakistani
revised codes on corporate governance 2012 recommended that it is mandatory to have at least
one or one third independent directors of the total members on the board.
The Effect of Board Characteristics as Corporate Governance Attribute on Firm Performance in Pakistan
5
The greater number of non-executive .directors on the board tend to be negatively related
to the fraudulent financial statement because independent directors do not have any self-interests
and they control managerial activities to protect the interests of investors (Williamson, 1988). The
literature posits the inconsistency between the independence of board and performance of firms.
Dehaeneet al. (2001) and Rhoades et al. (2000) support the argument of selecting independent
board as outsiders for transparent results and the protection of stakeholders’ interests, which may
result higher level of return on equity. Lam and Lee (2012) investigated that large number of
independent directors on the board tend to lead increasing firm performance as compared to the
board with more executive directors. Consistent with this argument, the prior studies which were
conducted to analyze the association between board independence and firm performance revealed
positive results (Connelly & Limpaphayom, 2006; Kamardin, 2009; Krivogorsky, 2006; Lefort &
Urzúa, 2008; Ponnu, 2008). Few researchers such as Ericksonet al. (2005), Coleset al. (2001),
Agrawal and Knoeber (1996), Klein (2002) and Yermack (1996) found a negative relationship
between board independence and firm performance. On the contrary, De Andres et al. (2005),
Bhagat and Black (2002), Haniffa and Hudaib (2006)and Nahar Abdullah (2004)have failed to
find a statistically significant association .between board independence and firm performance. On
the basis of the above-mentioned facts and empirical evidence, the study developed the following
hypothesis.
H2: There is a negative association between board independence and firm performance.
2.1.3 CEO Duality and Firm Performance
CEO duality means when a person carries both roles of the firm's CEO and chairman of
the board (Apadore & Zainol, 2014; Kamran & Shah, 2014; Nugroho & Eko, 2012). The argument
in favor of CEO duality explains that, when CEO duality occurs in a firm, it will provide a more
flexible environment for management and may provide more effective monitoring (Cornett et al.,
2008; Davidson et al., 2004; Jensen, 1993). Moreover, the impartiality and quality of board control
is generally perceived to suffer if the CEO is also the board chairperson. In case of Pakistan CEO
is in duality as most of the businesses are run by family members and all the posts are occupied by
family members. Therefore the performance of the firm is affected.
According to Rahman and Haniffa (2005) the role of CEO’s duality is viewed with the
help of stewardship theory and agency theory. Agency theory suggested that it is necessary to keep
the roles of CEO and board chair separate in order to ensure the supremacy of board over
management (Hashim & Devi, 2008). While, the stewardship theory suggests that by keeping the
role of CEO and board chair unite, the authority and decision making of chair/CEO get enhanced
that help in creating better performance and higher value for the firms. Brennan (2006) declared
the negative association between CEO duality and firm performance. Moreover, Heenetigala and
Armstrong (2011) concluded that duality of CEO impact negative on the firm's performance, so
single entity on two positions may be biased in decision making in the firms. Likewise, Lam and
Faiza Saleem
6
Lee (2012) described that CEO duality has a significant but negative relationship with firm
performance. The findings of this study is consistent with the agency theory which suggests that
board duality promotes CEO entrenchment by reducing board monitoring effectiveness and
impedes firm performance. Consistent with this argument, the prior studies which were conducted
to analyze the relationship between CEO duality and firm performance revealed negative results
(Coleset al., 2001; Feng et al., 2005; Judge et al., 2003; Sanda et al., 2010; Ujunwa, 2012).
In relation to the CEO duality, other similar studies found no significant association
between CEO duality and firm performance, indicating that the duality is neither a motivation nor
a constraint for managers to increase firm performance. These findings are consistent. with prior
studies by Carapeto et al. (2005), Schmid and Zimmermann (2008) and Wan and Ong (2005). On
the basis of above-mentioned facts and empirical evidence, the study proposed the following
hypothesis for empirical testing:
H3: There is a negative association between CEO duality and firm performance.
2.1.4 Board Activity and Firm Performance
Board activity provides an opportunity to discuss all of the important issues of the firm
on a timely basis. The frequency of board meetings is considered to be an important way of
improving the effectiveness of the board. Board activity has been defined as the number of
meetings conducted by the board in a year (Gulzar & Wang, 2011). According to Ronen and Yaari
(2008), board activity is a key element of board operations and it is the responsibility of the board
of directors to attend board meetings. In Pakistan, the revision of codes of corporate governance in
2012 recommended to attend board meeting on regular basis in order to increase firm
performance. Also, it is mandatory for the board to disclose the number of board meetings
conducted in a year. There are contradictory suggestion found for frequency of board meetings
conducted in a year. Lipton and Lorsch (1992), favor for having frequent meetings for better
performance while Carcelloet al. (2002) had reservation for frequent meeting due to fear of high
cost but at the same time, they are found agreed with notion of frequent meeting due to chance of
in depth audit for better performance. It was also found that companies with poor board
attendance at meetings perform .significantly worse than boards which has good attendance during
financial crisis. On the contrary, the other view claim that frequent attendance of board meeting is
not always useful or effective in increasing firm performance (Vafeas, 1999). Also, there are
pessimist point of view with respect to waste of time, increase in travelling and administrative cost
that may lead to firm less productive (Evanset al., 2002). On the basis of above-mentioned facts
and empirical evidence, the study proposed the following hypothesis for empirical testing:
H4: There is a negative association between board activity and firm performance.
The Effect of Board Characteristics as Corporate Governance Attribute on Firm Performance in Pakistan
7
3 Research Methodology
3.1 Research Design
According to Bickman and Rog (2008), research designs serves as the architectural
blueprint of a research project, linking design, data collection, and analysis activities to research
questions. The study employs a quantitative research approach based on the extensive literature
reviewed. In the quantitative research approach, data can be analyzed in terms of numerical
values. According to Punch (1998), the quantitative methodology is the best approach in order to
get a better understanding of a research problem through numerical tendency.
3.2 Population, Sampling and Data Collection
For analyzing the effect of board characteristics on firm performance, secondary data was
collected from published annual reports of the oil and gas firms listed on PSX for the period of
2008-2015. The collection of data for analysis started from the year 2008 due to its availability on
published sources that is Data stream (Thomson Reuters) and annual reports by oil and gas
companies. However, some firms were established after 2008, some of firms in duration of this
time where dropped from stock exchange and some have incomplete data; therefore the target
population of this study only contains 16 oil and gas firms selected from oil and gas sector.
The reason for choosing oil and gas sector is that Pakistan is undergoing the worst
shortage of oil, gas and electricity (Saleh, 2015). The main reason for this is inappropriate
distribution of resources, unstable law and order situation, poor management and bad governance
(Saleh, 2015). Since the oil and gas sector has a massive share in the country’s economic growth
this sector hold great significance. The present research study used panel data techniques.
Moreover, census sampling technique is adopted for the collection of secondary data from oil and
gas firms listed on PSX. The criteria for sampling are: (1). The firm remained listed on PSX
during the selected period of time (Tabassum et al., 2013), (2). Only firms with complete required
data are included (Latif & Abdullah, 2015) and (3). Firms with incomplete data are excluded
(Shah et al., 2009).
3.3 Dependent and Independent Variables
The dependent variable used in this study is Return on Assets (ROA) which is used as a
proxy to measure firm’s performance. The reason for choosing this variable is justified from some
prior studies (Johl et al., 2015). Whereas, board activity, board size, CEO duality and board
independence are the independent variables used in this study. Table 3.1 shows the list of selected
dependent and independent variables along with their formulation.
Faiza Saleem
8
Table 1: Definition of Variables
VARIABLES Formulation
Dependent Variables
Return on Assets (ROA) Measured as a percentage of net profit after taxes to total
assets of the firm
Independent Variables
Board Size ((BS) Total number of members on the board
Board Independence (BI) Number of independent directors
CEO Duality (CEODL) CEO duality is represented by a dummy variable with the
assigning value 1 if the role of CEO and chairman are
combined and 0 otherwise
Board Activity (BA) Number of board meetings conducted in the year
4 Results and Data Analysis
The quantitative data analysis would be adopted by using pooled OLS regression. The
data has been analyzed using the STATA software. Equation 1 provides the association between
board characteristics and firm performance by using a regression model.
ROAit = β0 + β1BDSit + β2BDINDit + β3CEODLit + β4BDAit + εit
(1)
4.1 Descriptive Statistics
Descriptive statistics are brief descriptive coefficients that summarize a given data set,
which can be either a representation of the entire population or a sample of it. Descriptive statistics
are broken down into measures of central tendency and measures of dispersion. The measure of
central tendency include the mean, median, and mode, while measures of dispersion include the
standard deviation, minimum and maximum. To obtain an overview of the nature of data set,
descriptive statistics analysis were employed for dependent and independent variables.
The descriptive statistics are shown in Table 2, which depicts the mean, minimum,
maximum, and standard deviation of all the variables which have been taken under study. Return
on Assets (ROA) varies from -0.268 to 0.513, with a mean value of 0.110 and standard deviation
of 0.123 respectively. Board size of a firm (BDS) varies from 6.000 to 15.000 with a mean value
of 9.234 and standard deviation of 2.601 respectively. The mean value of board independence
(BDIND) is 1.781, ranging from 0.000 to 9.000 with a standard deviation of 2.350. CEO duality
(CEODL) varies from 0.000 to 1.000, with a mean value of 0.750 and standard deviation of 0.434
respectively. The mean value of board activity (BDA) is 5.625, ranging from 4.000 to 16.000 with
a standard deviation of 2.224.
The Effect of Board Characteristics as Corporate Governance Attribute on Firm Performance in Pakistan
9
Table 2: Descriptive Statistics
STATS Mean Min Max Std. Dev. Observations
ROA 0.110 -0.268 0.513 0.123 192.000
BDS 9.234 6.000 15.000 2.601 192.000
BDIND 1.781 0.000 9.000 2.350 192.000
CEODL 0.750 0.000 1.000 0.434 192.000
BDA 5.625 4.000 16.000 2.224 192.000
ROA = Return on Assets, BDS = Board Size, BDIND = Board Independence, CEODL = CEO
Duality, BDA = Board Activity
4.2 Correlation Analysis
To examine the strength and direction of relationship between board characteristics and
firm performance, analysis of correlation matrix was estimated. The findings of the correlation
matrix are presented in Table 3. The table shows that the correlation coefficients of board
independence with board size is 43.49% at the level of 1% significance. Likewise, board activity is
significant at 1% level with board size at 21.98% of correlation. Similarly, the correlation
coefficients of return on assets with board size is -16.86% at the level of 10% significance. The
correlation coefficients of board activity with board independence 17.85at the level of 10%
significance. Less the value is good for the firm indicating that there is no multicollinearity issues
in the given data. , A number of previous studies such as Hairet al. (2006); Gujarati and Porter
(2009) suggest 0.8 at the beginning at which multicollinearity concerns may harm the regression
analysis.
Table 3: Correlation Matrix
BDS BDIND CEODUL BDA ROA
BDS 1
BDIND 0.4349*** 1
CEODL 0.0012 -0.018 1
BDA 0.2198*** 0.1785* -0.0108 1
ROA -0.1686* 0.1035 0.0068 0.0208 1
The p-values shown in parentheses i.e. ***, **, and * denotes significance at 1%, 5% and
10% levels, respectively. ROA = Return on Assets, BDS = Board Size, BDIND = Board
Independence, CEODL = CEO Duality, BDA = Board Activity.
Faiza Saleem
10
4.3 Variance Inflation Factor (VIF) and Tolerance Test
Table 4 presents the findings relevant to VIF and tolerance value for the sample of oil and
gas firms listed on PSX. The condition of VIF and tolerance is that, if the value of VIF is more
than 10 and the value of tolerance is less than 0.10 for any variable, it means the variable has some
problem, which further needs to be addressed. The result of this test shows that the variance
inflation factor (VIF) value was less than 10 and the tolerance value of variables was more than
0.10. Thus, this indicates that there is no evidence for the multicollinearity problem between
predictor variables.
Table 4: VIF and Tolerance Test
Variable VIF 1/VIF
BDS 1.270 0.7898
BDIND 1.240 0.8032
CEODUL 1.000 0.9994
BDA 1.060 0.9431
BDS = Board Size, BDIND = Board Independence, CEODUL = CEO Duality, BDA =
Board Activity
4.4 Pooled OLS Regression Analysis
Pooled OLS model is also known as a constant coefficient model, is generally used for
estimating unknown parameters in a linear regression model. It helps to reduce the errors between
the estimated points on the line and the actual observed points (Hill et al., 2008). It is assumed that
the intercept and coefficient are homogenous for all firms. In general, ordinary least square
regression model ignores the individual and time effects. Table 5 shows the result of pooled OLS
regression of oil and gas sector listed in PSX.
Table 5: Pooled OLS Regression of Board Characteristics with Firm Performance
Dependent Variable Independent Variables Coefficients P-value
Firm Performance
(ROA)
BDS -0.0127*** 0.001
BDIND 0.0111*** 0.007
CEODUL 0.0032 0.871
BDA 0.0023 0.562
Cons 0.1933 0.000
R Square 0.068
F-Statistics 3.450
Prob (F- Stat) 0.000
The p-values shown in parentheses i.e. ***, **, and * denotes significance at 1%, 5% and 10%
levels, respectively.
The Effect of Board Characteristics as Corporate Governance Attribute on Firm Performance in Pakistan
11
According to Table 5, the F statistics was highly significant (F = 3.450, p-value < 0.000),
indicating that board characteristics could be considered to be influencing firm performance. The
R square value is 0.068 which indicates that the variables in the model explained only 6.8% of the
variation in firm performance. According to Gujarati and Porter (2009), the objective in regression
analysis is not to obtain a high value for R square but rather to obtain dependable estimates of the
true population regression coefficients and draw statistical inferences about them. The researcher
should be more concerned about the logical or theoretical relevance of the explanatory variables to
the dependent variable and their statistical significance; if the R square is low it does not mean the
model is necessarily poor (Gujarati & Porter, 2009).
According to Table 5, the finding of the regression model indicates that board size -
0.0127 (p = 0.001) is negatively significant to the firm performance. The result showed that firms
with more board size will cause a decrease in firm performance thus supporting H1a. The findings
are supported by some prior studies (De Andres & Vallelado, 2008; Sandaet al., 2010). The Table
also shows that board independence 0.0111 (p = 0.007) is positively significant to the firm
performance. The results revealed that an increase in board independence will cause an increase in
firm performance thus supporting H2a. The results are supported by some previous studies
(Connelly & Limpaphayom, 2006; Lefort & Urzúa, 2008; Ponnu, 2008). Whereas CEO duality
and board activity have no significant relationship with firm performance. These findings are
consistent with some previous studies (Carapeto et al., 2005; Schmid & Zimmermann, 2008).
5 Conclusion and Future Recommendations
In the overall sample of oil and gas firms listed on PSX, board size remained significantly
negatively and board independence is significantly positively correlated with a firm performance
by using OLS regression. The findings show that small board and more independent directors on
the board is effective in increasing firm performance (Kamardin, 2009; Krivogorsky, 2006; Lefort
& Urzúa, 2008; Sanda et al., 2010). However, the findings found that CEO duality and board
activity does not affect firm performance in the oil and gas sector in Pakistan.In Pakistan revision
of Corporate Governance codes in 2012 in Pakistan improve governance mechanism in Pakistan
specifically board composition and structure in order to create good dynamics of board
composition discussion which will lead to better firm performance and create good value creation
to shareholders.
This study relies on quantitative information published in the DataStream system and
annual reports. Future research may need to adopt qualitative information and use appropriate
research methodologies to provide enhanced evidence on the association between board
characteristics and firm performance in various economies. Future research could consider if there
are other board characteristics variables that could be used to investigate the said
relationship.Future research may consider a longer time frame with the resulting impact between
board characteristics and firm performance.
Faiza Saleem
12
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3G/4G Mobile Network Band Wagon in Pakistan: A Mixed Method Inquiry into Consumer Adoption Attitude
1, 2Lecturer, Air University School of Management, AU Multan Campus: [email protected] 2PhD Scholar, Graduate School of Business, University of Sains Malaysia, Malaysia
University of Wah Journal of Management Sciences
Volume 2, Issue 2, September 2018, pp. 17-35
3G/4G Mobile Network Band Wagon in Pakistan: A Mixed Method Inquiry
into Consumer Adoption Attitude Moin Ahmed Moon1, Amna Farooq2, Ghazanfer Ali Abbasi3
Article History:
Received:
20 Jun, 2018
Revised:
26 Sep, 2018
Accepted:
28 Sep, 2018
ABSTRACT
Purpose: The purpose of this research was twofold; first to explore the basic level
of understanding of 3G/4G and to identify the factors considered most important by
consumers in shaping their adoption attitude. The second purpose was to
investigate the applicability of factors identified by 3G/4G adoption literature in
Pakistan.
Methodology/Design: Two separate studies were designed. In Study 1, nine focus
group interviews were conducted with university students, general consumers and
telecom employees of Islamabad. 9 factors were identifiedon the basis of im-
portance given by respondents. In Study 2, we tested a model based on the previous
literature with 610 mobile phone user of Islamabad.
Findings: Except two all hypothesis were accepted. Findings of both studies sug-
gest essential factors in shaping up 3G/4G adoption attitude.
Implications: Managerial implications, limitations and future research directions
are discussedat the end.
Keywords: Social Influence, Innovation, Image, Price, Perceived-usefulness, Atti-
tude-towards-use
1. Introduction
Mobile services and the latest technology like 3G/4G have become an integral part of
people’s lives worldwide. Steady growth has been seen in 3G/4G adoption throughout the world.
The range of 3G/4G diffusion exists at a different level in various countries. Significant regional
differences exist in 3G/4G subscriber’s number worldwide, about half of 3G/4G subscribers are
found in the Asian region. Therefore, it is quite imperative to study 3G/4G technology acceptance
in Pakistan. Given the importance of the phenomenon, the purpose of this research was twofold,
first to explore the basic level of understanding of 3G/4G and to identify the factors considered
most important by consumers in shaping their adoption attitude and secondly to the applicability
of factors identified by 3G/4G adoption literature using the theoretical basis provided by
Moin Ahmed Moon1, Amna Farooq2, Ghazanfer Ali Abbasi3
18
technology acceptance model, technology acceptance model no 2 and the Unified Theory of
Acceptance and Use of Technology (Davis, 1989; Venkatesh & Davis, 2000).
The current study develops an integrated technology acceptance model for 3G/4G mobile
services, a theoretical framework to describe the social and psychological factors influencing user
attitudes toward the 3G/4G services. By integrating the technology acceptance model and unified
model to represent some unique features of the 3G/4G services under study, to achieve our pur-
poses, we designed two studies. Study 1 is a qualitative inquiry and study 2 is a quantitative inves-
tigation. We first discuss the methods and results of study 1 which is followed by the findings of
study 2.
2. Study 1: Qualitative Study
A qualitative study has several objectives in sequence i.e. ‘to get an understanding of
consumers’ usage patterns and preferences regarding current mobile network’, ‘to get an under-
standing of consumers’ basic level of awareness about 3G/4G mobile technology. ‘Analyzing
important features and functions/utilities of the 3G/4G mobile network within consumer context
in the formation of attitude-towards-use of technology’, and ‘identifying the level of consumers’
willingness to pay against their preferred 3G/4G network functions’. The reason behind conduct-
ing a qualitative study was the consistent criticism of statistical hypothesis testing procedure in
social sciences when it comes to examining a new phenomenon (Moon, Habib,& Attiq, 2015).
3G/4G researches have flourished in previous years in countries that have adopted the 3G/4G
technology. In Pakistan, 3G/4G is scheduled to launch in September (Zaidi, 2014).
Therefore, qualitative exploration of the phenomenon is required in Pakistan. Another
reason to conduct the qualitative study was to use concepts identified in this part as an input in
operationalization and development of research model.
2.1 Research Methodology
Study 1: Qualitative Study
2.1.1 Sample (Study 1):
The target population was potential 3G/4G consumers of Islamabad. We further divided
this population into three subcategories. The first category was composed of students of different
universities of Islamabad. The second category included general consumers. Third category com-
prised of telecom sector employees. Mixed purposeful sampling was employed because it allows
using two sampling techniques at the same time (Moon et al., 2018). For a selection of the sample
in the first phase of data collection, researchers used their personal contacts to gather participants.
In the second and third phase of data collection, normal consumers and telecom employ-
ees were selected through snowball sampling whereas students were selected using convenient
3G/4G Mobile Network Band Wagon in Pakistan: A Mixed Method Inquiry into Consumer Adoption Attitude
19
sampling. 97 individuals participated in this study.Participants of the study consisted of 51 males
and 46 females. Youngsters of age group 30-35 dominated the sample and majority of the sample
had bachelors or higher degree. Only 13 respondents were not doing anything at time of the inter-
views. Other 84 participants were employed, had their business or were students.
2.1.2 Measures (Study 1):
In each focus group interview,fundamental questions about 3G/4G were asked. Ques-
tions included in these sessions were: what is 3G or 4G? What are its expected features? What do
you think of 3G/4G? What may be its potential advantages and disadvantages? What would it do
for you? Moreover, who would influence you to adopt 3G/4G? What feature do you consider most
important that would make up your mind to adopt 3G/4G? All participants in the sample had to
fulfill the criteria of selection i.e. participant must be a mobile phone user (especially
smartphones).
2.1.3 Procedures (Study 1):
We conducted nine focus group interviews in few public and private Universities of Is-
lamabad. Each interview was composed of 9 to 12 participants and lasted for an average of one
hour. Interviews were conductedfrom June 2017 to August 2017. Participants were invited over
lunch in university campus mostly on Saturdays, as it is the holiday In Islamabad. These inter-
views were conducted in three phases.
Table 1: Sample Characteristics (Study 1)
Participants profile Phase 1
N=32
Phase 2
N=32
Phase 3
N=33
Total
N=97
Age
1.20-25 10 7 8 25
2.25-30 13 16 11 40
3.30-35 6 9 8 23
4.35-above 3 0 6 9
Gender 1.Male 21 9 21 51
2.Female 11 23 12 46
Qualification
1. Under bachelors 9 1 3 13
2. Bachelors 5 18 17 40
3. Masters 16 12 11 39
4. Above masters 2 1 2 5
Income
1. Less than 10000 6 10 5 21
2. Less than 20000 12 6 7 25
3. Less than 30000 4 8 7 19
4. Above 30000 10 8 14 32
Occupation 1. Employed 10 9 11 30
Moin Ahmed Moon1, Amna Farooq2, Ghazanfer Ali Abbasi3
20
2. Businessmen 5 7 9 21
3. Students 12 12 9 33
4. Unemployed 5 4 4 13
In the first phase, we conducted three focus group interviews. The first focus group inter-
view was conducted with students, second with general consumers and last was conducted with
telecom employees. This sequence was followed during later two phases.
2.1.4 Ethical Consideration(Study 1)
Respondents were ensured the confidentiality of their responses and all other ethical con-
siderations for research were taken into account during the process of data collection (e.g. Pope,
Ziebland & Mays, 2000)
2.1.5 Results and Analysis (Study 1)
To assure the accuracy of understanding of the concepts, researchers grouped common
responses and assigned relative meaningful names name to the concepts. Then the participants
were asked whether the concept describes their thoughts. After confirming this, we wrote all iden-
tified concepts on board and asked them to rate the concept according to their preferences. If we
compare the findings of the focus group discussions sample category wise (i.e. students, general
consumers and telecom employees), telecom employees were very much informed about the
3G/4G services. Most of them knew what 3G/4G is, what 3G/4G will do and how it will work.
Majority of employees explained the difference between currently available 2G and upcoming 3G
services. The case was oppositeto general consumers and to our amazement with students. None
of the general consumers knew about the 3G/4G at all. Only three students out of 33 knew that 3G
stands for third generation mobile technology and it provides faster speed than 2G services. Then
the researcher briefly introduced 3G concepts to the participants so that the factors that may make
up their intention could be identified. Results revealed that social networking and cost are the
most important aspects. Consumers prioritized the usage of 3G/4G services for the social net-
working purposes. At the same time, consumers are greatly concerned about the potential high
prices of 3G/4G services. Results suggest that lower prices of 3G/4G services would enhance the
possibility of adoption of 3G/4G for a broader range of consumers. Then they perceived high
speed to be influential in developing their intention towards 3G/4G technology.They perceive a
considerable difference among data speeds between 3G and 2G services.
3G/4G Mobile Network Band Wagon in Pakistan: A Mixed Method Inquiry into Consumer Adoption Attitude
21
Table 2: Analysis of Qualitative Study
Sr.
No.
Concepts Identi-
fied
Total
Weights
Phase 1
N=32
Phase 2
N=32
Phase 3
N=33 Average
Weights
FG1 FG2 FG3 FG4 FG5 FG6 FG7 FG8 FG9
1 Entertainment 10 8 10 6 9 10 7 9 9 7 8.3
2 High Speed 10 9 10 10 10 10 9 10 9 10 8.6
3 Social networking 10 10 8 10 10 10 10 10 9 10 9.7
4 Cost 10 10 10 8 8 9 8 10 10 9 9.1
5 High quality 10 7 7 9 8 8 8 7 9 9 8
6 Status symbol 10 8 9 6 9 10 6 8 10 7 8.1
7 Fun for time pass 10 6 9 6 8 9 6 6 7 6 7
8 Informative 10 8 6 9 9 7 7 8 7 10 7.9
9 Something new 10 6 6 6 8 6 7 6 6 7 6.5
Note: average weight= total of all weights /no of focus group interviews
FG= Focus group session
Moin Ahmed Moon1, Amna Farooq2, Ghazanfer Ali Abbasi3
22
Entertainment is another perceived important aspect of 3G/4G services that would enable
the user to stream online listen, watch and download music, video games dramas movies and
sports events. Using 3G/4G services will enhance consumer social status as evident from the re-
sults. Consumers consider using 3G to be essential if their peers family members friends or group
fellows are using it. They argued that they were very much concerned about their self-image and
would prioritize using 3G/4G if it enhances their social standing. Quality of 3G/4G services, in-
formation seeking medium and fun and novelty seeking were other important aspects that were
associated with 3G/4G adoption intention but were not as important as previously discussed as-
pects.
3 Study 2: Quantitative Study
This study aimed at developing ‘3G/4G technology acceptance model’ in consumer con-
text based on previous core technology models such as ‘Technology Acceptance Model (TAM)’
and the ‘Unified Theory of Acceptance and Use of Technology (UTAUT).’
3.1 Conceptual Development
The TAM has gained much respect in the information technology and information sys-
tems study (Davis, 1989). The TAM advised that two variables perceived ease of use and per-
ceived usefulness are two key factors in explaining the use of the system. UTAUT (Venkatesh &
Davis, 2000) has refined the crucial factors and contingencies regarding forecasting of behavioral
intention in the technologyused mainly in organizational contexts. The behavioral intention in
technology usage is influenced by performance expectancy, effort expectancy and social influ-
ence, though technology use is determined by facilitating conditions and behavioral intention.
However, age, gender, experience and voluntariness moderate several relationships in the UTAUT
model.
UTAUT model incorporated TAM constructs, perceived usefulness and ease of use by
insertion of variables i.e. performance expectancy and effort expectancy. Though according to
UTAUT model effort expectancy significantly determine acceptance of information technology
by consumers, apprehensions for ease of use tend to turn non-significant over the prolonged and
persistent use of technology (Marchewka, Liu, & Kostiwa, 2007). Hence, only in prior stages of
new technology usage, perceived ease of use is more relevant and positively affect perceived use-
fulness (Davis, 1989; Davis et al., 1989). However, as compared to TAM studies alone, 70% of
the variance is accounted for by the UTAUT model (Marchewka, Liu,& Kostiwa; 2007). In the
current study, due to its broad application, both acceptance models (i.e. TAM and UTAUT) have
been applied as a theoretical framework.
3G/4G Mobile Network Band Wagon in Pakistan: A Mixed Method Inquiry into Consumer Adoption Attitude
23
3.2 Hypotheses Development
3.2.1 Attitude-towards-Use (ATT)
Attitude is defined as an individual’s favorable or unfavorable propensity towards a
specific phenomenon (Allport, 1964). In this research, we defined attitude as a consumer’s favor-
able or unfavorable propensity towards 3G/4G technology. Attitude has been acknowledged to be
a precursor of consumer behavioral intentions (Garg & Garg, 2013; Moon et al., 2017). As far as
3G/4Gtechnology is concerned, it is merely different from 2G technology regarding its speed and
bandwidth for accessing the wireless network. The majority of the consumers of mobile services
has already been exposed to the 3G/4G mobile phone due to the rapid expansion of smartphones
and have formed attitudes towards the acceptance and usage of 3G/4G technology.
3.2.2 Social Influence (SINF) and Social Norms (SNR)
Social influences are defined as the extent of perception that a person holds vital that
others believe he or she should use new system technology or application. Social influences are
usually categorized into three parts. These include subjective norms, social factors and finally the
image. Subjective norms are an individual’s perceptions about what people who are close to him
think about a specific behavior. Social factors include the peer, group culture and the nature of
relationships that an individual has with others in a particular setting. The image is defined as the
individual’s social image that is resultant of using new system/technology/application (Venkatesh
et al., 2003). It implies that if a person acts in a way that conforms to the norms of his group and
people around, and others approve this behavior around him, then the individual does not only
gain acceptance from the group but also receives social reinforcement (Venkatesh & Davis, 2000).
Social influences were dropped from earlier TAM studies, but numerous studies found it positive-
ly related to the behavior of a consumer in a technology context (Grag & Grag, 2013). As sug-
gested by several of consumer behavior theories (e.g. TRA), social influences play an overwhelm-
ing role in the development of consumer behavior also in technology acceptance and usage behav-
ior (Yang, 2017). Social influences have a positive influence on perceived usefulness and behav-
ioral intentions.
In findings, utilizing the UTAUT2 model, Newby, Nguyen and Waring (2014) remarked
habits as an important influencer of the adoption process. It was found in a study conducted on
chines consumer of mobile social network services that social influences have unique implications
in understanding the technology adoptions behavior of consumers. Various studies found that so-
cial influences have also played a significant role in the formation of intentions to adopt 3G/4G
technology (Moon & Attiq, 2018).
H1: Social norms have a significant positive influence on perceived usefulness.
H2: Social norms have a significant positive influence on perceived ease of use.
H3: Social influence has a significant positive influence on perceived usefulness.
H4: Social influence has a significant positive influence on perceived ease of use.
Moin Ahmed Moon1, Amna Farooq2, Ghazanfer Ali Abbasi3
24
3.2.3 Innovativeness (INN)
The willingness to adopt a new innovative technology is known as innovativeness. It is
also known as the level of interest of an individual related to trying out a new product, service,
thing or concept (Rogers, 1995; Frimpong et al., 2017). Innovation Diffusion theory posits that the
adoption or acceptance of new technology is closely tied to the willingness of trying and accepting
new things (Rogers, 1995). Innovativeness is a trait that signifies the tendency of consumers of
trying out new products (Pagani, 2004) that implies that consumers with high innovativeness will
exhibit more positive technology acceptance behavior (Bartels & Reinders, 2011; Jang & Lee,
2018). In findings of their study, utilizing the Unified Theory of Acceptance and Use of Technol-
ogy (UTAUT2), Moon et al., (2018) classified innovativeness as an essential influencer of the
technology adoption process.
H5: Innovation has a significant positive influence on perceived usefulness.
H6: innovation has a significant positive influence on perceived ease of use.
3.2.4 Image (IMG)
Image is defined as when an individual considers a group’s belief to be significant
regarding execution of specific behavior and its execution can augment the worth of internal
mechanism of organization persistently (Pfeffer, 1982) In technology acceptance context image
refers to the extent of belief of potential adopters to be conferred with additional prestige in the
relevant community by adoption of technology (Moore & Benbasat, 1991). The definition
shows social benefit related to the technology.In prior studies, Image impacts positively perceived
usefulness as concluded by Venkatesh and Davis (2000). Similarly, TAM2 illustrate the positive
and significant impact of subjective norm on the image since individuals consider executing
specific behavior will lean to uplift their status in the social system (Venkatesh & Davis, 2000).
Research conducted by Lu et al. (2005) concluded that social networks and sense of image
considerably influence the perception of usefulness and ease of use towards the adoption of
wireless Internet services via mobile technology WIMT.
H7: Image has a significant positive influence on perceived usefulness.
H8: Image has a significant positive influence on perceived ease of use.
3.2.5 Price (PVL)
Price is considered an essential factor while making technology adoption decisions
(Yang, 2017). We operationalized price as the monetary value that a consumer has to bear for
availing 3G/4G services. Several studies (Yang, 2017) have been conducted to authenticate price
contributions towards 3G/4 Gusage behavior. Research suggests that low prices of 3G/4G services
are likely to attract more consumers to adopt 3G/4G (Lin & Chiu, 2014). In a research conducted
on 3G/4G services, high perception of prices is negatively related to 3G/4Gadoption intension and
discourages consumers to adopt 3G/4 Gtechnology (Yang, 2017). Price is considered as an
3G/4G Mobile Network Band Wagon in Pakistan: A Mixed Method Inquiry into Consumer Adoption Attitude
25
essential determinant of adoption intention specifically in developing countries (Grag & Grag,
2013). Majority of consumers in America and China (Lin & Chiu, 2014) rated price to be a prime
factor in studies analyzing attitudes and intentions towards 3G/4G adoption.
H9: Price has a significant positive influence on Perceived Usefulness.
H10: Price has a significant positive influence on Perceived Ease of Use.
3.2.6 Perceived Usefulness (PUF)
Perceived usefulness is defined as “the degree to which a person believes that using a
particular system would enhance his or her job performance” (Davis, 1989). We define perceived
usefulness as the perception of a consumer that using 3G/4G technology will enhance his/her
communication performance. Perceived usefulness is found to be a powerful predictor of technol-
ogy/ system/ application usage intention and ultimately behavior (Venkatesh & Davis, 2000). Per-
ceived usefulness was found to be a stronginfluencer of attitude and intentions to adopt 3G/4G
technology in different studies (Pagani, 2004; Ntsafack, Kamdjoug & Wamba, 2018).
H11: Attitude-towards-Use has a significant positive influence on perceived usefulness
3.2.7 Perceived ease of use (PES)
Perceived ease of use is defined as “the degree to which a person believes that using a
particular system would be free from effort” (Davis, 1989). In this research, we defined perceived
ease of use as the degree or extent to which consumers perceive the use of 3G/4 Gtechnology as
easy. It is found that if the system/technology/application is perceived easy to use, the consumers
tend to accept or adopt it easily (Al-Ajam & Nor, 2013). In studies conducted using Technology
acceptance model, perceived ease of use was found to have a positive relationship with attitude
and intentions to use the technology (Joseph et al., 2018) whereas it was also found that perceived
ease of use has no direct influence over behavioral intentions to use a technology. Adoption of
3G/4 Gtechnology is found to be influenced by perceived ease of use in different researches
(Yang, 2017).
H12: Attitude-towards-use has a significant positive influence on perceived EU.
Moin Ahmed Moon1, Amna Farooq2, Ghazanfer Ali Abbasi3
26
Figure 1: Theoretical Framework (Study 2)
3.3. Research Methodology
Study 2: Quantitative Study
3.3.1 Sample (Study 2)
The target population was residents of Islamabad. Questionnaires were floated to the
residents of Islamabad for data collection. We received 610 complete questionnaires from the re-
spondents after screening. Out of these 610 respondents, 422 respondents are males (69.2%) and
the remaining 188 respondents are females (30.8%). The mode and standard deviation of respond-
ents’ gender were 2 and 0.46 respectively. For analyzing the normality of data, the study found
skewness and kurtosis is -.83 and -1.31 which are in the range of -2 to +2 (Tabachnick & Fidell,
2007).
Out of 610 respondents 29 (4.8%) were below 20 years, 245 (40.2%) were lies between
20-25 years category, 164 (26.9%) respondents were from 25-30 years, 94 (15.4%) respondents
were 30-35 years, 41 (6.7%) respondents were 35-40 years, 22 (3.6%) respondents were 40-45
years, 13 (2.1%) respondents were 45-50 years, and remaining 2 (0.3%) were above 50 years.
The average score or mean and standard deviation of respondent’s age is 3.00 and 1.33 respective-
ly. (42.6%) respondents were students, 119 (19.5%) respondents were part-time students, and the
remaining 231 (37.9%) respondents were working people.
3G/4G Mobile Network Band Wagon in Pakistan: A Mixed Method Inquiry into Consumer Adoption Attitude
27
3.3.2 Measures (Study 2)
To measure the perceived ease of use, perceived usefulness and attitude-towards-use we
adapted Davis et al. (1989) scale where three items represented each of the constructs. To measure
social norms, three items scale were used (Taylor & Todd, 1995). To measure Image, Moore and
Benbasat (1991) scale was usedand it has four questions.To measure innovations, four items scale
was used. To measure price value, Dodds et al. (1991) scale was usedand it has three items. We
used five-pointLikert scale anchored at 1=strongly disagree and 5= strongly agree.
3.3.3 Procedure (Study 2)
We collected data from residents of Islamabad during November and December 2014.
Respondents were approached on their workplaces and asked for their consent to participate in the
study. Initially, we contacted 1034 respondents out of whom 390 refused to participate. Out of the
644 respondents who showed their consent, 34 did not return the questionnaire. Therefore, 610
respondents constituted the final pool of respondents for study 2.
3.3.4 Ethical Consideration (Study 2)
Respondents were ensuredof the confidentiality of their responses and all other ethical
considerations for research were taken into account during the process of data collection (see
Pope, Ziebland & Mays, 2000)
3.3.5 Results and Analysis (Study 2)
Correlation results showed that all variables are positively correlated with each other.
The value of Cronbach’s alpha of image and social influence variable is 0.60 and 0.65 respective-
ly and all other remaining variables have correlation above 0.74.
3.3.5.1 Structural Equation Modeling (Measurement & Structural Models)
In confirmatory factor analysis, factor loading (FL) and squared multiple correlations
(SMC) was employed to find out the reliability of every item and also find problematical errors
(Fornell & Larcker, 1981).
If FL value below 0.50 and SMC value below 0.20 of any item then this item is dropped.
Latent variables used in CFA are Social Norms (TSNR). Social influence (TSIF), Image (TIMG),
Innovation (TINN), Price value (TPVL), Perceived usefulness (TPUF), Perceived ease of use
(TPES) and Attitude-towards-use (TATT).
Moin Ahmed Moon1, Amna Farooq2, Ghazanfer Ali Abbasi3
28
Model fit showed satisfactory results and measurement model fit demonstrated accepted
fitness in following values of indices. CMIN/DF = 2.07; GFI = 0.93; AGFI = 0.91; CFI = 0.97;
RMSEA = 0.04. As a result, fit of measurement model was found to be excellent.
Figure 2: Measurement Model or CFA (Study 2)
3G/4G Mobile Network Band Wagon in Pakistan: A Mixed Method Inquiry into Consumer Adoption Attitude
29
Table 3: Results of Mean, Standard Deviation, Correlation Analysis
M (S.D) 1. 2. 3. 4. 5. 6. 7. 8.
1. TSNR 2.17 (.81) 0.50
2. TSIF 2.44 (.76) .52** 0.68
3. TINN 1.83 (.74) .48** .47** 0.79
4. TIMG 2.70 (.75) .35** .29** .42** 0.51
5. TPVL 1.95 (.77) .50** .48** .64** .40** 0.87
6. TPUF 2.10 (.79) .58** .56** .63** .39** .58** 0.82
7. TPES 1.99 (.71) .50** .47** .69** .42** .76** .61** 0.75
8. TATT 2.08 (.75) .55** .49** .64** .40** .72** .59** .68** 0.84
** Correlation is significant at the 0.01 level (2-tailed)
Bold values show ‘Square root of AVE’ of all constructs (Average Variance Extracted- AVE)
Moin Ahmed Moon1, Amna Farooq2, Ghazanfer Ali Abbasi3
30
Convergent validity is attained when there are factor loadings more than 0.50 among
items and construct. To establish convergent validity, the current study also identified other core
fit indices such as ‘Coefficient of determination (R²),’ ‘Composite Reliability (CR),’ and ‘Average
Variance Extracted (AVE)’. The AVE values of all variables exceeded the threshold limit of 0.40
except image as recommended by Fornell and Larcker (1981). Composite reliability of all varia-
bles lies between the ranges of 0.70 to 0.91 except image (i.e. 0.57). Similarly, for measurement
of reliability estimates of all variables were also calculated considered such as factor loading of all
variables lies between the ranges of 0.51 to 0.91. The squared multiple correlations (SMCs) of all
items ranged between 0.21 and 0.83.
According to Hair et al. (2013), discriminant validity is measured as the degree to what
extent two related constructs are actually different. With the presence of discriminant validity, this
condition assumes that construct variables exert the greater power of explanation for that construct
than others in the model. For that reason, correlation of a construct with others construct should be
less than the square root of the AVE of that construct (except TSNR).
In the structural model analysis, the value of standardized regression (H1: γ= 0.26, p <
0.01) indicated a significant and positive relationship between social norms (TSNR) and perceived
usefulness (TPUF). Significant and positive relationships were found between social influence
(SINF) and perceived usefulness (TPUF) (H2: γ= 0.31, p < 0.01), social norms (TSNR) and per-
ceived ease of use (TPES) (H3: γ= 0.11, p < 0.01), among innovation (TINN) and perceived use-
fulness (TPUF) (H5: γ= 0.35, p < 0.01), innovation (TINN) and perceived ease of use (TPES ) (H6:
γ= 0.29, p < 0.01), image (TIMG) and perceived ease of use (TPES) (H8: γ= 0.12, p < 0.01), price
value (TPVL) and perceived usefulness (TPUF) (H9: γ= 0.13, p < 0.01), price value (TPVL) and
perceived ease of use (TPES) (H10: γ= 0.66, p < 0.01), perceived usefulness (TPUF) and attitude-
towards-use (TATT) (H11: γ= 0.20, p < 0.01) and perceived ease of use (TPES) and attitude-
towards-use (TATT) (H12: γ= 0.66, p < 0.01). Result indicated insignificant relationship between
social influence (SINF) and perceived ease of use (TPES). (H4: γ= 0.20, p > 0.05) and, image
(TIMG) and perceived usefulness (TPUF) (H7: γ= 0.28, p > 0.05).
3G/4G Mobile Network Band Wagon in Pakistan: A Mixed Method Inquiry into Consumer Adoption Attitude
31
Figure 2: Structural Model (Study 2)
In the structural model analysis, the value of standardized regression (H1: γ= 0.26, p <
0.01) indicated a significant and positive relationship between social norms (TSNR) and perceived
usefulness (TPUF). Significant and positive relationships were found between social influence
(SINF) and perceived usefulness (TPUF) (H2: γ= 0.31, p < 0.01), social norms (TSNR) and per-
ceived ease of use (TPES) (H3: γ= 0.11, p < 0.01), among innovation (TINN) and perceived use-
fulness (TPUF) (H5: γ= 0.35, p < 0.01), innovation (TINN) and perceived ease of use (TPES ) (H6:
γ= 0.29, p < 0.01), image (TIMG) and perceived ease of use (TPES) (H8: γ= 0.12, p < 0.01), price
value (TPVL) and perceived usefulness (TPUF) (H9: γ= 0.13, p < 0.01), price value (TPVL) and
perceived ease of use (TPES) (H10: γ= 0.66, p < 0.01), perceived usefulness (TPUF) and attitude-
Moin Ahmed Moon1, Amna Farooq2, Ghazanfer Ali Abbasi3
32
towards-use (TATT) (H11: γ= 0.20, p < 0.01) and perceived ease of use (TPES) and attitude-
towards-use (TATT) (H12: γ= 0.66, p < 0.01). Result indicated insignificant relationship between
social influence (SINF) and perceived ease of use (TPES). (H4: γ= 0.20, p > 0.05) and, image
(TIMG) and perceived usefulness (TPUF) (H7: γ= 0.28, p > 0.05).
4. Discussion
This study was conducted to test and validate the integrated 3G/4G model based on
TAM, TAM 2 and UTAUT. Data was collected from 610 mobile phone users of Islamabad and
Rawalpindi Pakistan. Majority of the respondents were male youngsters. Results indicated that
perceived usefulness has a significant impact on social norms. This implies that more the social
norms the more is the perceived usefulness of the 3G/4G technology (Yang, 2017). Study result
also showed that social influences positively influence perceived usefulness that signified that a
consumer would perceive 3G/4G technology useful if he/she is influenced by peers, friends or
family etc. Innovation has a positive and significant influence on perceived usefulness. This find-
ing indicated that the more a consumer is innovative the more he/she would perceive 3G/4G tech-
nology useful. This finding is line with the previous studies (Bartels & Reinders, 2011; Newby,
Nguyen & Waring, 2014). The image had no significant impact on perceived usefulness that im-
plied that a consumer’s social image had nothing to do with the usefulness of the 3G/4G technol-
ogy. A significant positive influence between price value and perceived usefulness was found in
this study. Findings lead us to believe that if 3G/4G technology services are more sensibly priced
then the consumer would find them useful (Yang, 2017).
Results of the study illustrated a positive and significant impact of social norms on per-
ceived ease of use. Which means that consumers would find 3G/4G technology easy to use if it is
widely used and accepted by the person who are close to them which is quite interesting finding.
Another interesting finding of this study is that there is no significant impact of social influences
on perceived ease of use. Findings of this study also suggested that the innovative consumers
would find it easy to use 3G/4G technology services because they are always looking to try out
new technologies (Moon, Rasool & Attiq, 2015; Yang, 2017). A positive and significant impact of
image and price value was also found on perceived ease of use in this study. This finding implies
that consumers who are concerned with their social image and observe price and value very keen-
ly are likely to develop a favorable attitude towards 3G/4G technology adoption (Yang, 2017).
The study results suggest that perceived usefulness and ease of use of 3G/4G technology
services significantly and positively affect the attitude towards 3G/4G technology adoption
(Venkatesh & Davis, 2000). The perceptions of ease of use proved to be more influential than
perceptions of usefulness. This finding indicated that the consumers are more concerned with the
easiness of operating and using 3G/4G technology (Yang, 2017) than its functional utility.
3G/4G Mobile Network Band Wagon in Pakistan: A Mixed Method Inquiry into Consumer Adoption Attitude
33
5. Limitations and Recommendations
The first limitation of this study is related to the generalizability of results because data
were collected from two cities of Islamabad and Rawalpindi. Findings may not be generalized to
the whole county or in other technologically less developed countries. Second, we only employ
the technology acceptance model (TAM), future studies can be conducted by applying other ad-
vance models of technology i.e. UTAUT1 and UTAUT2. Third, in this study, we only studied one
technology i.e., 3G/4G mobile technology. Further researches can be conductedon other technolo-
gies i.e. e-learning. Fourth, this type of research can also be conduct in other technologically less
developed countries. Fifth, in this study some predictors,’ i.e., social norms, social influence, in-
novativeness, image, price value and habit are studied to understand the acceptance and adoption
of 3G/4Gtechnology. Future research can use other predictors to enhance the understanding of the
acceptance and adoption of 3G/4Gtechnology. In future studies, researcher may also compare the
responses consumers across demographic and personal characteristics of individual consumers to
gain deeper insights into the adoption behavior.
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Impact of Paternalistic Leadership on Project Success through Employee Creativity: Moderating Role of
Supervisor Expectations for Creativity
1MS Scholar, Capital University Science & Technology, Islamabad 2Assistant Professor, Air University School of Management, Air University Islamabad;
University of Wah Journal of Management Sciences
Volume 2, Issue 2, September 2018, pp. 36-56
Impact of Paternalistic Leadership on Project Success through Employee
Creativity: Moderating Role of Supervisor Expectations for Creativity Asif Mehmood Rehmani1, Shabbar Hussain2
Article History:
Received:
28 Jun, 2018
Revised :
29 Sep, 2018
Accepted:
30 Sep, 2018
ABSTRACT
Purpose: The present study was aimed to test the impact of paternalistic leadership
on project success of organization through the mediating mechanism of employee
creativity. Furthermore supervisor expectation for creativity was proposed possible
moderator on the relationship of employee creativity and project success in the IT
industry of Pakistan.
Methodology/Design: In order to test the aforementioned relationship correlation
analysis was performed thorough SPSS. Whereas AMOS was used to establish the
convergent and discriminant validity through CFA, as well as regression analysis
Findings: Result provides paternalistic leadership positively predicts the creativity
of employees. Creativity of employees was also found a significant mediator
between paternalistic leadership and project success. While the moderating effect of
supervisor expectations for creativity was also found.
Implication: The study comes with the conclusive finding that chances of project
success can be improved in IT industry through paternalistic leadership style and its
outcomes in term of employee’s creative behavior.
Key Words: Paternalistic leadership, Creativity, Supervisor expectation of creativity,
Project success, IT, IT in Pakistan
1. Introduction
Projects are considered as temporary organization, which ends after specific time and
beneficiary is parent organization along with stakeholders (Söderlund, 2011). The attracting
outcomes of projects make different industries and sectors to shift their focus towards projects and
its effective management (Winter & Szczepanek, 2008). Different studies have defined project and
its success in numerous ways. Some researchers define project success as completing the project
in-time, budget and with quality (Müller & Turner, 2007). While in others point of view it is a
complex concept with composition of so many attributes (Jugdev & Muller, 2005).
Asif Mehmood Rehmani1, Shabbar Hussain2
37
Even though defining of project success and its review in project management literature,
previous studies found that most of the projects do not achieve their objective and few of them fail
in total (Papke-Shields, Beise & Quan, 2010). Due to these factors, the researchers are trying to
explore reasons of project success and failure and they have identified some, like emotional
intelligence of project manager, team building and team cohesiveness (Rezvani, Chang, &
Wiewiora, 2015) and leadership styles like transformational leadership, authentic leadership etc.
(Aga, Noorderhaven, & Vallejo, 2016) while the role of paternalistic leadership is completely
overlooked in relation to project success. Aycan et al. (2013) have also stated that paternalistic
leadership is completely overlooked because of its low prevalence in the Western context, but
such leaders are extensively found in non-western contexts like Africa, China Middle East and
Asia.
In the study of leadership, a consideration of cultural differences is critical. Research has
found that variables influencing leadership effectiveness differ by culture (Aycan et al., 2013).
Paternalism is an important part of Chinese culture (Mustafa & Lines, 2012), where people of
high status in social structures (e.g., organizations) are obligated to govern, nurse and set an
example for those in lower levels of the hierarchy (DuBois, Hanlon, Koch, Nyatuga, & Kerr,
2015). In exchange for this, homage and deference are paid to these leaders (Mustafa & Lines,
2012), and those in lower levels of the hierarchy offer loyalty and obligation in return (Maslyn &
Uhl-Bien, 2005).
Paternalistic leadership is one of the important leadership styles (Lee, Jang, & Lee,
2018). Previous Research defined that paternalistic leaders are much disciplined, authoritative,
have fatherly benevolence and also their moral standards are high. Three dimensions have been
identified so far: authoritarianism, benevolence and morality (Farh & Cheng, 2000).
Authoritarianism refers to control and authority, whereby employees are subjected to strict
subordination to their leaders without reservation. Benevolence involves holistic and
individualized concern for an employee’s personal and familial satisfaction at workplace and in
their daily life. Morality suggests that leaders behave unselfishly, fulfill obligations, demonstrate
superior integrity and moral character, and act as an example for subordinates (Zhang, Huai, &
Xie, 2015). In return for three aspects of paternalistic leadership, followers are looking forwards
for exhibit obedience, gratitude, identification, and extra role behaviors like innovative behaviors,
voice behaviors and creativity (Tian & Sanchez, 2017).
Leaders are playing a role of hero having some desirable characteristics, employees want
to adopt in their life too. It’s the main reason that leaders are dictating the perceptions, attitudes
and behaviors of their followers in term of creative behaviors at work, so the role of leaders is
either encouraging or discouraging in decide creativity level of employees (Ellen Mathisen,
Einarsen, & Mykletun, 2012, Zhang, Cao & Wang, 2018). Prior organizational researches
articulate that the leaders are one of the most important contextual factors in ensuring the success
of organization (Mahsud, Yukl, & Prussia, 2010). Dedahanov et al. (2016) also found that two of
Impact of Paternalistic Leadership on Project Success through Employee Creativity: Moderating Role of
Supervisor Expectations for Creativity
38
the component benevolence and morality was found significant indicators of fostering employee
creativity at work.
Creativity of employees can bring innovation and new ideas which are rare, valuable and
inimitable. So, such factors provide sustainable competitive advantages to organization, and
sustainability of competitive advantage decides the business leaders of market in this age of
globalization (Simmons & Sower, 2012). Creative ideas of employees are important but its
practical implication becomes easy which employees feel the obligation of successful
implementation of their own work (Dedahanov et al., 2016). Such creative behaviours of
employees effect employees both in term of performance and satisfaction, and the role of
organization to provide flexible environment in order to promote such ideas and behaviours for
forecasting and responding changes in the marketplace. Employee creativity is highly needed in
project based organization, where new ideas generation, its realization and successful
implementations are necessary for successful completion of IT projects (Nasiopoulos, Sakas,
Vlachos, & Mavrogianni, 2015).
Paternalistic leadership was not extensively studied by management science researchers
in past but Pellegrini and Scandara’s (2008) call for studies on paternalistic leadership ignites the
researcher zest to conduct more studies in this domain. The research on Paternalistic leadership is
still in infancy stage but researchers are trying to explore its links with different organizational
concepts like OCB (organizational citizenship behaviour), in role performance, affective trust and
creativity etc. but there is not a single study found on the relationship of Paternalistic leadership
and project success.
Furthermore the interaction of employee perception about supervisor expectation about
creativity and supervisory rated employee creativity is also not found in relation with project
success and its proposed in the present study that employee creativity and supervisor expectations
about creativity will increase the chances of project success on time and within the allocated
budget by satisfying the end users of project.
On the basis of the stated problems, the present study is indented to find answers for
following questions;Q # 1: Is there any relation between paternalistic leadership and employee
creativity?Q # 2: Is there any relation between paternalistic leadership and project success?Q # 3:
Is there any relation between employee creativity and project success?Q # 4: Does there employee
creativity mediates the relationship between paternalistic leadership and project success?Q # 5:
Does supervisor expectation for creativity moderate the relation between employee creativity and
project success?
The present study is proposing several theoretical and practical contributions. Employee
creativity is playing a vital role in success of IT industry. IT industry needs continuous
improvement and high level of innovation for completion of its different project. Though different
types of leadership can foster employee creativity but the paternalistic leadership is not considered
due to its less prevalence in western culture. But paternalistic leadership is found effective in
Asif Mehmood Rehmani1, Shabbar Hussain2
39
collectivist culture with all of its components. As Pellegrini and Scandara (2008) also call for
studies on paternalistic leadership and its components with different organizational variables.
Chen et al., (2014) have studied paternalistic leadership with formal task performance and
deliberate involvement in informal tasks. Wang, Tang, Naumann, and Wang (2017) also suggest
to study paternalistic leadership with supervisory rated creativity of employees and also to study
the paternalistic leadership in collectivist cultures with different organization outcomes. The
present study is response to their call by trying to explore the relationship between components of
paternalistic leadership with project success through employee creativity.
Paternalistic leadership is studied with various organizational outcomes like effective
trust, self-report employee creativity but it is not tested with the project success (DuBois et al.,
2015). The present study attempts to examine the relationship between paternalistic leadership and
project success through employee creativity. The followers of paternalistic leaders believes that
their leader is playing a role like a father by exercising power and authority for protection of their
followers along with high moral values and cares for subordinates (Zhang, Huai, & Xie, 2015). So
such belief increases their psychological safety and they are more likely to involve in innovative
behaviors (Unger, Rank, & Gemünden, 2014) which are helpful for project success. Employee
creativity is much needed in IT industry for exploring new ideas and its successful implementation
(Simmons & Sower, 2012). Furthermore the perceptions of employees about supervisor
expectations for creativity will also increase the chances of successful implementation of projects
with innovation (Soares et al., 2013).
2. Literature Review
2.1 Paternalistic Leadership and Project Success
In past two decades literatures have ventured in the studies of paternalistic leadership.
Recently paternalistic leadership is defined somehow different from the early conceptualization of
paternalism conceptualize by Weber in 1968 that in paternalism the leader have legitimate power
to exercise, paternalism was also studied as a construct of management. The willingness to obey
the order of leader and surrendering personal choices to leader authority are the core elements of
paternalistic leadership (1). Weber conceptualization of paternalism was based on household
system which defined the hierarchy relationship by default.
While Padavic and Earnest (1994) stated that paternalistic leadership are also found
nowadays in organization due to unequal distribution of power and it’s also considered the
cognitive requirement of employees and the outcome of paternalistic leadership are fruitful in long
run. Gelfand, Erez, and Aycan (2007) present in their study that the managers having paternalistic
leadership style care their employees not only on the job also in their daily life for wellbeing of
whole society. In those organizations where paternalistic leadership exists, peoples’ minds are set
to exercise authority for the care and protection of lower level, trust, loyalty and commitment are
expected in response (Aycan, Kanungo, & Sinha, 1999). Paternalistic leader plays their role like
Impact of Paternalistic Leadership on Project Success through Employee Creativity: Moderating Role of
Supervisor Expectations for Creativity
40
parents to guide and protect their subordinates in all courses of action including personal and
professional lives (Gelfand et al., 2007). Just like a father, paternalistic leadership is believed to
use power and authority for the benefit of employees by guiding their attitude and behavior which
facilitate employees on the job and off the job as well. In such environment employees are
comfortable and their tension is relived and employees are more able to perform with their full
competence (Kerfoot & Knights, 1993).
Westwood (1997) articulated while conducting his study in China that paternalistic
leadership are more suitable in collectivistic society because it satisfies the twin requirements of
harmony and compliance of effective leadership. Farh and Cheng (2000) proposed a triadic model
of paternalistic leadership by identifying its three major aspects benevolence, morality and
authoritarianism. These three components of leadership existed before Farah and Cheng (2000)
conceptualization of paternalistic leadership triad. Sinha, Lopez, and McDevitt, (1990) argued that
the benevolence and authority characteristic and paternalistic leadership comes from the
traditional role of father who was protecting, caring, nurturing and supporting those who were
dependent on him but no compromise on discipline. Jackman (1994) combined benevolence and
authoritarian and named it “velvet glove” and later called it paternalism. In the tradition role of
parent it was expected that the parent understand the need and wants of their children and also
dictates their behavior on the standard of ethics and morality.
Though in the Western culture, paternalistic leadership is seen like dictator type
leadership but in non-western context like Pakistan, China, India and Turkey, it is one of the
dominant style of leadership (Chen et al., 2014). In these eastern cultures paternalism of leader
shapes the attitudes and behavior of employees in multiple ways, by extending their support to
their daily life, and making decisions for protection and care of employees. Paternalistic leadership
is found a significant predicator of different positive outcomes in non-western cultures like
commitment to organizational values, trust in leader, job satisfaction, organizational citizenship
behavior, and organization based self-esteem, decreasing turnover, task performance and creativity
(Liao, Widowati, Hu, & Tasman, 2017). All these positive outcomes on part of employees due to
paternalistic style leadership can enhance chances of project success.
2.2. Mediating role of Creativity between Paternalistic leadership and Project success:
Despite a long history of philosophical portrayal of creativity, creativity research as a
scientific domain was not launched until the middle of the 20th century (Sawyer, 2012). The Post
World War II world witnessed the debut of creativity science (Guilford, 1950). Limited by the
cultural norms descending from humanism, the research first started in the domain of psychology
and took its first approach in the field of arts (Sawyer, 2012).Also influenced by Western
philosophy, the research was often found in a pendulum sway between rationalism and
romanticism that caused an unusual variation among creativity conceptions (Sawyer, 2012).
Asif Mehmood Rehmani1, Shabbar Hussain2
41
In the 1990s, the emergence of cognitive neuroscience among other significant
developments across the field of human knowledge brought creativity research into an
interdisciplinary and application-orientated focus (Sawyer, 2012). With personality and behavior
psychology collaborating with biology, neuroscience, and computer science (e.g., artificial
intelligence studies, etc.), creativity research is in its prime (Anderson, Potočnik, & Zhou, 2014).
The first challenge the modern creativity research encountered was, and continues to be,
the difficulty of defining the concept (Morris & Leung, 2010). The complexity of the nature of
creativity led to an interdisciplinary and multifaceted effort of research and analysis which
resulted in various conceptualizations of creativity. The following section will dissect the concept
of creativity from the major approaches of research in the literature.
Creativity research was first evaluated through the lens of psychology (Sawyer, 2012).
Various forms of research have been done to better understand the personal traits of creative
individuals. Some research included historiometric analyses in which life-long creators and
individuals who had done significant creative work were assessed and analyzed in quantitative
methodology (Simonton, 1984). Other researchers conducted longitudinal bibliographic studies in
which exceptional individuals’ were followed over years as to the development of their creativity
(Chen, Eberly, Chiang, Farh, & Cheng, 2014). Finally, there came into the literature some case
studies with implementation of experimental measurements of creativity (Gruber & Davis, 1988).
Those types of research attempted to validate the independence of creativity from intelligence, as
typically measured by IQ tests and to provide evidence of the existence of divergent thinking in
creativity, ultimately resulting in the creation of several prominent models of creativity
(Csikszentmihalyi & Sawyer, 2014). However, this kind of research paradigm limits its focus on
individuals who are thought to have an extraordinary creative potential or capability (Yoshida,
Sendjaya, Hirst, & Cooper, 2014). Research in this paradigm often found its application to a
limited population (e.g., in gifted education where a small proportion of children who are assessed
to be talented) (Esquivel & Nahari, 2000); other external factors that could influence individual
creativity development are often omitted in the personality psychology paradigm (Yoshida at al.,
2014).
Creativity is considered as an individual property from the psychological perspective;
while in reality, creativity occurred under certain socio-cultural circumstances. The socio-cultural
environment fostering or inhibiting creative performances are thus under discussion. An
indispensable part of the process models of creativity is the application of creative ideas in the real
world, whether it is Press in the 4-P model, implementation planning and solution monitoring, or
elaboration in contrast with ideation (Gino & Ariely, 2012). Thus, the sociocultural approach to
creativity studies emerged in the literature as researchers argued creativity was not just a mental
process (Yoshida et al., 2014).
Furthermore, creative employees are found to be very efficient in solving different
problems. They have creative skills for solving different problems in new ways and divergent
Impact of Paternalistic Leadership on Project Success through Employee Creativity: Moderating Role of
Supervisor Expectations for Creativity
42
ways of thinking is very effective technique in solving different problems (Kaufman, Plucker, &
Baer, 2008). Divergent thinking employees include fluency, originality, flexibility and elaboration
(Fu, Li & Si, 2013). Previous researchers have found a significant relationship of creativity with
task performance which ultimately contributes to organizational performance. On the base of
previous studies it can be postulated that creativity of employees will open the new ways for
solving problems in different information technology projects and then will also helps in
successful execution of these ideas in projects (Im & Workman, 2004). So, creativity of
employees is very handy in success of projects;
2.3 Supervisor expectations for creativity as moderator
The employee creativity has been considered as one of the essential ingredients for
organizational success in order to prosper in this constantly changing environment, forecasting the
upcoming challenges, and developing new ways to deal with workplace situations. Confirming the
importance of creativity at work, (Barsh, 2008) concluded that large number of managers have
accepted that the creativity plays a vital role in success of all types of organizations. Creativity has
been defined in numerous ways, somewhere it is mixed with innovation, but creativity can be
defined as that goods and services, new ways of presenting businesses and doing work, and
management techniques that are unique and valuable for organizations (Brown, 2012).
Different creativity models have presented different antecedents for employee creativity,
social environment of the organization is also considered one of the important elements in
promoting employee creativity (Madjar, Oldham, & Pratt, 2002). Previous researchers have
identified that role of supervisor is one of the most important factor in promoting creativity of
employees (Qu, Janssen, & Shi, 2015). Creativity of employees is complex mechanism and
supervisor is the source that can help employees at multi-level to deal with complexities,
uncertainties and non-linearity. Amabile (1988) also stated that supervisor expectations from
employees regarding creativity work like a spark in igniting the creativity of employees. The
phenomena through which expectations leads to enhancement in performance, is called as
Pygmalion effect (Eden, 1984).
Merton (1948), initial work on self-fulfilling prophecy unfolds the interactional
demonstration of this phenomenon, called as Pygmalion effect. In Pygmalion effect, the
expectation of someone else about performance of individual increases its actual performance.
However, all managers accept its importance, but limited studies have been conducted to unfurl its
true outcomes (Qu, Janssen, & Shi, 2015). McNatt (2000) also stressed on conducting more
studies on this handful management techniques. Traditionally, it was also considered as important
as now, Sutton and Woodman (1989) have suggested that Pygmalion effect will be more effective
in highly uncertain environment, where creativity is not easy to be revealed (Amabile, 1988).
Hence, it can be concluded that Pygmalion effect is based interpersonal expectations and mutual
obligations, which results in enhancing performance or creativity. So, the Pygmalion effect can
Asif Mehmood Rehmani1, Shabbar Hussain2
43
provide a conceptual framework along with paternalistic leadership to promote employees’
creativity. It is believed that leadership is the one of the major source behind employees’ creativity
at work, different researchers have explored that links to guide the way of practitioners in
enhancing creative practices at workplace (Gu et al., 2015).
Perception about high expectations for creativity along with strong moral values of
supervisor, benevolent and directing behavior of supervisor increases the employee motivation,
because they asses that supervisor is providing enough resources to promote their personal
resources about creativity, which ultimately results in high creativity of employees at work
(Tierney & Farmer, 2011). Previous studies have provided sufficient support to prove that
supervisor expectation for creativity increase employees’ creativity at work along with
paternalistic leadership, which is also proven to increase creative behavior at work (Wang, Tang,
Naumann& Wang, 2017). It is interesting to test the joint effect of paternalistic leadership and
supervisor expectations for employee creativity on fostering employees’ creativity.
2.5 Hypotheses Development
H1: There is positive relationship between paternalistic leadership and creativity of employees.
H2: There is positive relationship between paternalistic leadership and project success.
H3: There is positive relationship between creativity of employees and project success.
H4: Creativity of employees plays a mediating role between paternalistic leadership and project
success.
H5: Supervisor expectation for employee creativity moderates the relationship between creativity
of employees and project success.
Figure 1: Theoretical Framework
Paternalistic
Leadership
Employee
Creativity
Project
Success
Supervisor
Expectation of
Employee
Creativity
Impact of Paternalistic Leadership on Project Success through Employee Creativity: Moderating Role of
Supervisor Expectations for Creativity
44
3. Research Methodology
3.1 Population and Sample
The present study is quantitative in nature. A survey questionnaire, based on well-
established scales is developed to collect the data. The context of this study was Pakistan.
Populations from where the data was collected were different and well renowned private software
houses from major cites of Pakistan like Islamabad/Rawalpindi, Lahore and Karachi. Data is
collected by using convenient sampling technique during the period of April 2017 to June 2017.
During data collection, management of different software houses was contacted through personal
contacts, physical visits, phone calls and emails by researcher. Only 217 valid responses were
received and included in the study.
3.2 Measures
Paternalistic leadership is measured by using 13 item adopted scale developed by
(Pellegrini & Scandura, 2006). Thirteen items scale developed by Zhou and George (2001) was
used for the supervisors to assess the level of creativity at work among their employees. A three-
item scale was used to assess employee’s perception regarding how much creativity is being
expected from his work, developed by Tierney and Farmer (2004). A 14-item scale was used to
assess project success, adopted from Aga, Noorderhaven, and Vallejo (2016).
Table 1: Instrumentation Sources, Items & Reliabilities
Variable Source No. of
Items Reliability
Paternalistic Leadership Pellegrini&Scandura (2006) 13 .97
Employee Creativity Zhou & George (2001) 13 .95
Supervisor Expectation of
Employee Creativity Tierney& Farmer (2004) 3 .87
Project Success Aga, Noorderhaven, &Vallejo (2016) 14 .94
3.3 Procedure
A series of data analyses tools were used to analyze the data collected to address research
questions and objectives. Data was analyzed through SPSS to find and treat missing values. The
ANOVA and reliability test were performed through SPSS. Then validity and reliability were
tested by conducting CFA through AMOS. To test the model fitness, competing model and path
analysis through structure equation modeling (SEM) were performed by AMOS. Correlation
between demographics and all other variables were calculated through SPSS.
Asif Mehmood Rehmani1, Shabbar Hussain2
45
4 Results
4.1 Sample Characteristics
Among 217 valid responses, 86.2% were male supervisors and 13.8% were female
supervisors, the 78% supervisors age was between 18 and 41 years, 49.3% supervisor were
educated to bachelor level, 50.7% supervisors had 18 years education, 6.5% supervisors have
average experience of 1 to 5 years, while 59.9% have experience 6 to 10 years. From 217
respondents, 79.3% employees were male and 20.7% were female, the 93% employees age was
between 18 and 33 years, 34.1% employees were educated to bachelor level, 60.8% supervisors
had 16 years education, 67.7% employees have average experience of 1 to 5 years and 30% have
experience 6 to 10 years.
Table 2. Demographic Variables Profile
Demographic Category Frequency Mean (S.D) Skewness Kurtosis
Gender Male 172 1.21
.41 0.12 -1.99
Female 45
Age
(In years)
26-30 56 1.81
.54 0.33 -0.66 31-35 147
36-40 14
Education
Bachelor 74 3.71
.56 -0.09 -0.93 Masters 132
MS/MPhil 11
Job Experience
1-5 147 1.35
.52 5-10 65
10-15 5
4.2 Descriptive Statistics
This table gives the descriptive statistics of the variables under study. All four variables
of this study were measured in values from 1 to 5. The independent variable i.e. paternalistic
leadership has a mean of 3.34 and a standard deviation of 0.76. The dependent variable (Project
success) shows a mean and standard deviation values of 3.24 and .72 respectively. The mediator of
this study, employee creativity turned up a mean of 3.44 and a standard deviation of .74 whereas
the moderator of the study, supervisor expectation of creativity has these values as 3.41 and .90
respectively.
Impact of Paternalistic Leadership on Project Success through Employee Creativity: Moderating Role of Supervisor Expectations for Creativity
46
Table 4: Competing different models with hypothesized 4 factor measurement model
Model χ² Df χ² / Df ∆ χ²a ∆Df CFI IFI TLI RMSEA
Hypothesized Measurement Model (4 Factor
Model) 955.21 772 1.127 0.97 0.97 0.97 0.03
Alternate Model 1: Combined "Paternalistic
leadership and Supervisor Expectations of
Employee Creativity" (3 Factor Model)
1206.28 775 1.556 251.07 3 0.94 0.94 0.94 0.05
Alternate Model 2: Combined "Project success
and Paternalistic leadership"
(3 Factor Model)
2728.838 775 3.52 1773.62 3 0.76 0.76 0.74 0.10
Alternate Model 3: Combined "Project success
and creativity " and then the combination of
"Paternalistic leadership and supervisor
expectation of creativity" (2 Factor Model)
2955.60 777 3.80 2000.39 5 0.73 0.73 0.71 0.11
Alternate Model 4: “All items Combined " (1
Factor Model) 4886.56 778 6.28 3931.35 7 0.49 0.49 0.46 0.15
Note: n=217; Values are differences of each of the alternative measurement models with the hypothesized model.
***p<.001
Table 3: Descriptive Statistics
Variable Sample Size Minimum Maximum Mean Std. Deviation
Paternalistic Leadership 217 1.54 4.69 3.34 .76
Employee Creativity 217 1.38 4.85 3.44 .74
Project Success 217 1.36 4.79 3.24 .72
Supervisor Expectation of
Employee Creativity 217 1.00 5.00 3.41 .90
Impact of Paternalistic Leadership on Project Success through Employee Creativity: Moderating Role of
Supervisor Expectations for Creativity
4.3 Confirmatory Factor Analysis and Competing Models
Confirmatory Factory Analyses (CFA) of all four constructs including Paternalistic
leadership, Employee Creativity, Project success and Supervisor Expectation of Employee
Creativity was performed to check the fitness of Hypothesized 4 factor model before testing
directing and mediating relation. According to Table 4.2 representation, 4-factor model was fit
with (χ² = 955.21, df = 722, χ² / Df = 1.12 p < .000; CFI = .97, IFI = .97, TLI = .97, RMSEA=
.03). Alternately, 3-factor model by combining Paternalistic leadership and Supervisor expectation
of employee creativity was less fit (χ² = 1206.28, df = 725, χ² / Df = 1.55 p < .000; CFI = .95, IFI
= .95, TLI = .95, RMSEA= .05) with respect to 4 factor model. Change in chi-square was 251.07.
Change in degree of freedom was recorded 3. Change in CFI, IFI, TLI and RMSEA were 0.03,
0.03, 0.03 and 0.02. Table 4.2 show another 3-factor alternate model, combining Paternalistic
leadership and project success comparison with four factor model also found less fit with values
(χ² = 2728.83, df = 725, χ² / Df = 3.52 p < .000; CFI = .75, IFI = .75, TLI = .75, RMSEA= .10)
and the change in chi-square and degree of freedom were 773.62 and 3 respectively. Model three
represents the comparison of 4 factor model with 2-factor model by combining project success
with creativity and supervisor expectation of employee creativity with paternalistic leadership
shows the less fit of 2-factor model with values (χ² = 4886.56, df = 778, χ² / Df = 3.80 p < .000;
CFI = .73, IFI = .73, TLI = .71, RMSEA= .11). The change in chi-square value and degree of
freedom were 2000.39 and 5.By combining all items with one variable and created 1 factor model
and then comparing the values show less fit of 1factor model. Fourth model created by combining
all four variables and comparison with four-factor model show the worse fit (χ² = 2955.60, df =
777, χ² / Df = 3.80 p < .000; CFI = .73, IFI = .73, TLI = .71, RMSEA= .11). To improve the
reliability of results, there were two items of paternalistic leadership dropped because they were
loading below .04.
4.4 Correlation analysis
Paternalistic leadership (PL) was found significantly correlated with Employee Creativity
(EC) (r=.421**, p=.000). Paternalistic leadership (PL) was also found significantly correlated with
Supervisor Expectation of Employee Creativity (SEC) and Project Success (PS) (r=.522**,
p=.000), (r=.541**, p=.000). Results shows significant correlation exist between Employee
Creativity and Supervisor Expectation of Employee Creativity (SEC) (r=.274**, p=.000) and also
between Project Success (PS) and Employee Creativity (EC) (r=.469**, p=.000) respectively. The
correlation of Project Success (PS) was found significant with Supervisor Expectation of
Employee Creativity (r=.316**, p=.000).
Impact of Paternalistic Leadership on Project Success through Employee Creativity: Moderating Role of
Supervisor Expectations for Creativity
49
Table 7: Standardized Indirect Path Coefficients of the Hypothesized Model
Indirect Paths BC 95% CI
Indirect Effect Lower
Limit
Upper
Limit
P
PL Creativity Project Success .123 .065 .200 .000
Note: n=217; Bootstrap Sample Size=2000, BC 95% CI= Bootstrap Confidence Intervals
*p<.05, **p<.01,***p<.00
4.5 Structural Model Results
Results for structural model are depicted in Table 6. Hypothesized 4 factor model is
already establishes the best fit (χ² = 955.21, df = 722, χ²/df = 1.12 p < .000; CFI = .97, IFI =
.97,TLI = .97, RMSEA= .03). For hypothesis 1, paternalistic leadership has a positive and
significant impact on employee (β = .421, p<.000) in support of hypothesis. The results for
paternalistic leadership and project success showed a significant and positive impact of
paternalistic leadership on project success (β = .417, p<.000) supporting hypothesis 2. For
hypothesis 3, results depicted a positive impact if creativity of employees on project success (β =
.541, p<.000), in favor of hypothesis. For hypothesis 4, indirect effect direct effect and upper and
Table 5: Correlation Analysis
# Variable 1 2 3 4
1 Paternalistic Leadership 1
2 Employee Creativity .421** 1
3 Supervisor expectation of creativity .541** .469** 1
4 Project success .522** .274** .316** 1
**p<.01
Table 6: Standardized Direct Path Coefficients of the Hypothesized Model
Direct Paths Estimate SE CR p
Paternalistic leader Project success .417 .05 6.97 .000
Paternalistic leadership Creativity .421 .06 6.82 .000
Creativity Project success .541 .05 9.45 .000
SECE Project success .316 .04 4.89 .000
CR * SEC Project success .204 .03 3.51 .029
Asif Mehmood Rehmani1, Shabbar Hussain2
50
lower limit is in support of a proposition that creativity of employees plays a mediating role
between paternalistic leadership and project success. To test the moderating role of supervisor
expectations interaction term is created. The results are in support of a proposition that supervisor
expectation for employee creativity moderates the relationship between creativity of employees
and project success.
Dependent Variable: Project Success
PL: Creativity of Employees & SEC: Supervisor Expectation of Creativity
4.6 Mod Graph
Mod graph was also calculated check the direction of moderator i.e supervisor
expectation for creativity on the relationship of employee creativity and project success. It was
proposed that the positive relationship between employee’s creativity and project success would
enhance when supervisor expectations for creativity is high. Mod graph also reflects that when the
supervisor expectations for creativity is low the relationship between employee creativity and
project success is positive. But the slope is not steeper, while in case of high expectations of
supervisor about employee creativity the relationship between employee creativity and project
success is also high, the slope of the line is steeper than low moderator value.
0
0.5
1
1.5
2
2.5
3
3.5
4
Low PL High PL
Dep
end
ent
vari
ab
le Low SEC
High SEC
Impact of Paternalistic Leadership on Project Success through Employee Creativity: Moderating Role of
Supervisor Expectations for Creativity
51
Figure 3: Structural Model
Table 8: Hypothesis Results Summary
H1: There is a positive relationship between paternalistic leadership and creativity of employees.
(Accepted)
H2: There is positive relationship between paternalistic leadership and project success. (Accepted)
H3: There is positive relationship between creativity of employees and project success. (Accepted)
H4: Creativity of employees plays a mediating role between paternalistic leadership and project success.
(Accepted)
H5: Supervisor expectation for employee creativity moderates the relationship between creativity of
employees and project success. (Accepted)
5 Discussion
This study was conducted to identify the impact of paternalistic leadership on project
success of organization through the through employee creativity in the IT industry of Pakistan.
the results are in support of a significant and positive impact of paternalistic leadership on
project success of organization through the through employee creativity. Results of the study are
consistent with previous literature like DuBois et al. (2015); Gelfand, Erez, and Aycan (2007)
and Chen et al. (2014). Furthermore, results are also in favor of moderating role of supervisor
expectations for creativity between employee creativity and project success of organization.
From the results, it can be concluded that paternalistic leadership positively predicts the project
success in organization. Leadership role in organization cannot be underestimated because they
play a major role in shaping the behavior of employees and overall organizational climate
(Zhang, Huai, & Xie, 2015). Among the leadership styles, paternalistic leadership style has its
own importance. The leaders having paternalistic leadership style treat their subordinates like his
children. Various factors contribute to project success for project-based organizations and
employs are a valuable resource which can ensure success of projects. Paternalistic leaders can
Paternalistic
leadership
Employee
Creativity
Project Success
Supervisor
expectation of
creativity
.204
***
.421**
*
.541***
Asif Mehmood Rehmani1, Shabbar Hussain2
52
play a very important role in organization to support, takes care and shows authority to their sub-
ordinates for getting maximum output from them. Due to supervisor’s high moral values, this
support remains in favor of project and organization. When both supervisor and subordinates
support each other, they perform very well, and their good performance automatically leads the
project towards success.
The results regarding the mediation of creativity between Paternalistic leadership and
project success of organization are in support of the propositions. The results are consistent with
previous literature like Fu, Li, and Si (2013); Yoshida et al., (2014) and Csikszentmihalyi and
Sawyer (2014). Due to high moral values of paternalistic leaders, employees also learn from their
bosses and their ethical and moral standards improve. As, it has also established in the previous
literature that ethical leadership promotes creativity of employees due to which employee display
creative work behaviors (Duan, Liu, & Che, 2018). Paternalistic leaders also found to enhance the
creativity of employees through morality and the reciprocal obligation of employees helps in
promoting and reciprocating the morality of leaders in form creative and extra role behavior at
work. Creativity brings innovation and new methods of performing task, which is effective and
efficient in IT, project based organization. So the creativity of employees plays a role of positive
and significant bridge between paternalistic leadership and project success.
The results also established that supervisor expectation enhanced employee creativity
while interacting with paternalistic leadership. The results are in favor of previous literature like
Qu, Janssen, and Shi (2015) and Gu et al. (2015). Self-fulfilling prophecy or Pygmalion effect is
found one of the less costly and effective tool in hands of leaders. Employees in the organization
behave in the fashion, which is acceptable and encouraged by others, and a supervisor expectation
is more effective in shaping the behavior of employees. If Supervisor expectations for creativity of
employees is communicated then it will ensure the creative performance of employees, because
the employee will feel motivated and will be encouraged to engage in such type of behavior,
which is beneficial for the organization. And employees will also feel courageous to involve in
challenging task which will ultimately results in the pleasure of supervisor and also performance
of organization. And creative performances are highly desirable in IT industries which are
engaged in different projects and these performances are positively linked to success of projects.
The current study tried to overcome and remove existing flaws in all aspects but still it
has some limitations that must be considered and applied in future. The present study was cross
sectional in nature and collected data form a single source that are employee, future studies should
consider multisource data at multi time periods in order to find robust results. The present study
also takes paternalistic leadership, as composite variable, future studies should consider different
dimension of paternalistic leadership individually with project success. Present study is focused on
paternalistic leadership, which is popular due to its cultural importance but present study has not
considered any of the cultural dimension, future studies should consider the cultural dimensions
along with paternalistic leadership and project success. Present study was conducted in IT industry
and data was collected from software houses, which question the generalizability of the study.
Impact of Paternalistic Leadership on Project Success through Employee Creativity: Moderating Role of
Supervisor Expectations for Creativity
53
Future researcher should collect data from multiple industries in order to find out the effect of
paternalistic leadership in different sectors.
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Theories and Factors Followed for Setting Dividend Policy: Empirical Evidence from Pakistani
Banks
1, 2Assistant Professor, University of Gujrat, Gujrat, Email:[email protected] 2Lecturer, Faculty of Management Sciences, SZABIST Dubai. [email protected]
University of Wah Journal of Management Sciences
Volume 2, Issue 2, September 2018, pp. 57-72
Theories and Factors Followed for Setting Dividend Policy: Empirical
Evidence from Pakistani Banks Nasir Nadeem1, Adnan Bashir2, Sumaira Gulzar3
Article History:
Received:
19 Jun, 2018
Revised:
25 Aug, 2018
Accepted:
28 Sep, 2018
ABSTRACT
Purpose: The main purpose of this study is to examine dividend theories and factors
followed by banks in Pakistan for setting dividend policy from 2005 to 2015.
Methodology/Design: Panel regression is used on annual data to check the impact of
different factors on dividend policy of 24 Pakistani banks.
Findings: The results of study reveal that banks in Pakistan follow the dividend
smoothing hypothesis, life cycle theory, signaling theory and pecking order theory
while setting dividend policies. The results also highlight that profitability; investment
opportunities, last year dividend, growth and loan deposit ratio have significant
influence on dividend policy of Pakistani banks.
Implications: In the light of these results, it is recommended that management of
banks needs to look into these factors while formulating dividend policy of their
respective banks. By catering these factors they are in a position to set optimal
dividend policy which not only fulfills banks’ growth and investment needs, but also
satisfy investors’ need of return.
Limitations: This study uses only listed commercial banks of Pakistan. All other i.e.
specialized banks are excluded in this study.
Keywords: Dividend policy, banking sector, Pakistan Stock Exchange (PSX), Bank
Specific Actors, Macroeconomic Factor,
1. Introduction
Every successful business earns profit. Now a question arises that how much of this profit
should be distributed to shareholders in the form of dividend and how much should be retained in
business for future needs. This decision is guided by dividend policy. There are two main schools
of thoughts regarding the impact of dividend policy on firm value. First advocates the irrelevance
of dividend and second supports the relevance of dividend. Miller and Modigliani (1961)
explained that dividend policy has no impact on the value of firm in the perfect capital market. But
afterwards a lot of researchers opposed this dividend irrelevance theory, and stated that a large
number of factors cause capital market imperfect i.e. taxes, agency cost, transaction cost, etc.
Nasir Nadeem1, Adnan Bashir2, Sumaira Gulzar3
58
(Lintner, 1956; Gordon, 1959; Walter, 1963; Black, 1976; Jensen & Meckling, 1976; John &
Williams, 1985; Myers & Majluf, 1984; DeAngelo & DeAngelo, 2007). Even though a lot of
research in this area has been conducted, but still phenomena are not clear. Brealey and Myers
(2003) showed the dividend phenomenon among the top 10 unresolved issues in corporate
finance. Black (1976) explained this puzzle in following words, “The harder we look at the
dividend policy picture, the more it seems like puzzle, with pieces that just don’t fit together”(p.
8). Dividend policy influences financing and investing decisions of firm. When a cash dividend is
distributed among shareholders, it effects on liquidity of firm. Dividend payments decrease
retained earnings for investments and cause need for external financing. So, it influences on
capital structure and cost of capital of firm. Dividend payout also positively influence market price
of stock (Watson & Head 2004). Therefore dividend policy should be set in such a manner that
fulfills shareholders as well as firm’s needs. According to Khan and Khan (2007), during the third
Phase of financial sector reforms (2002- 2004) the focus of the State Bank of Pakistan (SBP) was
on the consolidation and improvement in the structure process of the banking sector. Banks were
encouraged to make independent subsidiaries to work as mutual funds, asset management
companies, venture capital, foreign exchange companies, etc.
The special focus was given to Automation and Prudential Regulations. Banking audit,
monitoring and corporate governance is given due importance and is taken great care. There is an
empirical gap in literature in the aftermath of these reforms in banking sector of Pakistan. So the
purpose of this study is toexamine dividend theories and factors followed by banks in Pakistan for
setting dividend policy from 2005 to 2015. The study provides different variables which have an
impact on dividend policy of banking sector of Pakistan. It also checks which dividend payment
theories are applicable on the Pakistani banking sector. Although, determinants of dividend policy
of Pakistani banking sector is scrutinized by number of researchers (i.e. Gul, Mughal, Bukhari, &
Shabir, 2012; Imran, Usman, & Nishat, 2013; Zameer, Rasool, Iqbal, & Arshad, 2013; Khan et al.
(2017).
However, this paper makes its contribution in several ways. First it uses some variables
which are not previously used for Pakistani banking sector e.g. total deposits to total assets ratio
and GDP growth rate are variables used by Misra (2015) on Indian banking sector, Loan deposit
ratio is used by Olowe and Moyosore (2014) on the Nigerian banking sector, Fahim et al. (2015)
on financial sector of Pakistan, Ahmed (2015) on UAE banking sector and last variable
Investment opportunities as independent variable is used by Ahmed and Javaid (2008), Hussain
and Usman (2013) on corporate sector of Pakistan. Secondly, this study provides updated results
by using the latest data of banks from 2005 to 2015 in the aftermath of third phase of financial
reforms. Finally, to the best of our knowledge, we have not found any research conducted which
specifically focuses on application of different dividend polices on the banks of Pakistan. So,
results are compared with existing dividend theories to check which theories are applicable to the
banking sector of Pakistan.The study is designed to fulfill the following two objectives; (1). To
Theories and Factors Followed for Setting Dividend Policy: Empirical Evidence from Pakistani Banks
59
investigate the dividend payment theories followed by Pakistani banks for setting dividend policy.
(2). To find the determinants/ factors affecting the dividend policy of Pakistani banks.
2 Literature Review
2.1 Dividend Theories
Past literature on dividend policy fails to reach at identical conclusion regarding dividend
payment and still it remains puzzle. Miller and Modigliani (1961) considered dividend policy
irrelevant in determining firm value in perfect capital market but they said value is affected from
its earning power and underlying risk. But afterwards, researchers opposed this argument by
stating that in real world, lot of imperfections exists i.e. taxes, transaction cost, agency cost, etc.
which effect firm value.
Lintner (1956) and Gordon (1959) explained “bird in hand” theory by stating that
investors prefer current amount of dividends which is certain than future capital gain which is
uncertain. Elton and Gruber (1970) enlightened the clientele and tax effect on dividend. They said
that investors in high tax range desire more on capital gain than investors in low tax range. Firms
paying high dividends should attract investor of low tax range than firms paying low dividends.
Black (1976) also described that in a market where dividend is taxed more than capital gain
corporations avoids to pay dividend for maximizing their expected after tax return. Jacob and
Michaely (2017) concluded that dividend taxation impact dividend policy.
Dividend serves as signal of firm’s performance. John and Williams (1985), Below and
Johson (1996), Al-Shattarat, Atmeh, and Al-Shattarat (2013) explained that corporate insider have
private information which they used for dividend announcement and thus impact on share prices.
It is observed that announcement of increase in dividend results to increase in shareholder’s wealth
(Azquith & Mullins, 1983). Management of companies acts as agent of shareholders. Conflict of
interest of both parties is common dilemma. This conflict of interest give rise to agency cost i.e.
cost incurred in monitoring management and manager’s risk aversion (Baker, 2009). This cost can
be reduced by paying dividend to shareholders (Rozeff, 1982). Myers and Majluf (1984) presented
pecking order theory by stating that firm should prefer internal source of funds for financing its
profitable investment projects.
DeAngelo and DeAngelo (2007) provide the concept of life cycle of business. This
theory was in line with Lintner (1956), Myers and Majluf (1984), Fama and French (2001). He
stated that a firm young in age and have more investment opportunities retain more earnings than
distributing it to shareholders. On the other hand, mature firms with stable earnings and having
sufficient free cash flow distribute high dividends.
2.2 Determinants of Dividend Policy
Dividend policy affects firm value. Setting of optimal dividend policy increases
shareholder’s as well as firm value. In literature, large numbers of factors are provided which
Nasir Nadeem1, Adnan Bashir2, Sumaira Gulzar3
60
should be considered by management while setting dividend policy. Debate relating to
determinants of dividend policy boosted up from work of Lintner (1956) when he took the
interview of 28 managers in USA and identified that current earnings (profitability) and last year
dividend are most important determinants for USA firms. The findings of Lintner (1956) were
echoed by many researchers i.e. (Pruitt & Gitman, 1991; Baker & Powell, 2000; Baker, Powell, &
Veit, 2002). Misra (2015) explored determinants of Indian banking sector. She included bank
specific factors and also macroeconomic factors for this purpose. She concluded that total deposits
to total assets and return on asset have negative impact on dividend payout while growth rate of
real GDP positively affect dividend policy.
Rozeff (1982) searched out data of USA firms and found that as a firm have more growth
opportunities, it pays low dividend. Similarly Fama and French (2001), Amidu and Abor (2006),
Gill et al. (2010), Al-Kuwari (2010), Imran (2011), Maladjian and Khoury (2014) found negative
relationship and stated that rise in growth opportunities leads to fall in dividend payout of firm.
Olowe and Moyosore (2014) searched on data of Nigerian banking sector to find determinants of
dividend payout covering the period from 2006 to 2008. After pooled regression analysis they
concluded that profitability have positive impact on dividend payout but found negative
relationship with revenue growth, loan deposit ratio, retained earnings. Ahmed and Javid (2008)
conducted study on 320 non-financial firms listed on Karachi stock exchange during 2001-06 for
identifying determinants of dividend policy. They noted that negative relationship exists between
leverage, investment opportunities and dividend payments. Imran (2011) explored positive impact
of growth in sales, last period dividend and profitability on dividend policy while cash flows
showed negative association with it in Pakistani corporate sector. Gul et al. (2012) observed that
banks listed on Karachi stock exchange keep in mind the factors i.e. growth, firm size,
profitability, leverage and firm risk when they have to decide regarding dividend
payments.Alzomaia and Khadhiri (2013) investigated the determinants of dividend policy of Saudi
Arabia firms and listed profitability, firm size and last year dividend as main factors. Imran et al.
(2013) analyzed financial record of Pakistani banks and found positive influence of profitability,
last year dividend on dividend policy and negative relationship is observed with liquidity. Yousaf
and Ismail (2016) said that earnings, investment opportunities and debt are major factors in
deciding dividend payout ratio for Malaysian companies.
Khan et al. (2017) analyzed the Pakistani banking sector by using date from 2008 to
2014. Finding favors firm size as important variable for dividend policy. Al-Najjar1 and
Kilincarslan (2018) studied the reports of 264 firms listed on ISE in turkey from 2003 to 2012.
They summarized that more profitable, mature, and larger firms pay more dividend while firms
with high growth and debt pay less dividend. Gohar and Alam (2018) found last year dividend and
leverage as determinants of dividend policy of firms listed on PSX.
Theories and Factors Followed for Setting Dividend Policy: Empirical Evidence from Pakistani Banks
61
2.3 Hypotheses Development
Following research hypotheses are developed which are based on our research question.
H1: There is a positive relationship between profitability and dividend payout.
H2: There is a negative relationship between total deposits to total assets ratio and dividend
payout.
H3: There is a negative relationship between growth and dividend payout.
H4: There is a negative relationship between loan deposit ratio and dividend payout.
H5: There is a negative relationship between investment opportunities and dividend payout.
H6: There is a negative relationship between leverage and dividend payout.
H7: There is a positive relationship between last year dividend and dividend payout.
H8: There is a positive relationship between GDP growth rate and dividend payout.
3 Research Methodology
3.1 Sample Design and Data Collection
All commercial banks listed on Pakistan Stock Exchange (PSX) during the 2005-2015 are
included in study. Bank specific data is taken from audited annual reports of the respective banks
from their official websites, Pakistan Stock Exchange (PSE), State Bank of Pakistan (SBP) while
macroeconomic data is taken from Pakistan Bureau of Statistics (PBS).The banks included in
study are Allied Bank Limited (ABL), Askari Bank Limited , AL Habib, Alfalah, The Bank of
Punjab (BOP), BankIslami Pakistan, Habib Bank Limited (HBL), Faysal Bank Limited, Habib
Metropolitan Bank Limited, Jahangir Siddiqi Bank (JS), Meezan Bank Limited, National Bank of
Pakistan (NBP), Samba Bank, Silk Bank, Standard Chartered (Pakistan) Bank, Muslim
Commercial Bank Limited (MCB), Bank of Khyber (BOK), United Bank Limited (UBL),
ArifHabib Bank, National Investment Bank (NIB), Mybank, Pakistan Industrial Credit and
Investment Corporation (PICIC), KASB Bank and Atlas bank limited.
3.2 Measurement of Variables
Dividend payout ratio as dependent is measured ascash dividend / Net Profit after tax
(Gill et al., 2010). This shows how much of profit is distributed as dividend among shareholders.
Profit is the main source for distribution of dividend and proxy return on assets is measured as Net
Profit after tax / Total Assets (Amidu & Abor, 2006). Positive relationship is expected (Lintner,
1956). Total deposits to total assets ratio (TDTA) shows portion of deposits and other liabilities of
business and this portion impact negatively on dividend payments (Misra, 2015). Growth
opportunities available to firm also impact on retention and distribution of profit, measured as
growth in interest and non-interest income / last year interest and non-interest income, the negative
relationship is expected (Maladjian & Khoury, 2014). Loan deposit ratio (LDR) effects firm’s
liquidity and ability to pay dividend (Olowe & Moyosore, 2014) and measures as total loan and
Nasir Nadeem1, Adnan Bashir2, Sumaira Gulzar3
62
advances/ total deposits (Fahim et al., 2015). Negative association is expected with loan deposit
ratio (Kinfe, 2011).
Investment opportunities as explanatory variable measured as accumulated Retained
earnings to total assets and negative relationship is expected (Ahmed & Javid, 2008). Leverage is
measured as total debt/ total equity (Zameer et al., 2013) and negative relationship is expected
(Rozeff, 1982). Last year dividend (LYD) is considered and proved most important factor in
literature and last year dividend per share is used in study. Positive relationship of last year
dividend is expected with dividend payout (Lintner, 1956). In last GDP growth rate is used for
measuring impact of macroeconomic factor on dividend policy and positive sign of association is
expected (Misra, 2015). Summary of variables used, their measurement and expected sign is
summarized in table 1 as under:
3.3 Model Specification
By applying panel data regression model in this study, following formula is generated.
DPRit=β0+ β1 PROF.it+ β2 TDTA it + β3 GROWTH it + β4 LDR it + β5 IO it + β6 LEVERAGE it + β7
LYD it + β8 GDP + εit
Table 1: Summary of Measures
Variable Name Definitions Expectation
Dividend Payout Ratio Cash Dividend / Net Profit after tax
Profitability (ROA) Net Profit after tax / Total Assets Positive
Total Deposits to Total Assets Total Deposits divided by Total Assets Negative
Growth (current year income – Last year income) / Last
year income Negative
Loan to Deposit Ratio Total Loans and Advances / Total Deposits Negative
Investment Opportunities Accumulated Retained Earnings / Total Assets Negative
Leverage Total Debt / Total Equity Negative
Last Year Dividend Lagged dividend payment per share Positive
GDP growth rate Growth rate of GDP Positive
4 Results and Discussion
Data used for study is analysed through descriptive statistics and panel multiple
regression with random effect in order to check the relationship between dependent and
independent variables. Descriptive statistics are provided in table 2.
Theories and Factors Followed for Setting Dividend Policy: Empirical Evidence from Pakistani Banks
63
Table 2: Summary of Descriptive Statistics
*Values rounded off to four decimal places
Table 2 indicates that each variable has 210 observations during the analysis period.
Table shows that dividend payout ratio (DPR) of banks listed on PSX pays on average 19.88% of
their earnings as cash dividend. Return on asset (ROA) used as proxy for profitability shows that
banks generate return 0.42% this ratio explains that banks are not efficiently utilizing their assets
for generating revenue.
Average of Total Deposits to Total Assets (TDTA) ratio is 74%. Growth in revenue
(Growth) and Loan Deposit Ratio (LDR) have mean 26.83% and 61.56% respectively. Average
value of Investment Opportunities (IO) is -1.05% and of leverage is 87.47%. Last year dividend
(LYD) is paid on average Rs.1.73 per share with deviation of Rs. 2.95 per share and GDP variable
shows that Pakistan’s economy is growing at rate of 4.16% on average during last 11 years (2005-
15).
4.1 Assumptions of Regression Model
In order to check impact of independent variables on dependent variable, regression test
is run.
Variables Obs. Mean Std. Dev. Minimum Maximum
DPR 210 0.1988 0.2565 0.0000 0.8875
Profitability (ROA) 210 0.0042 0.0207 -0.0774 0.0399
TDTA 210 0.7368 0.1217 0.2114 0.9326
Growth 210 0.2683 0.3414 -0.2416 1.738
LDR 210 0.6156 0.1545 0.3108 1.097
IO 210 -0.0105 0.0653 -0.2799 0.0653
Leverage 210 0.8747 0.1271 0.0000 0.9842
LYD 210 1.7325 2.956 0.0000 14.00
GDP
Growth rate 210 0.0416 0.0197 0.0036 0.0896
Nasir Nadeem1, Adnan Bashir2, Sumaira Gulzar3
64
Table 3:VIF Test Results
Variable VIF Tolerance
ROA 1.80 0.5550
IO 2.07 0.4819
TDTA 2.71 0.3694
Leverage 2.39 0.4175
LYD 1.40 0.7144
Growth 1.51 0.6619
LDR 1.38 0.7231
GDP 1.41 0.6987
Mean VIF 1.84
Application of regression test requires different assumptions which need to be fulfilled.
Multicollinearity, autocorrelation, homoscedasticity and linearity/ normality of residuals are
important assumptions which are tested. For multicollinearity assumption, Variance inflation
factor (VIF) is run and results are presented in Table 3. Mean VIF value 1.84 is less than standard
point 10 (Wooldridge, 2008). So, there is no problem of multicollinearity.Wooldridge test (2002)
is used for checking the autocorrelation. Following results (Table 4) rejects Ho which shows
presence of autocorrelation.
Table 4: Wooldridge Test Results
Ho: no first-order autocorrelation
F( 1, 21) 39.37
Prob. > F 0.0000
Breush pagan test is conducted for checking homoscedasticity. Under mentioned result
(Table 5) indicates rejection of Ho. So heteroskedasticity is present in data.
Table 5: Breush Pagan Test Results
Ho: Constant variance
chi2(1) 13.84
Prob. > chi2 0.0002
Linearity is checked by through plot of residuals values and predicted values. Following
PP plot (Figure 1) shows that there is no problem of linearity in data.
Theories and Factors Followed for Setting Dividend Policy: Empirical Evidence from Pakistani Banks
65
Figure 1: PP Plot of residuals and predicted values
Problem of heteroskedasticity and autocorrelation in data is solved by using special
command (VCE Robust) at the end of regression command which is available in STATA version
11.
4.2 Selection of Regression Model
There are different models available for panel data which are used for regression. The
most popular models are fixed effect models, random effect model and pooled effect model. First
of all, Breusch and Pagan Lagrangian multiplier test (LM test) is run for selection between pooled
or random effect models. The test result (Table 6) rejects the Ho of the selection of pooled effect
model.
Table 6: LM Test Results
Ho=Pooled effect model is appropriated
chi2(1) 15.51
Prob. > chi2 0.0001
LM test results favor the use of random effect model. Now, hausman specification test is
run for selection between fixed effect and random effect. Following results (Table 7) fail to reject
Ho. Which clarifies that Random effect is most suitable for analysis.
0.00
0.25
0.50
0.75
1.00
Nor
mal
F[(r
-m)/s
]
0.00 0.25 0.50 0.75 1.00Empirical P[i] = i/(N+1)
Nasir Nadeem1, Adnan Bashir2, Sumaira Gulzar3
66
Table 7: Hausman Specification Test Result
Ho=Random effect model is appropriated
chi2(8) 10.07
Prob.>chi2 0.2601
4.3 Regression Results
Regression results are reported in Table 8. According to results of this study profitability
has a positive significant relationship with dividend pay-out and supported to life cycle theory
which explains that mature firms with more profit can pay more dividends. Firms with high profits
used it as signaling device for future performance. This result supports to dividend smoothing
hypothesis of Lintner (1956).
The result is supported by past researchers i.e. Amidu and Abor (2006), Imran (2011),
Arif and Akbar (2013). But disagree with the finding of Maladjian and Khoury (2014), Misra
(2015), Ofori-Sasu et al. (2017) which found negative association with dividend payout. Total
deposits to total assets ratio has a negative and insignificant association with dividend payout. This
means that any change in this ratio has no impact on dividend payout. Growth in interest and non-
interest income is found to have a negative and significant relationship with dividend payout ratio.
Life cycle theory states that young firms have more growth opportunities but normally less
profitable.
Table 8: Regression Model Results with Random Effect
*, **, ***
Significant at the 1%, 5%, and 10% levels
Independent variables Dependent variable = DPR
Coefficient Std. Err. p-value
Profitability (ROA) 1.14 0.63 0.07***
TDTA -0.16 0.12 0.20
Growth -0.07 0.03 0.01**
LDR -0.30 0.12 0.01**
IO 0.38 0.20 0.06***
Leverage 0.07 0.09 0.41
LYD 0.05 0.01 0.00*
GDP growth rate 0.40 0.41 0.34
Constant 0.38 0.11 0.00
No. of Observations 210
N0. Of Groups 24
Wald Chi (8) 72.12
Prob.>chi2 0.000
R-Square 0.5229
Theories and Factors Followed for Setting Dividend Policy: Empirical Evidence from Pakistani Banks
67
The result is supported by past researchers i.e. Amidu and Abor (2006), Imran (2011),
Arif and Akbar (2013). But disagree with the finding of Maladjian and Khoury (2014), Misra
(2015), Ofori-Sasu et al. (2017) which found negative association with dividend payout. Total
deposits to total assets ratio has a negative and insignificant association with dividend payout. This
means that any change in this ratio has no impact on dividend payout. Growth in interest and non-
interest income is found to have a negative and significant relationship with dividend payout ratio.
Life cycle theory states that young firms have more growth opportunities but normally less
profitable. So these firms retain cash with them in order to finance favourable growth
opportunities (Ross et al., 2011). Young firms should prefer to retain earnings in order to finance
its growth opportunities (Myers & Majluf, 1984) because external source of finance is costly than
internally generated funds (Rozeff, 1982). This negative relationship is in agreement with Rozeff
(1982), Amidu and Abor (2006), Gill et al. (2010), Al-Kuwari (2010), Maladjian and Khoury
(2014). But study findings are contradictory with the results of Naceur et al. (2006), Gul et al.
(2012).
5. Discussion
The loan to deposit ratio has a negative and significant impact on dividend payout. It
explains that as an increase in loan deposit ratio results in decrease in dividend payments. Olowe
and Moyosore (2014) pointed out that high loan to deposit ratio reduces liquidity position of banks
especially in form of cash. So it is not in a position to pay high dividend. It is argued that more
deposits funds are used in lendings and less are retained for paying dividends. Result of this
variable is same as found by Olowe and Moyosore (2014), Kinfe (2011). But result is conflicting
with Fahim et al. (2015). The result for investment opportunities shows positive significant
influence on dividend payout but this relationship was not expected. Positive relationship explains
that as more profitable investment opportunities are available such that business earns more profit
by investing in these projects which results high dividend payments.
Kim and Jang (2010) said that firms having more investment opportunities pay high
dividend in order to invite new investors. He also stated that firm pay high dividend also for
enhancing goodwill of business. Same phenomenon is explained by signaling theory. Positive
relationship between investment opportunities and dividend policy is proved by Aivazian et al.
(2003), Kim and Jang (2010), Yousaf and Ismail (2016). But this result is contradicted with the
findings of Ahmed and Javid (2008), Hussain and Usman (2013). Insignificant association
between leverage and dividend payout is found in regression result and also got unexpected sign.
It means that debt financing has no impact on dividend payments. Study conducted on Pakistan’s
banking sector by Zameer et al. (2013) and Khan et al. (2017) also concluded that leverage has no
relationship with dividend payout of Pakistani banking sector. But finding of study with regard to
leverage is disagreeing with findings of scholars such as Rozeff (1982) and John and Muthusamy
(2010) because these scholars found significant negative impact of leverage. Positive significant
Nasir Nadeem1, Adnan Bashir2, Sumaira Gulzar3
68
result clears that Pakistani banks pay more attention to previous dividend payment because they
wants to maintain stability in dividend payment. Lintner (1956) provided that managers try to keep
dividend stable and increase only when they are sure to maintain it and mangers also avoid from
dividend cuts. Because any change in dividend is treated as signal for future performance of firm.
Result of last year dividend is supported by Lintner (1956), Pruitt and Gitman (1991), Baker and
Powell (2000), Baker et al. (2002), Ahmed and Javid (2008). But Yousaf and Ismail (2016) proved
no relationship between lagged dividend and dividend payout. The macroeconomic factor such as
GDP growth shows positive but insignificant relationship with dividend payout. This means that
GDP growth of the Pakistan does not effect on dividend payment decision of banks. Yukun Yao
(2014) found positive and Misra (2015) and Ofori-Sasu (2017) found negative but significant
impact of this variable on dividend payout.
The purpose of the study is to find determinants of dividend policy and also to check that
which dividend policies are followed by banking sector of Pakistan while setting dividend policy.
Results of this study show that profitability has positive impact on dividend supporting life cycle
theory and signaling theory. Negative significant impact of growth on dividend payout depicts that
young firms have more growth opportunities and retain funds for financing this growth instead of
paying dividends. This association supports the life cycle theory and Pecking order theory but
contradicts with agency theory. Loan deposit ratio has a negative correlation with dividend payout.
It indicates that when banks grant more loans, it reduces liquidity of banks which results in
payment of low dividend. The variable ‘Investment Opportunities’ shows positive impact on
dividend payout. This means that by investing in profitable projects, profits of banks increase
which lead to rise in dividend payments. The last year dividend has significant positive association
with dividend payout. It shows that for paying dividend in current period, Pakistani banks focus on
previous dividend payments. So they maintain stability in dividend payout. This supports to
dividend smoothing hypothesis. Regression results show that Total Deposits to Total Assets ratio,
leverage and GDP growth rate has no significant relationship with dividend payout. Management
of banks can use results of this study for setting optimal dividend policy which not only fulfills
banks’ growth and investment needs but also satisfy investors’ need of return.
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Impact of Transformational leadership on Project Success: Mediating role of Team-Building and Moderating
Role of Human Resource Management Practices
1MS Scholar, Faculty of Management Sciences, SZABIST Islamabad: [email protected] 2Assistant Professor, Faculty of Management Sciences, SZABIST, Islamabad.
University of Wah Journal of Management Sciences
Volume 2, Issue 2, September 2018, pp. 73-90
Impact of Transformational leadership on Project Success: Mediating role of
Team-Building and Moderating Role of Human Resource Management
Practices Khurram Yazdani1, Fuad Bashir2
Article History:
Received:
13 Jun, 2018
Revised:
24 Sep, 2018
Accepted:
30 Sep, 2018
ABSTRACT
Purpose: This study was conducted to empirically examine the relationship between
the transformational leadership and project success with mediating role of team
building and moderating effect of HRM Practices.
Methodology/Design: 184 responses from top and middle management employees of
project based public and private organizations available in Rawalpindi/Islamabad were
collected and analysis was performed. Structure Equation Modelling was used to test
the relationship between the variables.
Findings: On the basis of facts and figures derived from the received responses, it was
evident that a significant model was developed. The results were generally supportive
to the developed hypotheses.
Implication: Another prime objective of this research was to test the concept in
Pakistani context with a perspective that may be this research work contributes for the
performance improvement of project-based departments/organizations.
Keywords: Transformational Leadership (TL), Project Success (PS), Team Building
(TB), HRM Practices (HRMP).
1. Introduction Project based government departments/organizations and project based private sector
organizations play a backbone role in the progress and growth of any state. In the case of Pakistan,
government/ project based private sector organizations are investing a large volume of finances in
terms of salaries and perks of employees working in these organizations. In return, performance of
these departments/organizations is declining day by day. These offices are not delivering the
desired results to government and as well as general public. As an initial finding, the lack was
observed in applying management practices and tactics in these departments.
A very low level of motivation was observed among the government employees due to
the factors of job security and their salaries and perks. This research is planned to consider
transformational leadership and its effect on project success with mediation of team building and
moderation of human resource management practices. The overall research was focused on project
success of the project based government departments/organizations and project based private
Khurram Yazdani1, Fuad Bashir2
74
organizations. This research has also observed the factors which are playing a declining role in the
performance of these organizations. Even though the impact of transformational leadership on
project success is supported empirically, less is known regarding the mechanism that explains this
result. To state this area of interest, we suggest the mediating role of team-building as a probable
enlightenment of the connection between transformational style of leadership (TL) and project
success (PS). The research suggests that team-building partly mediates the association between
transformational leadership and project success (Aga et al., 2016).
Literature review also enhanced the concept that team-building mediates the relationship
between transformational leadership and project success. Same is the case with the literature
available on the moderating role of human resource management practices between the association
of team-building and project success. The research work will be a value addition to the most
recent research work (Aga et al., 2016). The literature review also depicts the positive effect of
human resource management practices on team Building to gain project success.
As identified and explored by Ika et al. (2012) and Nauman et al. (2010) that critical
success factors (CSFs) are a noteworthy aspect of research while examining the available project
management literature. Area of interest regarding understudy variables, the literature has enhanced
our knowledge on factors crucially prompting success of projects. Whereas, the most significant
CSFs recognized is the leadership style of the leader or manager such as the transformational
leadership (Anantatmula, 2010; Lindgren & Packendorff, 2009; Riaz et al., 2013; Yang et al.,
2010).
As explained by Aga, Noorderhaven, and Vallejo (2016), while the impact of
transformational leadership on project success is pragmatically maintained in different researches,
yet less is known about the mechanisms that explains the resulted effect. In order to report this
issue, a mediating role of team-building (TB) as a possible clarification of the association between
transformational leadership (TL) and project success (PS) can be proposed. Grounded on a field
survey of 200 development project managers in the Ethiopian Non-Governmental Organization
(NGO) sector, the outcomes of their study specify that team-building partially mediates the effect
of transformational leadership on project success. As described by Popaitoon and Siengthai
(2014), though the effect of transformational leadership (TL) on project success (PS) is practically
reinforced in different studies yet less is known about the mechanisms that explain the caused
affect. In order to report this issue, a mediating role of team-building (TB) as a possible
enlightenment of the association between transformational leadership (TL) and project success
(PS) can be projected. Founded on a survey of 200 project manager of development sector in the
Ethiopian Non-Governmental Organization (NGO) sector, the findings of their learning show that
team-building (TB) moderately mediates the impact of transformational leadership (TL) on project
success (PS).
Failure or non-compliance of minimum desired outcomes from the projects administered
by the government departments/organizations and project based private sector organizations is
increasing day by day and this decline in the performance of these departments/organizations is
affecting performance of the government offices and as well as damaging for the economy of the
country. Government departments/project based private organizations are spending a lot in terms
of salaries and perks but these offices are not delivering the desired outcomes. Public sector
departments/organizations dealing with projects are of major concern for Government of Pakistan.
Impact of Transformational leadership on Project Success: Mediating role of Team-Building and Moderating
Role of Human Resource Management Practices
75
Decline in the success ratio of these projects is alarming for the government. Initial observation
states that project success is gradually declining due to lack of applying human resource
management practices and tactics in these departments. Whereas, on the other end increase in
project success of project based private sector organizations can also contribute a lot in the
economic growth of any country. Failures of these projects are also damaging the economy of the
country and interest of foreign investors/donors.
Success is very important to be achieved in every field of life the same is the case with
government/private project based organizations where success is measured in terms of their every
project. This research is aimed to explore the factors which can improve the success ratio of the
project based government departments/organizations and project based private organizations.
Overall objective of this study is to explore the way outs/practices/measures to improve Project
Success. This research has the below mentioned key research Questions: (1). Does
transformational leadership have significant positive association with project success? (2). Does
transformational leadership positively influence project team building? (3). Do team building
practices positively influence project success? (4). Does team building mediate the relationship
between transformational leadership and project success? (5). Does HRM practices have
moderation impact on the affiliation between team building and project success or not?
2. Literature Review
2.1 Transformational Leadership and Project Success: There are four opinions that explaining the highlighted character of the project manager'
style of management that incurred on team-building practices as mentioned under by
transformational leadership and team-building as per McDonough (2000):
1. It is in notice that effective project leaders to define and manage task for their team by
allowing team to perform under the definition.
2. Project leaders exposed the transformational style of the leadership in which team
members are empowered to take decisions, have liberty to discuss and explore new
problem solving criteria to perform tasks.
3. Making the realistic judgements, effective leadership style is to make your team
empowered to share facts and awareness within team or added associated group intact
with the project. Devising communication architecture through which information
regarding the project can be share among the members involved in the project.
4. Project leadership expands the team vision by improving the positive attitude which
ultimately accomplish project success.
Sohmen (2013) classified that leader may provide the favourable working environment
which enables the team fellows to flourish their efforts toward the ultimate goal and achieved
project target. In order to persuade team-building, effective leadership is clearly authoritative that
effective leadership is essential part of high-performing with the right competences (Burke et al.,
2006). A project team can be enthused by the project manager’s transformational leadership
conduct. By such inspirations a project team accomplishes beyond their anticipations (Klein et al.,
2009). The net motivation to accomplish the project needs persistency by empowering team
members beyond individual contribution. (Burke et al., 2006; Sohmen, 2013).
Khurram Yazdani1, Fuad Bashir2
76
The performance of leadership is a basic for the people working in teams; and is stated to
be the most investigated aspect of human behaviour (Dulewicz & Higgs, 2005). While leadership
has also been the topic of much study in project management writings, its role in playing a part to
project achievement or failure lasts to incite discussion. Many other scholars have also been
exploring the effect of the manager's leadership on the performance of organizations. Previous
studies suggest an association between the manager's leadership style and effective performance in
business. Though the relationships between leadership behaviour and performance in business
have received more consideration, still the studies conducted on the leadership style of project
managers and its input to project success are inadequate. Morris (1988) stated that poor leadership
is a reason of failure during creation, build-up, and close-out phases. Kendra and Taplin (2004)
mentioned that the leadership and individual features of the project managers are allied with
project success factors. Based on previous studies many project managers do not identify
themselves or their leadership style as a contributor to project success (Turner & Muller, 2005). In
short, a large content of literature has endeavoured to identify project success factors. However,
prior studies have overlooked the project managers or their leadership styles as project success
factors.
Chen, Kirkman, Kanfer, Allen, and Rosen (2007) has explored managers are expected to
perform a leading role and inspire employees as a group instead of specific key persons, especially
in the team-based hierarchical systems. Zaccaro, Rittman, and Marks (2001) has stated that teams
that perform well are faced with various challenges, including streamlining each task into a joint
effort, organizing resources, supporting and trusting each other, and synchronizing transmission of
data and achieving goals. However, according to the scholars, even then leadership research has
seen unwanted academic and observed differences that occur between the stages of investigation
(Bliese, Halverson, & Schriesheim, 2002). Highlighted by Casimir, Waldman, Bartran, and Yang
(2006) in their research, one concept that is strictly linked to anticipation of individuals and is
vastly debated is the concept of transformational leadership which remains highly studied to this
age.
However, little effect of research analysing has been seen at both personal and group
levels other than some exclusion (e.g., Wang & Howell, 2010). Transformational leadership also
has an effect at the team level of study in contribution to the effects at a personal level. An
agreement at a lower level unit to make sure there is another form of agreement at a higher level
forms the based on the direct consensus model. This assumes that that transformational leadership
(a) included personal focus along with group base and (b) as a participative style of leadership, it
pays to mental model union in team members (Dionne, Sayama, Hao, & Bush, 2010).
2.2. Project Success
According to Cannon et al. (2010) the buyer’s long-term relationship depends upon the
buyer’s trust of a supplier and the supplier’s performance. It was identified that the relative effects
of trust and performance on long-term orientation are balanced by culture – particularly the
individualism/collectivism dimension. Speculations were tested on data from two individualist and
two collectivist cultures. Pullman et al. (2001), explains, dealing with multicultural customer
segments, unique performance challenges are experienced in developing the appropriate service
strategy. They propose a way for modelling the priority of different cultural segments, evaluating
Impact of Transformational leadership on Project Success: Mediating role of Team-Building and Moderating
Role of Human Resource Management Practices
77
the differences between the segments and determining the appropriate service strategy for service
providers who carry out multi-national projects. The success of the project and the output of the
project manager is frequently discussed, and is rarely agreed upon (Pinto & Slevin, 1988). The
success factors which are critical help in assessing the project success.
During the decade of 1980 in the field of research focus of attention diverted towards
‘project success factors’. Different theorists / scholars / authors identified features like,
“functionality (performance), project management (schedule, on budget), commercial success,
termination efficiency, and clients’ satisfaction” as factors that affect success of given projects.
Though researchers like Baker, Murphy, Fisher, Cleland, and King (1988); Morris, (1988); Pinto
and Slevin (1988) have pointed out many factors contributing success yet, no one has clearly
referred to one of the basic important factor i.e. the leadership characteristics of project managers
and their influence on success.
Andersen et al. (1987) examined the hazards that may prevent project success and
increase the chances of failure. To him the main focus should be laid on the way a project is
planned, organized, and controlled. Whereas to Baker et al. (1988) the ‘perceived’ success in any
of the project can be attained by achieving factors like attaining the project’s technical
specification and getting a high level of satisfaction from the client, the users, and the project
team. Both these writers have emphasized planning but have ignored an important factor,
leadership which as a key factor in ‘maximizing potential project successes.
Pinto and Slevin (1988) conducted a study of project success and identified ten factors for
success. They laid emphases on the need for communication channels which to them is an
extremely important factor. Along with this an adequate problem-solving ability is also required.
The researchers still not considered project manager leadership or even management skills as
success factors in this study. However, they have indirectly touched upon the fact by mentioning
the absence of project management characteristics such as inadequate project manager’s
administration, human skills, and influencing skills as factors strongly contributing to the failure
of projects.
Later Turner (1999) devised a strategy for the successful implementation of projects.
After taking inspiration from Morris (1988) and Morris and Hough (1987) he presented ‘seven
forces model’. Its main components include ‘public’ force; representing people on the project and
their management, leadership, teamwork, and industrial relations. He is the one who has initially
recognized the role of leadership as an important contributor in the success of any project. In his
view it is an important part of project strategy (approach) which in turn leads to successful project
implementation. In contrast, in 2001 Cooke-Davies stated that despite well-known research results
and decades of individual and collective experiences of project management, projects’ results
continue to disappoint stakeholders. In order t improve the situation to him more attention should
be laid on cost, time, and quality while studying project success and identified related success
factors. While defining the success factors he did not mention the people / clients’ side of project
management and mainly concentrated on factors like the project manager’s competence and
leadership ability.
In a similar manner Lee-Kelley and Loong (2003) laid focus on management side only
and suggested that there is a substantial relationship between the project manager’s awareness of
project success and his / her own behavior. To them inner-confidence and self-belief are the
Khurram Yazdani1, Fuad Bashir2
78
character qualities which chiefly play a significant part in the project manager’s aptitude to deliver
a project successfully.
Jugdev and Müller in 2005 after reviewing the given literature on project success which
discussed pitfalls and suggested remedies concluded that four conditions are necessary for a
project’s success: (1). Criteria should be agreed with shareholders to measure the success before
and during the project. (2). A collaborative working relationship should be maintained between
project owner/sponsor and manager. (3). Project manager should be authorized to deal flexibly
with unanticipated situations. (4). Stakeholder/sponsor/shareholder should concentrate in the
performance of the project. Out of these works Turner and Müller (2005) has successfully and
aptly reviewed the contribution of the project manager’s competence and leadership style to
project success.
2.3. Team Building
Cohen and Bailey (1997) explained that project teams of individuals from different areas
in any organization are combined to perform complicated and focused tasks and activities of
diverse nature. Team is an impermanent set of people which is formed to perform specific and
time bound activity. As the activity is completed, the team is scattered. The team of a project has a
limited time span. Bryman et al. (1987) have pointed out that short term nature of a team and time
bound activities of team members are the main difference that differentiate their work from other
groups.
Thomas et al., (2008) had done a wide range of research in project management. They
explained (a) the worth of a dedicated and effectual project team, (b) suggested processes for
making committed and successful teams and (3) the requirement for ongoing vigorous and
dynamic team building in life cycle of project as people go often. Team in a project shows the
recent and future requirement of a team. It can also be acknowledged that a common recognition
of procedures involved in constructing an effectual team in literature of project management. To
build a team is a time taking process. It is necessary to build team as soon as possible in early
stages of a project. Whetten and Cameron (2005) explained the famous process of team building
consists of a) forming ,b) norming, c) storming and d) performing.
Some features in various organizations included work teams, management teams, and
cross-functional teams (Katzenbach & Smith, 1992). Discussions have been done on the benefits
and flaws of using consultation teams over the recent years (Lampman & Dimeo, 1989; Todryk,
1990), and their use are becoming popular now a day. Inter organizational projects team remains
less popular even to this date. This consists of representatives from the owner, designer, and/or
constructor organizations that have a major role in giving outcome of the projects. Greater focus
has been implemented on discussing the intra organizational project team - Consisting of members
from one organization, either the owner, designer, or constructor organization. This team has a
direct effect on the improving the organization’s efficiency to perform and in return also effects
the projects efficiency.
2.4 Relationship between Team Building and Project Success
Previous studies on team building overlooked the performance and preference to outcome
measures, despite it may be essential part of team-building (Salas et al., 1999). The term team-
building remains undefined as according to requirement of the project (LePine et al., 2008).
Impact of Transformational leadership on Project Success: Mediating role of Team-Building and Moderating
Role of Human Resource Management Practices
79
Problem lies in vague where the effect of team building on performance is not properly defined
(Salas et al., 1999). For example, recent studies (Scott-Young & Samson, 2008; Zwikael & Unger-
Aviram, 2010) have started to observe the effects of team-building, but they use broad scopes of
HRM functions like training, pay and rewards, coordination, and empowerment, without focusing
on the four well-established components of team-building (Salas et al., 1999).
2.5. Mediating Role of Team Building
Transformational leadership helps create formal continuing mechanisms that stimulate
two-way communication and the exchange of information within the project team (Piccolo &
Colquitt, 2006). This could clearly affect project success. Additionally, Yang et al. (2011)
underscore that transformational leadership can achieve project success by supplementing the
benefits of team-building practices. Components of team-building such as goal setting, role
interpretation, interpersonal associations, and problem solving practices are applied to improve
project team performance and have a positive influence on project success (Klein et al., 2009). As
specified by Eisenbeiss, van Knippenberg, and Boerner (2008), success of a project comes when
team members come to an agreement on project goals and approaches to goal attainment.
2.6. Human Resource Management Practices
Research on SHRM suggests that HR applications can increase firm productivity when
they are in line with one another to supervise employees in a way that leads to their comparison
(Delery & Doty, 1996). Further, the relevance of a set of HR practices may depend on the skills
that a firm is trying to develop. HR application can make value for a firm when the individual
practices are for the advance development of resources and skills (Wright et al., 2001). It is
significant that the employee skills developed through HR practices will not be easy to supersede
because these practices and policies are firm-specific, socially complex, and target oriented (Lado
& Wilson, 1994). These practices even if tried to be re-engineered it would not only take more
time but shall also would not get same results (Wright et al., 2001). Thus, we can claim that a
system of HR practices strengthens more durability of the competitive created through TMT
networks. Thus, it is significant to demonstrate a set of HR practices that firms can use to
systematically develop and manage TMT networks. The outcome of a required behaviour (that is,
the development of strategic networks) is a function of ability, motivation, and opportunity (Locke
& Latham, 1990). To extract required behaviours from employees, including top managers, firms
must provide feedback and incentives that reinforce the required behaviours (Locke & Latham,
1990). Performance appraisals and compensation are the primary HR practices firms use to extract
and augment required behaviours (Latham, 1981). Thus, it is important to pick a set of HR
practices that firms can use in a systematic manner to deliver and control TMT networks. The
performance of a required behaviour (that is, the development of strategic networks) is a function
of capacity, motivation, and plausibility (Locke & Latham, 1990). To extract required behaviours
from employees, including top managers, firms must provide feedback and incentives that
reinforce the required behaviours (Locke & Latham, 1990). Performance appraisals and
compensation are the primary HR practices firms use to extract and reinforce required behaviours
(Latham, 1981).
Khurram Yazdani1, Fuad Bashir2
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2.6.1. HRM Practices and Project Success
Generally, projects are about different individuals, funding and equipment. There are so
many descriptions involved however researchers have a point of view that projects are generally
comprised of matrix based structure based upon the limitation of being economical, on time,
quality of service, composite and connected processes. In terms of project accomplishment and
trend, projects are dealt being technically rather than behaviourally. There is behaviour of
managing the project because of mechanical approached which is based on getting the desired
results (timelines, within budget and quality of product). There are various lists and designs are
presented in terms of project critical achievement factors, as an example one of the model says
that a project success is based on four-dimensional pillars which are efficiency, impact, success
and efficiency. The insight of different groups such as stakeholders, management, customers and
employees should be considered as vital components as everyone will look at the project from its
own prospective. Morley observed that managing a project is based on a triangle comprised of
schedule, cost and performance is convenient to analyse the accomplishment and flop of a project.
In addition to this rule of thumb it is an idea that the risk involved and conflict resolving in a
project by the project steak holders can also be evaluated for measuring a project analysis,
however risk is directly proportional to technical performance, which is directly linked to budget
and calendar. As of now, the vital most conclusion on critical evaluation of a project achievement
is carried out by Pinto and Slevin (1988). They presented an infrastructure and pointed out 10 key
components and their research said ‘‘are project application critical success factors of importance
over project. Recession research unfolded that different components were part of the success in
four steps. Further elaborating, during the conceptual stage agenda and input (from client) are the
variable which are likely to be success factors, however during finish stage, practical targets,
project agenda and customer briefings are given 60% weightage to success of project. The staff’s
factor is the only factor which is unusually predictive in measuring a project success as a life cycle
stage.
Companies’ situation is severe as they must ensure energetic environment at the
workplaces to retain the staff, accomplishments graph is measured in terms of infrastructure and
environment, however the governing bodies cannot overlook the facts that effects their
performance. Researchers are agreed to this fact that hiring skilled and energetic people is one of
the most critical factors of organization accomplishments. Human Resource Management (HRM)
is updating frequently and playing its part dynamically. Every project needs attention of all the
peoples involved in it, with in the cost and strong technicalities, however there are so many scale
to quantify it but according to almost all the researchers a project faces the steps of budget
limitation, calendar, quality and structure. Many professionals and analyst count performance,
efficiency and success has one same meaning. Organizational theory reports this miss conception
being noticed several times.
H1: Transformational Leadership positively influences Project Success.
H2: Transformational Leadership positively influences Project Team Building.
H3: Team Building practices positively influences Project Success.
H4: Team Building mediates the relationship between Transformational Leadership and project
success.
Impact of Transformational leadership on Project Success: Mediating role of Team-Building and Moderating
Role of Human Resource Management Practices
81
H5: HRM practices moderates the association between team building and project success.
Figure 1: Research Framework
3. Methodology This study is explanatory in nature as the purposes of the research were to examine the
causal relationship among study variables. Cross sectional data was collected by using self-
administered questionnaire adopted from existing literature. Convenience sampling technique was
used. The sample size of our study was 184 employees which involves top and middle
management of private companies (dealing with projects) and top and middle management
government officers working in different government departments/organizations (which are
dealing with projects) located in Rawalpindi/Islamabad. The analysis on data has been conducted
by using structural equation modelling through Smart PLS 3.
3.1. Instruments
The instrument used for the data collection is a structured instrument that includes
structured and close-ended questions. The instrument has two different sections. First section is
encompassing of the demographics such as organization, gender, age and education and second
portion is included of the questions. Each question was an item to measure responses of the
respondents regarding different variables. The five likert scale is used. Measurement scales for
measuring transformational leadership, team building and project success were adopted from Aga,
Noorderhaven, and Vallejo (2016) measurement scales for measuring HRM practices was adopted
from Popaitoon and Siengthai (2014).
4. Results 4.1. Descriptive Statistics
In this section demographic analysis was done by using SPSS. First demographic analysis
was made regarding gender of the respondents. Results depict that out of 184 respondents, 97 were
male and 87 were female. This also illustrate that 52.7% were male and 47.3% were female. This
analysis also shows that most respondents were male.
Khurram Yazdani1, Fuad Bashir2
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Table 1: Demographic Profile
Demographic Variables Codes Frequency % of Total Sample
Gender Male 97 52.7
Female 87 47.3
Age
21-30 56 30.4
31-40 92 50.0
Above 40 36 19.6
Education
Bachelor 32 17.4
Masters 90 48.9
MPhil/PhD 62 33.7
Organization Type Public 109 59.2
Private 75 40.8
Second demographic analysis was made regarding age of the respondents. Results show
that 92 of the respondents were lying in the age bracket of 31-40 years and percentage of this age
bracket is 50% in the respondents. On the other hand, 56 respondents belong from the age bracket
of 20-30 years having a percentage of 30.4 %. Whereas, only 36 respondents belong from the age
bracket of above 40 years having a percentage of 19.6%.Further result depicts that 90 of the
respondents were having Master’s degree and their percentage was 48.9% among the respondents.
62 respondents were possessing M.Phil./PhD degree. Only 32 respondents were possessing
Bachelor’s degree holding a percentage of 17.4 %.A very important demographic analysis was
made which also relates with the main theme of this research regarding professional association of
the respondents (Public Sector/Private Sector) so that both sectors could be analyzed properly.
This table illustrates that 109 of the respondents were from private sector which holds 59.2 % of
the total respondents and 75 of the respondents were from public sector which holds 40.8% of the
entire respondents. Results were presented in Table 1.
4.2. Partial Least Squares Structural Equation Modeling (PLS-SEM)
The proposed rotational paths and measures were examined through Partial Least Squares
Structural Equation Modelling (PLS-SEM). PLS-SEM is comprised of two basic steps
measurement model and structural model as suggested by Hair et al. (2012). The PLS-SEM
algorithm provides the maximized percentage of explained variance, proportion of explained
variance and path coefficients.
4.2.1. Measurement Model
In this study internal consistency reliability, convergent validity, and discriminant
validity were examined to evaluate the measurement model (Figure 2). Table 2 depicts the
Cronbach’s Alpha, Average Variance Extracted and Composite Reliability of the variables under
study. Cronbach’s Alpha values of all the variables are above 0.6 which are acceptable and it
means that the instruments which are used are consistent and reliable.
Impact of Transformational leadership on Project Success: Mediating role of Team-Building and Moderating
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83
Table 2: Construct Reliability and Validity before Moderation
Cronbach's
Alpha
Composite
Reliability (CR)
Average Variance
Extracted (AVE)
HRM Practices 0.684 0.863 0.759
Project Success 0.696 0.814 0.523
Team Building 0.657 0.814 0.594
Transformational Leadership 0.757 0.859 0.671
Composite Reliability of all the instruments is above 0.7 which is acceptable. Average
Variance Extracted is also greater than the minimum defined limit of 0.5 which tells us that our
measurement model is valid and reliable. In the view of above mentioned values, reliability and
validity is confirmed.
Table 3: Discriminant Validity before Moderation
Av
era
ge
Va
ria
nce
Ex
tra
cted
(AV
E)
HR
M
Pra
ctic
es
Pro
ject
Su
cces
s
Tea
m
Bu
ild
ing
Tra
nsf
orm
ati
on
al
Lea
der
ship
HRM Practices 0.759 0.871
Project Success 0.523 0.472 0.723
Team Building 0.594 0.534 0.574 0.771
Transformational
Leadership 0.671
0.407 0.422 0.505 0.819
The discriminant validity was examined by using Fornell–Larcker criteria. The Fornell–
Larcker (1981) establishes discriminant validity by comparing square root of AVE for each latent
variable and correlation among latent variables. The results depicted in Table 3 are in support of
discriminant validity of study variables.
4.2.2 Structural model
The satisfactory valuation of measurement model is an indication to proceed towards the
evaluation of structural model. Results regarding structural model are depicted in Table 9. From
the results it can be observed that transformational leadership has a significant and positive impact
on project success (β = .115, p< .01), supporting hypothesis 1. Results depicted a significant and
positive impact of transformational leadership on team building (β = .505, p< .01), supporting
hypothesis 2. Furthermore, results showed a significant and positive impact of team building on
project success (β = .353, p< .01). To test the moderating effect of HRM practices, first principal
component analysis was employed to form the possible factors of HRM practices. From the results
Khurram Yazdani1, Fuad Bashir2
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principal component analysis all the 14 items of HRM practices were loaded on two factors. Two
computed factors by transforming the concerned items were used to test the moderation of HRM
practices. The results in Table 4 were in support of moderating effect of HRM practices between
team Building and project Success.
4.2.2.1 Mediation Analysis
To test the mediating effect direct and indirect effects were calculated after bootstrapping
and mediation. With the help of the calculated values of direct and indirect effects VAF was
calculated which implies that 57.89%. This value is greater than 20% and less than 80% which
means that partial mediation exists on the combined data collected from public and private
organizations.
Impact of Transformational leadership on Project Success: Mediating role of Team-Building and Moderating Role of Human Resource
Management Practices
85
Table 4: Structural model
Ori
gin
al
Sa
mp
le (
O)
Sa
mp
le
Mea
n (
M)
Sta
nd
ard
Dev
iati
on
(ST
DE
V)
T S
tati
stic
s
(|O
/ST
DE
V
|)
P V
alu
es
Sta
tus
Transformational Leadership Project Success 0.293 0.295 0.074 3.943 0.000 Supported
Transformational Leadership Team Building 0.505 0.509 0.069 7.292 0.000 Supported
Team Building Project Success 0.352 0.352 0.074 4.770 0.000 Supported
HRM Practices Project Success 0.147 0.154 0.067 2.195 0.029 Supported
HRMP Moderation Project Success -0.188 -0.180 0.050 3.730 0.000 Supported
Table 5: Mediation Analysis
Path Coefficients Value of Path Coefficients VAF Status
Direct .144 .198/.342=.5789
57.89%, Which is < 80%
Means Partial Mediation
Supported Indirect .198
Total Effect .342
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5. Discussion In the current study the relationship between transformational, project success, with the
mediating effect of team building, and moderating effect of HRM practices was tested. The results
are consistent with the literature like Aga et al. (2016) and Popaitoon and Siengthai (2014). In this
regard the study proved that the transformational leadership has a significantly positive impact on
project susses along with the noteworthy mediating role of team building, and significant
moderating effect of HRM practices while analysing the combined data. The results regarding the
positive impact of transformational leadership and project success elaborated the importance of
leadership style in project success. Specifically, a project manager with transformational
leadership style inspires and stimulated his team members towards a comprehensive
conceptualization of project success characterized by stakeholder satisfaction, effectiveness and
efficiency. The findings of the study provide empirical support for the call by Turner and Müller
(2005), who highlighted the necessary to examine the role of project managers' leadership styles.
The results of the study are also in support of a positive impact of team building on
project success. These findings are consistent with previous literature like Klein et al. (2009).
From the results it can be comprehend that combined set of team-building interventions for
instance problem-solving, interpersonal relations, role-clarification, and project goal-setting are
resulted in highly committed and empowered project teams. The leadership style of managers and
classic team-building practices are more likely to improve problem-solving skills, interpersonal
communication, roles and responsibilities and defining project goals that in turn influence project
success. The results of this study are also in support of partial mediation of team-building between
transformational leadership style and project success. These results are consistent with the findings
of Aga et al. (2016). Furthermore the results are also in support of significant moderation of HRM
practices between the relationship of team building and project performance.
The present study provides a significant contribution in project management literature by
integrating team-building model with leadership theory. The empirical results are in support of
partial intervention between the association of project success and transformational leadership.
This study also contributes in project team development theory by validating the team-building as
an independent construct that leads towards the team performance. Some of the researchers like
Wang and Howell (2010) operationalize team building as dimension of transformational
leadership. Getting reflections from the pervious studies like Klein et al. (2009) and Aga et al.
(2016) this study establish the validity of team-building as an independent construct.
There are some limitations that should be considered before generalizing the results of
the study. First the results of the study are based on subjective ratings. However, the adopted
measures are well established and used by a number of studies like Pinto, Slevin, and English
(2009) and Suprapto, Bakker, and Mooi (2015) to measure the construct of project success.
Future studies should consider some objective measures to have more comprehensives
results. Furthermore, the findings are based on cross-sectional data which make the causal
interference arguable. Longitudinal studies may provide better results regarding the relationship
between transformational leadership and project success over the period of time. Third, the data is
collected by using single method of data collection which may cause the concern for common
method bias. Future research studies may use multiple data collection methods from different
concerned data sources to minimize the concerns for common method bias. Furthermore, future
Impact of Transformational leadership on Project Success: Mediating role of Team-Building and Moderating
Role of Human Resource Management Practices
87
studies should consider on diverse nature of projects along with the heterogeneous nature (i.e.,
project team members, project duration, and project type) for better insight.
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Impact of Store Environmental Characteristics on Customers’ Impulse Buying Behavior: Mediating Effect of
Customers’ Positive Emotional Responses
1MS Scholar, Faculty of Management Sciences, IIU Islamabad. Email:[email protected] 2Assistant Professor, Faculty of Management Sciences, University of Wah, Wah Cantt. Pakistan 3PhD Scholar, School of Management & Economics. Beijing Institute of Technology China.
University of Wah Journal of Management Sciences
Volume 2, Issue 2, September 2018, pp. 91-105
Impact of Store Environmental Characteristics on Customers’ Impulse
Buying Behavior: Mediating effect of Customers’ Positive Emotional
Responses Aneela Yaqoob1, Saman Attiq2, Nasir Mehmood3
Article History:
Received:
28 Jun, 2018
Revised:
27 Sep, 2018
Accepted:
29 Sep, 2018
ABSTRACT
Purpose: This research attempts to investigate the effect of store environmental
characteristics and customers’ positive emotional responses on customers’
impulsive buying behavior.
Methodology/Design: Data is obtained by structured questionnaire from customers
of apparel stores of Rawalpindi and Islamabad. Convenience sampling technique is
used for taking sample. Data is examined for the acceptance or rejection of the
developed hypotheses by SPSS.
Findings: The current research has established direct and indirect relations among
store environmental characteristics, customers’’ positive emotional responses a5d
impulsive buying behavior of customers. But only ambient characteristics of store
environment have indirect effect on impulse buying behavior.
Implications: This research is expected to provide a better understanding of the
variables that influence impulsive buying behavior. It also delivers important
implications for the marketers and retailers. Current research also delivers the
limitations and suggests recommendations for future studies.Limitations: This study
uses only listed commercial banks of Pakistan. All other i.e. specialized banks are
excluded in this study.
Keywords: Impulsive buying behavior, Store environmental characteristics,
customers’ positive emotional responses.
1. Introduction
Buying impulsively is a prevailing phenomenon across the world. The retailers and
marketers are working to appeal the buyers to increase impulse purchases. For this objective, diverse
companies are struggling and conducting research on how to increase in impulse behavior of the
customers for achieving competitive edge. The review of literature has presented that impulse
buying behavior has been argued and discovered widely during the past sixty four years,
consequently the emphases of impulse buying behavior research has arisen from the collaboration
Aneela Yaqoob1, Saman Attiq2, Nasir Mehmood3
92
of several social, psychological, situational, environmental, and individual factors (Chang, Eckman,
& Yan, 2011).The environmental characteristics, individual characteristics, and customers’
circumstances (situational factors) may be the causes of the customers’ impulse buying behavior
(Beatty & Ferrell, 1998). Scholars have suggested that customers’ impulse buying behavior may be
a self-identity seeking behavior (Dittmar & Bond, 2010). Customers buy the products to reflect their
self-image, or it may boost their self-image by turning them into what they “want to be” a better self
(Dittmar & Drury, 2000).
Several studies have been done on customers’ impulse buying behavior. A number of
future recommendations are given by earlier studies (Lunardo & Roux, 2015; Chang, Yan, &
Eckman, 2014) in the arena of customers’ impulse buying behavior. It has been suggested to
pinpoint external factors and internal factors with the view to label whether they impact impulse
buying behavior. The influences of store environments on customers’ behavior such as money spent
and browsing in the retail store have been studied extensively (e.g. Tai & Fung, 1997); however,
researchers (Chang, Yan, & Eckman,2014; Jani & Han,2013; Mohan, Sivakumaran, & Sharma,
2013) have called for further investigations to understand the effect of store environmental
characteristics on impulse buying behaviors.
Customers’ impulse buying behavior is a quick inspiring and hedonically merged buying
behavior in which the haste decision of customers’ impulse buying avoids any rational, schedule
observation of selections (Kacen & Lee, 2002). Customers’ impulse buying can also assist the
purpose of customers’ pleasure (Hausmann, 2000). Satisfying material longings makes customers
contented. Longing can be defined as ‘urges to gain pleasure’ to satisfy a want or need related in
consumer behavior (Ramanathan & Menon, 2006). Earlier studies have described the emotional
implications that emerge from customers’ impulse buying behavior (Sayre& Horne, 1996).
Customers are constantly subjected to different cues in the retail store environment that can
influence impulse buying (Shalom & Gendel-Guterman, 2012). Store environment such as light and
music have an effect on positive emotions of customers, which further effect on customers’ impulse
buying behavior (Mohan et al., 2013). This research is intended to examine store environment (i.e.
ambient, design, and social characteristics) affect customers’ emotions, which further influence
impulse buying behavior. Keeping in mind the above mentioned propositions, it is essential to
identify and understand the decision path of customers’ impulse buying and to test the mutual impact
of internal and external effects on customers’ impulse buying behavior. Current research suggests a
framework to understand the way the outer elements excite inner elements in the making of impulse
buying behavior. By studying the current literature, it is established that no study could be found on
the link between store environment and impulse buying behavior with mediating role of customers’
positive emotional responses and with precise focus on ready to wear clothing outlets and stores in
Pakistan.
The current research has the purpose to examine whether store environmental
characteristics and customers’ positive emotional responses affect impulse buying behavior. More
Impact of Store Environmental Characteristics on Customers’ Impulse Buying Behavior: Mediating Effect of
Customers’ Positive Emotional Responses
93
specifically, the purpose of the study is: to add to an enhanced understanding of direct effect between
three cores variables i.e. store environmental characteristics, customers’ positive emotional
responses and impulse buying behavior of customers. Another objective is to analyze indirect effects
of characteristics of store environment on impulsive buying behavior through customers’ positive
emotional responses. The current study will focus on apparel purchases since apparel purchasing
are sensual experiential items with definite symbolic significances and are bought because of
buyers’ emotional preferences (Park, Kim, & Forney, 2006). Second, shopping for non-food goods
such as clothing is a scope for self-expression par distinction (Das, 2014). So, these are some of
other causes to conduct research in the clothing context by revised Stimulus-Organism-Response
(S-O-R) model (Mehrabian & Russell, 1974).
2. Literature Review
The review of literature tests relations among store environmental characteristics (i.e.
ambient, design, and social characteristics), customers’ positive emotional responses and impulsive
buying behavior.
2.1 Store Environmental Characteristics
Three groups of store environment that were classified by Baker (2002) are useful for the
current research. Baker (2002) offered a typology for categorizing store environmental signs into
three sets built on the experiences that create customer’s responses. For the first cue (ambient)
comprising non visual elements like music, temperature and lighting. For the second cue (design)
which comprises visual elements, such as store layout, fitting room signage, merchandise display,
fixtures and color scheme. For the third cue (social), it comprises persons who are in the buying
environment like salesperson and other customer. The environment of store has an influence on
customer’s insights about service quality, products and pleasure at the retail outlet (Sharma &
Stfford, 2000). Several characteristics of store environment combine to denote three factors ambient,
design and social those play an important role in influencing customer’s emotions and probability
of purchasing (Turley & Milliman, 2000). Kotler (1973) familiarized the concept of atmospherics
for the first time. He defined the store atmosphere such as “the effort to design buying environments
to produce specific emotional effects in the buyer that enhance purchase opportunity.”
Aneela Yaqoob1, Saman Attiq2, Nasir Mehmood3
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2.1.1 Ambient Characteristics and Customers’ Positive Emotional Responses
Ambient comprises the settings of non-visual nature in the retail store environment like
light and scent (Baker et al., 1994).For example, light may affect the image of store as well as
inspection of goods, d’ Astous (2000) mentioned ambient factor as ‘contextual conditions that exist
under the level of our immediate awareness. It includes scent, sound, cleanliness, humidity,
brightness, ventilation and temperature etc. It is demonstrated from the studies of restaurants and
supermarkets that the tempo and volume of music can affect customer’s emotions and as a result
interval of stay, shopping pace and amount spent (Turley & Milliman, 2000). Lighting designer
noticed that lighting can affect how customers experience the space and light is an important element
for the retail designer that can create a positive store experience.
2.1.2 Design Characteristics and Customers’ Positive Emotional Responses
Design Characteristics consist of two elements (i.e. physical and visual) of store
environment which include the architecture, material, color and style that may differentiate it from
one retailer to another retailer (Baker et al., 1994).The structures of store environment like physical
appeal and features of store (window displays, sign clutters) may affect the customers’
insightrelating to product quality (Ailawadi & Keller, 2004).The finest design characteristics of the
environment of store may have a positive effect on the customers’ positive emotional responses.
Positive responses arise if the store makes it easy for the purchasers to find the merchandise they
are looking for, by providing appropriate signage and logical store layout (Spies et al., 1997).
2.1.3 Social Characteristics and Customers’ Positive Emotional Responses
Social characteristics may comprise customer types, confidentiality, behavior and the
staff’s look and appearance (Turley & Milliman, 2000).These characteristics of the store
environment denote to the characteristics caused by other shoppers or sales assistants. Chang, Yan,
and Molly (2011) presented the bearing of social characteristics on customer’s positive emotional
33responses. Often, subtle aspects in the personnel’s behavior lead to positive feelings, for example
being easily available and a smile for customers. Even in brief and mundane encounters, the sales
persons cause positive effect (Mattila & Enz, 2002).
2.2 Customers’ Positive Emotional Responses and Impulse buying behavior
State of emotions is a judgment whether an object is attractive, pleasant, valuable,
preferable or likeable (Russell & Snodgrass, 1987). The extent to which an individual may feel
enthusiastic, attentive, and active can be characterized by positive affect (Beatty & Ferrell, 1998).
A customer’s emotional state has an effect on customer’s impulse buying behavior. Customer’s
positive emotions like enthusiasm have positive effect on customers’ impulse buying behavior
(Chung et al., 2014). Some examiners have found the influence of arousal and pleasure on making
impulse buying (Babin & Attaway, 2000).Theoretical and empirical indications have shown that the
Impact of Store Environmental Characteristics on Customers’ Impulse Buying Behavior: Mediating Effect of
Customers’ Positive Emotional Responses
95
effective and emotional state is the driver for customers’ impulse buying behavior(Strack &
Deutsch,2003).
2.3 Mediating Effect of Customers’ Positive Emotional Responses
Related work demonstrates the significant impact of store environmental characteristics on
customers’ positive emotional responses as well as the significant effects of customers’ positive
emotional responses on impulsive buying behavior (Chung et al., 2014; Talukdar & Lindsey, 2013).
It is argued that the characteristics of store environment have a significant effect on customers’
positive emotional responses, and in turn, those customers’ positive emotional responses have effect
on impulsive buying behavior. As stated by Mohan et al. (2013), store environment like light and
music (ambient characteristics) have influence on positive emotions of customers, as a result,
influence customers’ impulse buying behavior. Another study displays that the ambient/design
features in a retail store can activate customers’ positive emotions, which lead to customers’ impulse
buying behavior (Chang et al., 2011).
Researchers have established in their explanations that occasionally the contact between
customers and salesmen may change into their friendships, comprise affection, provision of social
nature and gift giving. This type of association is helpful to support the marketing purposes like
contentment of customers, loyalty and impulse behavior from customers (Hu & Jasper, 2006).If
characteristics of store environment(i.e. ambient, design and social) exert significant effects on
positive emotional responses of customers and customers’ positive emotional responses (organism)
has significant impacts on impulsive buying behavior(response).
2.4 Theoretical Framework and Hypotheses
Stimulus–Organism–Response Model (Mehrabian & Russell, 1974) and social cognitive
theory (Bandura, 1986; Rotter, 1954; 1966) provide the base for the development of theoretical
framework of this study. In this research, store environmental characteristics denote stimulus,
customers’ positive emotional responses denote organism and customers’ impulsive buying
behavior denote response as per the S-O-R model.
Aneela Yaqoob1, Saman Attiq2, Nasir Mehmood3
96
Fig.1: Proposed S-O-R Framework of Impulsive Buying Behavior
H1: There is a positive impact of ambient characteristics on customers’ positive emotional
responses.
H2: There is a positive impact of design characteristics on customers’ positive emotional responses.
H3: There is a positive impact of social characteristics on customers’ positive emotional responses.
H4: There is a positive impact of customers’ positive emotional response on customers’ impulsive
buying behavior.
H5: Customers’ positive emotional responses act as a mediator between ambient characteristics and
customers’ impulsive buying behavior.
H6: Customers’ positive emotional responses act as a mediator between design characteristics and
customers’ impulsive buying behavior.
H7: Customers’ positive emotional responses act as a mediator between social characteristics and
customers’ impulsive buying behavior.
3. Research Methodology
Population of the study is customers visiting and making purchases at famous ready-to-
wear clothes outlets in Rawalpindi and Islamabad (Pakistan). Apparel stores are chosen, by
following Lin and Liang (2011) to confirm that service environments and emotional state would be
related to the customers’ purchasing experience. Method of mall-intercept survey is used for data
collection following Mohan and Sharma (2013). 410 final questionnaires are included in study. Male
customers are dominated the sample as 214 (52.2%) and female customers are 196 (47.8%). Most
Impact of Store Environmental Characteristics on Customers’ Impulse Buying Behavior: Mediating Effect of
Customers’ Positive Emotional Responses
97
customers’ lie in 30-40 years age category as 159 (38.8%). 227 (55.4%) customers have 14-18 years
qualification. 105 (25.6%) customers have less than Rs. 20,000 income.
Table 1: Descriptive of Sample Respondents
Demographic
Variables Code Frequency Percentage Mean/S.D
Gender Male 214 52.2
0.48/0.50 Female 196 47.8
Age
(in years)
Under 20 40 9.8
2.58/0.50
21-30 157 38.3
31-40 159 38.8
41-50 46 11.2
51-60 4 1.0
Over 61 4 1.0
Qualification
(in years)
Under 10 20 4.9
2.79/0.74 10-14 104 25.4
14-18 227 55.4
Over 18 59 14.4
Income
(In thousands)
Under 20 105 25.6
2.87/
1.47
20-30 81 19.8
30-40 62 15.1
40-50 88 21.5
Over
50 74 18.0
3.1 Measures
This study has three store environment characteristics i.e. design, ambient, and social. To
measure these store environment characteristics, Kumar and Kim (2014) scales are used. Design,
ambient, and social scales have 9, 5, and 5 items respectively .Value of Cronbach’s Alpha of these
measures are 0.87, 0.79 and 0.76 respectively. Customers’ positive emotion response scale is
adopted from Chang, Yan, and Eckman (2014) and it consists of 7 items with Cronbach’s Alpha of
0.90. To measure impulsive buying behavior, Chang, Yan, and Eckman (2014) scale is adopted with
3 items and having Cronbach’s Alpha of 0.77. Responses are taken on 5 point Likert scale ranging
from ‘Strongly Disagree’ (1) to ‘Strongly agree’ (5).
Aneela Yaqoob1, Saman Attiq2, Nasir Mehmood3
98
3.2 Procedure
For data analyses, descriptive analysis of all variables i.e. demographic and study variables
is performed through SPSS 21. On the other-side, for inferential analysis, structural equation
modeling technique is applied with the help of AMOS 22.0. Through SEM, measurement model
validation and structural model fitness is checked for hypotheses testing.
4. Results
Descriptive analysis is executed to study the mean and standard deviation of variables.
Mean and standard deviation of MIBB are 3.49 and 0.94 respectively. Descriptive of other variables
are presented in following Table 3. Skewness and kurtosis are also found to check normality of data
and results of Skewness and Kurtosis are in acceptable range i.e. -2 to +2 that represent data is
normal. Correlation analysis is accomplished to check association between variables. Results have
shown that variables have significant positive association with each other at p<0.01. Design
characteristic (MDC) has strong positive and significant association with social characteristic
(MSC) i.e. r= 0.69, p<0.01. In same way, social characteristic (MSC) has weak positive and
significant association with impulsive buying behavior (MIBB) i.e. r= 0.24, p<0.01.
Table 2: Correlation Analysis
1 2 3 4 5 Mean S.D. Skewness Kurtosis
1. MDC 1 3.81 0.68 -0.62 0.83
2. MAC .51** 1 3.57 0.86 -0.50 0.15
3. MSC .69** .50* 1 3.90 0.76 -0.95 1.15
4. MCPER .64** 42** .49** 1 3.65 0.84 -0.61 0.30
5. MIBB .36** .29** .24** .47** 1 3.49 0.94 -0.70 0.41
**.Correlation is significant at the 0.01 level (2-tailed)
4.1 Structural Equation Modeling
4.1.1 Testing of Measurement Model
Confirmatory factor analysis is executed for measurement model. To check reliability of
each item, factor loading (FL) and squared multiple correlation (SMC) are calculated. Items having
FL less than 0.50 and SMC below 0.20 are eliminated (Hu & Bentler, 1999). First latent variable is
design characteristic with 9 items. Three items are dropped due to low FL and SMC values. These
values of incorporated items are ranged from 0.62-0.72 and 0.38-0.51 respectively. Second latent
variable is ambient characteristic with 5 items. Two items are dropped due to low FL and SMC
values. FL and SMC values of incorporated items range from 0.75-0.89 and 0.56-0.80 respectively.
Impact of Store Environmental Characteristics on Customers’ Impulse Buying Behavior: Mediating Effect of
Customers’ Positive Emotional Responses
99
Third latent variable is social characteristic with 5 items. Two items are dropped due to low FL and
SMC values. FL and SMC values of incorporated items are ranged from 0.69-0.77 and 0.47-0.59
respectively. Fourth latent variable is customer positive emotional responses with 7 items. FL and
SMC values are ranged from 0.70-0.80 and 0.48-0.64 respectively. And fifth latent variable is
impulsive buying behavior with 3 items. FL and SMC values are ranged from 0.64-0.78 and 0.41-
0.61 respectively. Finally, measurement model has five latent variables with 29 observed variables.
Figure 2: The Measurement Model
Aneela Yaqoob1, Saman Attiq2, Nasir Mehmood3
100
4.1.2 Structural Model Testing
Structural model is developed based on conceptual model with four exogenous variables
i.e. design characteristic, ambient characteristic, social characteristic and two endogenous variables
i.e. ‘positive emotional responses’ of customers and ‘impulsive buying behavior’ of customers.
Demographic variables i.e. gender, age, qualification, and income are taken as control variables.
4.2 Results and Analysis of Hypotheses Testing
As first two hypotheses state the positive impact of ambient characteristic (MAC) and
design characteristic (MDC) on customers’ positive emotional responses (MCPER). Results show
that both characteristics have positive impact on MCPER with standardized regression weight 0.14
(p<0.00) and 0.55 (p<0.00) respectively. Third hypothesis states that social characteristic (MSC)
has positive impact on customers’ positive emotional responses (MCPER). Results show that MSC
have no significant impact on MCPER as p>0.05. The fourth hypothesis exhibits the positive impact
of customers’ positive emotional responses (MCPER) on impulsive buying behavior (MIBB) of
customers. Results show that MCPER has a positive and significant impact on MIBB with
standardized regression weight 0.42 (p<0.00).To check mediating effect of customers’ positive
emotional responses, mediation analysis is executed by using 10,000 bootstrapping through 95%
bias-corrected two tailed significance (BC) through AMOS. Indirect effect is calculated with 5000
bootstrapping at 95% bias-corrected two tailed significance (BC). Thus, indirect effect from ambient
characteristic and impulsive buying behavior through customers’ positive emotional responses is
significant with standardized indirect effect of 0.05 and standard error of 0.02 at two tailed
Significance (BC) of 0.01. In simple words, customers’ positive emotional responses act as mediator
between ambient characteristic and impulsive buying behavior. So, result presented that mediation
exist. Finally, there is no mediation between DC-IBB and SC-IBB (remaining two hypotheses i.e.
H6 & H7).
Figure 3: Structural Model
Impact of Store Environmental Characteristics on Customers’ Impulse Buying Behavior: Mediating Effect of
Customers’ Positive Emotional Responses
101
Model fitness indices are also checked for structural model testing. Results showed good
model fitness i.e. CMIN/DF= 1.550/p=0.18, RMR=0.02, GFI= 0.99, AGFI= 0.97, CFI= 0.99, and
RMSEA= 0.03.
5. Discussion
H1, H2, and H3: predicted the effect of store environment (i.e. ambient, design & social
characteristics) on positive emotional responses of customers. Results show that there is a positive
impact of ambient and design on positive emotional responses of customers while social
characteristics have no positive effect on positive emotional responses of customers. The results
supported the past literature (Chang, Yan & Eckman, 2014; Kim & Kim, 2012) that store
environmental characteristics may significantly impact on customers’ positive emotional responses.
The current study has supported the direct impact of store environment (i.e. characteristics) on
customers0 positive emotional responses. For example, consumers who experienced that the retail
store is sparkling are more joyful and happy. This result adds in knowledge to the understanding of
retailers’ parts. The retailers who provide a relaxing, clean and exciting store environment more
likely appeal customers and make them joyful and satisfied with their shopping experiences.
H4: predicted that customers’ positive emotional responses affect customers’ impulsive
buying behavior. The outcomes of the current study supported the literature (e.g. Park, Kim, &
Forney, 2006; Chang, Yan, & Eckman, 2014) that the customers who have more positive emotional
responses are more impulsive in their purchasing behavior. The customers who are more excited,
happy, attentive, delighted and stimulated are more involved in buying that is not scheduled. The
result of the current research has maintained the related previous literature that customers’ buying
behavior is not always planned (Rook & Gardner, 1993) and their reactions may be the causes for
their impulsive buying behavior.
According to the results and analyses of H5, H6, and H7 regarding the characteristics of
store environment–customers’ positive emotional responses –customers’ impulse buying behavior,
the current research has established a direct and indirect relations among store environmental
characteristics, customers’ positive emotional responses and impulsive buying behavior of
customers. But only ambient characteristics of store environment have indirect effect on IBB. The
results of the current study are in line with literature (Mattila & Wirtz, 2008; Chang et al., 2011)
that support the mediating effects of customers’ positive emotional responses. The outcomes of the
current research enlarge to a better consideration of the direct and indirect impact of store
environmental characteristics on impulsive buying behavior through customers’ positive emotional
responses in context of apparel (Kim, 2005).
The input of the current study is to suggest and assess a model that denotes potential
relations between store environmental characteristics and impulsive buying behavior of customers.
Numerous prior research studies have paid attention to some of the associations mentioned here, the
distinctive contribution of the current study is to look at the body of literature in a way that brings
Aneela Yaqoob1, Saman Attiq2, Nasir Mehmood3
102
together store environmental characteristics, customers’ positive emotional responses and
customers’ impulsive buying behavior in natural and non-contrived settings and to assess an
acceptable research model. A profound perception at these associations helps test the role played by
store environmental characteristics in affecting impulse buying behavior of customers in a store
environment. Mainly, the outcomes focus on the following three important relations: (1) store
environmental characteristics positively affects customers positive emotional responses (2)
customers positive emotional responses positively affect impulsive buying behavior of the
customers (3) customers positive emotional responses mediate the role of store environmental
characteristics on impulsive buying behavior of customers.
5.1 Theoretical and Practical Implications
Important theoretical implications result from the current study. First, this study contributes
to the understanding of customers’ impulse buying behavior by applying the S-O-R model and by
including three factors of store environmental characteristics, mediating effects of consumers’
positive emotional responses. These results hope to enable other researchers to use this model in
other settings of buying behaviors. Secondly, most of the previous studies (e.g. Baker et al., 2002;
Massara & Pelloso, 2006) checked the relationships of store through experiments; this research is
based on a field study approach and data is collected in the non-contrived settings. According to
Kerlinger and Lee(2000), data collected in field survey has more external validity than the
experimental approach where the attention is on internal validity. The results of the current study
also deliver some practical implications for apparel industry. Remarkable interior, sparkling
environment and attractive designs may create affirmative emotions among customers and increase
more impulse buying, which may increase sales. Marketers and retailers are working consistently to
find better ways to attract the customers. Therefore, this study would be helpful to the retailers and
marketers in a way to focus on the customers’ positive emotional responses in detail for developing
the strategies regarding environment of the stores.
5.2 Limitations and Future Recommendations
The results of the current study may not be generalizable for many reasons. First, this study
is a store interrupt research and there are limits to control internal and external aspects. Each aspect
of the retail store environment may come in interrelate with one another and affect customers. The
influences of those interacted factors are beyond the focus of this research. Second, because of
limitation of time, cross-sectional method is employed to examine the effect of several factors on
impulsive buying behavior of customers. Third, main limitation of this research is the use of non-
probability convenience sampling technique that confines the generalization of the results.
It would be interesting to examine the relations of customers’ positive emotional responses
and impulsive buying in stores of other cities with diverse retail offerings and store environmental
characteristics.For instance, impulsive buying behavior of electronics and jewelry merchandises can
Impact of Store Environmental Characteristics on Customers’ Impulse Buying Behavior: Mediating Effect of
Customers’ Positive Emotional Responses
103
be further investigated and matched with the results of this research. Many other factors that
influence impulsive buying exist, however, only a few aspects are checked in the current research.
As shown by the regression analyses, some factors that are related to individual characteristics such
as self-classification and self-evaluation as well as some situational characteristics such as location
of the stores can moderate the relations between store retail environmental characteristics and
positive emotional responses of customers or directly affect customers’ impulsive buying behaviors.
It is suggested that future research may use a method of longitudinal research. Additionally, future
research can use other sampling techniques to expand the generalization of the results.
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University of Wah Journal of Management Sciences
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