Corporate Governance Mechanism and Capital Structure: Direct and Mediating Impact of Listed Firms in Pakistan

Abstract

The concept of this study to examine the impact of Corporate Governance Mechanism and capital structure direct and mediating on listed firms in Pakistan. For this purpose a sample of well reputed 153 listed non-financial entities has taken over a period of 11 years from 2008 to 2018. Thus, the total number of observations are come out by 1,683 (153x11). The data of the study is based on panel data and used regression model for the purpose of analysis to draw a conclusion. The test of the regression is routed through three phases that are 1) the straight effect of capital structure on firm financial performance, 2) the straight effect of corporate governance mechanism on firm performance and 3) mediating effect of capital structure on impact of corporate governance on firm performance. The proxies of corporate governance are Board of Directors (BOD) Size, Audit Committee (AC) Size, AC meetings and External Auditors whereas firm financial performance indicators are Return on Assets (ROA), Return on Equity (ROE) and Earning Per Share (EPS). Mediating variable is capital structure which is calculated as total debt over total equity i.e. Leverage. The result witnessed that the research model of the study has excellent goodness-of-fit. The result further demonstrated that capital structure and corporate governance has an optimistic and significant effect on firm financial performance. The results also show effective mediation of capital structure on impact of corporate governance mechanism on firms financial performance.