WHEN DEBT TALKS: UNVEILING LEVERAGE’S ROLE IN STEERING GOVERNANCE AND FIRM PERFORMANCE IN PAKISTAN
DOI:
https://doi.org/10.37435/nbr.v7i2.133Keywords:
Corporate Governance Mechanisms, Firm Performance, LeverageAbstract
Purpose: Effective corporate governance is critical for safeguarding firms against scandals, fraud, and legal liabilities, while also enhancing organizational performance. This study aims to examine the impact of corporate governance mechanisms on firm performance, with particular emphasis on the moderating role of leverage.
Design/Methodology: The study draws on panel data from non-financial firms in the cement and chemical sectors listed on the Pakistan Stock Exchange (PSX) over the period 2013–2020. Data were analyzed using descriptive statistics, pairwise correlation analysis, multicollinearity diagnostics (VIF), and fixed-effects regression models, employing STATA software to test the proposed relationships.
Findings: The empirical results reveal that key corporate governance mechanisms—namely the number of board of directors, independent board members, female directors on the board, ownership concentration, number of board meetings, independent audit committee members, and number of audit committee meetings—have a significant relationship with firm performance. Moreover, leverage significantly moderates the relationship between firm performance and several governance mechanisms, including board size, board independence, female board representation, ownership concentration, audit committee composition, and audit committee meetings.
Originality: This study contributes to the corporate governance literature by highlighting the conditional role of leverage in strengthening or altering the effectiveness of governance mechanisms on firm performance. The findings offer valuable insights for regulators, policymakers, and managers in the cement and chemical sectors, providing guidance for designing more effective corporate governance strategies to enhance firm performance in emerging markets.
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