CORPORATE GOVERNANCE AND FIRM PERFORMANCE: EVIDENCE FROM LISTED FIRMS OF PAKISTAN

This study aims to find the influence of corporate governance on firm performance for the listed non-financial firms on the Pakistan Stock Exchange (PSX) for the period 2005-15. The article has measured corporate governance by the large boards with more independent directors, independence of audit committee, ownership concentration, non-existence of CEO duality, and presence of foreign and institutional investors. To address this endogenous nature of institutional ownership and performance in this study we have used instrumental variables (IV) techniques using a two-stage least square (2SLS) by instrumentalizing institutional ownership with firm size and firm age. The study found that firms with large and independent boards outperform their counterparts. Similarly, the study found that firms having the joint position of CEO and chairperson performs lower than counterparts. In Pakistan firms with foreign and institutional owners better than others. We found that firms with concentrated owners have a lower level of agency problem and ultimately perform well. Furthermore, we found that firms with a lower level of agency problem type II (measured via ownership concentration contestability) perform better in Pakistan.