Impact of Corporate Governance on Capital Structure, Firm Performance, and Risk of Firms: Empirical Evidence of the Listed Cement Industry of Pakistan
Authors
ASFAND YAR, ABDUL LATIF, KHURAM SHAHZAD and MUHAMMAD AHSAN
Abstract
The primary objective of this research is to examine corporate governance (CG), capital structure, financial performance (FP), and risk within the context of Pakistani cement companies. The scholarly discourse has mostly overlooked the correlation between corporate governance (CG) and solvency risk, despite prior research on CG and FP (FP), as well as capital structure. There is a lack of academic research that has explored the role of capital structure in mediating credit risk, financial risk, and solvency risk. This research uses descriptive and explanatory methodologies. This research used panel data analysis to examine annual reports of cement companies in Pakistan, as well as reports from the Pakistan State Bank and the Securities and Exchange Commission. The data set covers the time from 2015 to 2020. The current investigation employs descriptive and explanatory methodologies due to limitations in the existing literature. On the basis of the findings of the research, there exists a correlation between certain computer graphics (CG) features and the use of a first-person (FP) viewpoint. The present research investigates the influence of insider directors, institutional shareholdings (IS), board independence (BI), audit committee size (AC), and board size (BS). In contrast, it may be shown that the solvency risk (SRP) remained unaffected by corporate governance (CG). Research also shows that capital structure (CS) has a positive impact on FP (FP). There was no substantial decrease in SRP. According to several studies, the capital structure plays a crucial role in facilitating capital growth, enhancing FP, and mitigating solvency risks. This research provides empirical evidence in favor of agency theory and offers insight into the interplay of corporate governance, capital structure, FP, and risk within the cement sector. These findings have the potential to provide valuable information for business policymakers and professionals, helping them make informed decisions. The research highlights the importance of corporate governance practices, such as board size, representation of insiders and independent directors, and the effectiveness of the audit committee. These practices have been shown to enhance FP, mitigate solvency risk, and reduce the level of debt in the capital structure. Practises such as the establishment of an audit committee, the determination of an optimal board size, and the inclusion of a balanced composition of both insider and independent directors are often observed in corporate governance.
