Charting the Financial Landscape: Understanding How Ownership Shapes Firm’s Financial decisions. Exploring the Catalytic Role of Corporate Governance as a Moderator

Abstract

The ownership structure of an organization is pivotal in shaping its financial decisions. This study aims to investigate the influence of ownership on the financial decisions of non-financial sector companies in Pakistan, while also scrutinizing the moderating effect of corporate governance on this relationship. Drawing on data from 192 listed companies spanning the period from 2009 to 2019, we analyze financial decisions through metrics such as the debt-to-equity ratio and dividend payout ratio. Our findings reveal that foreign and institutional ownership exert positive and significant effects on the leverage ratio, while the influence of foreign ownership on the dividend payout ratio is negligible. Additionally, director ownership exhibits a negative and significant impact on both financial leverage and dividend payout. Furthermore, our study underscores the crucial role of corporate governance as a moderator in the nexus between ownership structure and financial decisions. By shedding light on these dynamics, our research contributes to the agency theory literature and provides valuable insights for companies aiming to enhance their governance mechanisms to bolster sustainable business performance.