An Empirical Examination of the Impact of Corporate Governance Measures and Capital Structure on Firm Profitability in Pakistan

Abstract

The rationale of the study is to observe the influence of corporate governance measures and leverage on the non-financial firms profitability. Panel econometric method ordinary least squares used to examine the impact of capital structure and corporate governance measures on the profitability of non-financial companies regularly traded on the Karachi Stock Exchange Pakistan for the period of 2008-2012. Empirical results for capital structure explored negative relation with return on assets. This inverse association between leverage and firm profitability shows that agency problem may lead the companies to use excessive than suitable levels of external debt in capital structure. Moreover, results for the ownership concentration and board size are statistically significant and directly related to firm profitability while, CEO duality is also significant but inversely associated to firm profitability. Possibly this may be the first research study on this issue by using the most recent data set non-financial firms from Pakistan.

Keywords: Corporate governance measures, Capital structure, Firm profitability, Karachi Stock Exchange, Non-financial firms.