ROLE OF CAPITAL STRUCTURE BETWEEN CORPORATE GOVERNANCE AND FIRM PERFORMANCE: EMPIRICAL EVIDENCE FROM PAKISTAN
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Abstract
This study examines the role of capital structure (CS) in the relationship between corporate governance (CG) and firm performance. The empirical findings indicate that high-quality CG has a positive and significant impact on the performance of Pakistani non-financial firms listed on the Pakistan Stock Exchange (PSX) between 2017 and 2022. Moreover, the study shows that CS has a moderate reinforcing effect on this relationship. These results remain consistent across different econometric specifications and variable definitions. By using specific firm-specific characteristics to represent CS, this study contributes to the literature by demonstrating that CS can strengthen the association between CG quality and firm performance. These findings have important implications for CG practices in developing countries, as firms in these contexts can enhance their performance by implementing and adhering to good governance practices. Additionally, firms in developing countries should adopt effective financial strategies concerning CS to further enhance the relationship between CG quality and firm performance. For potential investors, it is recommended to consider the debt level in the CS of non-financial firms in Pakistan when making investment decisions.
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