Impact of Executives: Attributes on Strategic Financial Decisions: A Comparative Study on Sharia and Non-Sharia Compliant Firms of UK and Pakistan
Top executives/managers are important for success/failure of the organizations because they influence firms operations through financial and non-financial decisions. Literature suggests that managers are not identical and that the idiosyncratic differences among managers exist because of the differences in personal values and cognitive styles, which lead managers to make different decisions mostly in complex situations. Literature provides enough evidence on significant role of managerial style in different corporate policies such as investing, financing, voluntary corporate disclosure and corporate tax avoidance and find significant role of managers styles for these policies. However, the literature is limited in scope with respect to geographic and economic context, the subject matter and nature of business conduct. This study addresses this gap in literature by examining the role of top managers in financial decisions, performance and idiosyncratic risk of sharia and non-sharia compliant firms in Pakistan and the UK. The sample of the study comprises of Pakistani and UK firms. The data period ranges from 1999 to 2014 for Pakistani firms and 2001 to 2014 for UK firms. Following , a managerfirm matched panel is constructed, the study tracks individual top managers of sharia-compliant firms across different firms over time. This includes tracking the observed variation in firms financial decisions, the performance and the idiosyncratic risk that can be ascribed to fixed effects of managers, while controlling for observable and unobservable differences across firms. The study also compares the financial decisions, the performance and the risk across sharia and non-sharia firms. Moreover, the differences in the styles of managers who move between sharia and non-sharia firms are also examined. The results of this study shows that the managers exercise significant effect over the financial decisions of the firms, the performance and the idiosyncratic risk of both sharia and non-sharia firms. The decisions of managers who come from non-sharia-compliant firms are significantly different from those who come from sharia-compliant firms. Moreover, the policies of sharia firms with respect to the leverage, the dividend payouts, the working capital, the performance and the idiosyncratic risk differ significantly from those at non-sharia-compliant firms. The results of study have important policy implications for shareholders who elect the directors, institutional investors who invest massive amounts in the shares of listed companies, and creditors who advance huge loans to large companies. Discerning the differences between the importance of managerial financial styles of top officials in sharia and NSC companies helps them make strategic plans in terms of their financial decisions.