Impact of Corporate Governance on Capital Structure

Abstract

This study aims to investigate the influence of corporate governance on the capital structure of non-banking firms in Pakistan. The research sample comprises thirty prominent firms that are either situated or functioning in Pakistan and are registered on the Karachi Stock Exchange (KSE). We employed the ordinary least squares regression technique to ascertain the nature of the correlation between corporate governance characteristics and the capital structure of the business. Although Pakistani companies' corporate governance systems are not highly developed, the analysis demonstrates that they do exert a significant influence on the organisational structure of enterprises to some degree. The findings suggest a considerable inverse correlation between the debt ratio and board composition, CEO duality, ownership concentration, and profitability. This relationship has statistical significance. Therefore, it is clear that any increase in these variables could lead to a decrease in the debt ratio. The debt ratio exhibits a positive correlation with director salary, tangibility of assets, and size. Additionally, the association between the debt ratio and board size is both positive and significant. Nevertheless, the association between board size and debt ratio is not significant.