Corporate Governance Mechanism and Firm Performance: Evidence from Pakistan

Abstract

This study empirically investigates the impact of corporate governance mechanisms on firm performance using data from 204 manufacturing firms listed on the Pakistan Stock Exchange over the period 2010–2016. While prior literature affirms that effective governance enhances firm outcomes, it also emphasizes that governance practices are context-dependent, varying across institutional and financial environments. Addressing this heterogeneity, the study examines the influence of key governance attributes board size, block ownership, CEO duality, and board independence on firm performance. Using pooled OLS and fixed effects estimations, the findings reveal that larger board size and concentrated ownership positively influence firm productivity, whereas leverage structure and CEO duality exhibit a negative association with firm value, measured through return on assets (ROA), return on equity (ROE), and return on sales (ROS). Board independence, however, shows an insignificant relationship with performance outcomes. These results underscore the nuanced role of governance mechanisms in shaping corporate performance in emerging markets. The study contributes to the corporate governance literature by providing robust, context-specific evidence from Pakistan’s manufacturing sector and offers practical insights for policymakers and investors aiming to strengthen governance frameworks in developing economies.