EFFECT OF CORPORATE GOVERNANCE ON FINANCIAL PERFORMANCE OF PSX-LISTED FIRMS

Abstract

This study investigates the relationship between corporate governance (CG) mechanisms and the financial performance of firms listed on the Pakistan Stock Exchange (PSX). The research specifically examines the influence of board size, board independence, CEO duality, audit committee independence, and ownership concentration on key performance indicators, including Return on Assets (ROA), Return on Equity (ROE), and Tobin’s Q. Using a quantitative approach, data were collected from annual reports of 200 PSX-listed firms over a specified period. The findings reveal that board size and board independence are positively and significantly associated with financial performance, supporting the agency theory that effective oversight can reduce managerial opportunism. Audit committee independence also shows a strong positive impact, highlighting its role in enhancing transparency and accountability. Ownership concentration demonstrates a positive influence, while CEO duality exhibits a negative but statistically insignificant relationship. The study concludes that strengthening CG mechanisms contributes to better financial outcomes and recommends that firms prioritize board independence, broaden director expertise, and maintain balanced ownership structures. These insights are particularly relevant in the context of Pakistan’s evolving regulatory environment following the SECP’s Corporate Governance Code 2019. The research offers practical implications for regulators, investors, and corporate leaders aiming to enhance governance quality and firm value.