Impact of Corporate Governance Practices on Capital Structure an Empirical Study of KSE Listed Pakistan Firms

Abstract

Firms whose securities are publicly traded are studied to identify the influence of their corporate governance practices on their financing choices. The firms' board of directors is the ultimate decision taker of such choices and provide key strategic outlook. Size and composition of board and ownership structures thus play somp role in this respect. Various researches have been carried out to judge the relationship

between attributes of corporate governance and the capital structure, mostly using

debt

ratio.

This study involves the analysis of 100 non-financial companies that are listed to the Karachi Stock Exchange. The dependent variable in the study is the total debt) ratio and the independent variables are features of corporate governance. These features include board size, board independence, CEO duality, managerial ownership, ownership concentration and institutional ownership. Certain control variables that have been taken into account include firms' size, profitability and tangibility of^sets. The data studied has spanned over a five years period from 2007 to 2011 The econometric analysis included panel regression with random effects.

This research could prove negative association of leverage with CEO duality, independence, board size, managerial ownership, firm's size and profitability

that of a positive association is observed with institutional ownership, own^rship concentration and tangibility of assets. However except for managerial ownership (at 20% level of significance), tangibility and profitability (both at 5% level of significance) none of the variables were found statistically significant.

This study also provides content for comparison with the studies conducted icross other capital markets and over prior time periods.

Key words: Corporate governance, capital structure, leverage