Effect of corporate governance and institutional ownership on capital structure of firms’ evidence from Pakistan stock exchange

Abstract

The objective of this study to examine effect of corporate governance and institutional ownership on capital structure of non-financial listed firms in Pakistan. The purpose of the present research is to investigate whether there is any relationship between some specific feature of corporate governance and capital structure of listed firm in Pakistan stock exchange. The study sampled was selected 75 firms and 600 observations are randomly selected in Pakistan stock exchange 100- index cover the period of 2011 to 2018. We used panel data regression analysis with E-Views software techniques. The Hausman test also applied for selecting Random effect model (REM) approach. The independent variable of this study include ‘board size’, ‘board composition’, ‘institutional ownership’ and ‘CEO-Duality’. However the dependent variable decided to be debt ratio (DR) as a proxy for (capital structure). The regression model reveal that board size (BS) and CEO-duality significant relation with capital structure. However, Board composition and institutional Ownership has positive and insignificant relation with capital structure. Control variables firm size and Growth are positive relation and significant effect on capital structure of the firms. Therefore, results suggest that corporate governance variables like ‘board size’ and ownership’ play important role in determination of financial mix of the firms and this study finds the issue of corporate governance has important implications on the financing decisions of Pakistan listed firms.