Impact of Corporate Governance on Capital Structure; Evidence from Pakistan

Abstract

A GMM analysis is conducted on the long-term debt ratio of non-financial listed companies on the Pakistan Stock Exchange for 2013–2022. Board meetings, the dual role of chief executive officers, short-term debt, and committee work positively affect the long-term debt ratio. So, it’s reasonable to assume that companies with more short-term debt, more frequent board meetings, CEO duality, and active board committees will also have more long-term debt. However, when an internal auditor is present, the long-term debt ratio tends to be lower. Additionally, a positive and statistically significant association exists between the long-term debt ratio and control variables such as Tobin’s Q, ROA, and ROE. This suggests that firms with greater market valuations and profitability metrics have higher long-term debt. Diagnostic statistics verify the model’s robustness by verifying the validity of the over-identifying restrictions and the absence of substantial autocorrelation in the residuals. This investigation enhances comprehension of the dynamics of financial structure and corporate governance in the context of an emerging market.