OWNERSHIP STRUCTURE AND ITS IMPACT ON FIRM PERFORMANCE AND FINANCIAL DECISIONS OF LISTED COMPANIES IN PAKISTAN STOCK EXCHANGE. MODERATING ROLE OF CORPORATE GOVERNANCE

Abstract

The intention of this study is to examine the impacts of ownership on the performance and decisions of non-financial sector companies in Pakistan, while also examining the moderating role of corporate governance in the relationship between ownership and firm’s performance, as well as financial decision. This study utilizes data from 192 listed companies spanning the period from 2009 to 2019. Firm accounting performance is evaluated using measures such as return on assets and return on equity, the assessment of market performance involves stock volatility, Tobin's Q, and the market-to-book price ratio as measures. Additionally, financial decisions are examined by taking into account factors such as the debt-to-equity ratio and dividend payout ratio. The findings reveal that foreign and institutional ownership has a positive and significant impact on firm’s financial performance, whereas director ownership negative and significant affects performance measures. Foreign and institutional ownership also significantly reduce stock volatility and benefit the firm's equity market value and Tobin's Q ratio. Conversely, director ownership increases significantly stock volatility, whereas it has a negative and significant impact on stock valuation and negative insignificant impact on Tobin's Q ratio. However, foreign and institutional ownership have positive and significant impacts on the leverage ratio, while negative impact foreign ownership on dividend payout ratio is insignificant. Director ownership has a negative and significant impact on both financial leverage and dividend payout. Corporate governance plays a significant role between the relationship of ownership and financial performance and decisions. However, it does not significantly moderate the relationship between ownership and market performance. The study concludes that internal owners are less efficient and lack control compared to foreign and institutional shareholders. Recommendations are made to adjust the director's interest in favor of the firm, considering the implications of agency theory and steward theory. This research emphasizes the importance of corporate governance as a moderator between the impact of ownership structure on performance, contributing to the literature on agency theory and steward theory