Revisiting Capital Structure and Firm Value: Moderating Role of Corporate Governance: Evidence from Pakistan

Abstract

The aim of the study was to examine the most discussed relationship between capital structure and firm value by investigating the intervening impact of various corporate governance measures. chief idea of the study was to observe the moderating impact of chosen governance attributes (board size, board independence, CEO role duality, managerial ownership and ownership concentration) on the relationship between capital structure (leverage) and firm value (Tobin’ Q). The study used the 775 firm year observations of 155 non-financial companies listed at Karachi Stock Exchange for financial years containing 2008 to 2012. Keeping in view the nature of data (balanced panel), fixed effects regression method was employed to estimate the formulated relationship. In finding moderation, this study found significant positive moderation for board independence and ownership concentration. However for managerial ownership this study found significant negative moderating effect between leverage and firm value.

Keywords: Moderation, Capital structure, Firm value, Corporate Governance.