The Effect of Corporate Governance and Capital Structure on Firms’ Performance: Investigation on Petroleum Sector in Pakistan

Abstract

The attempt of the research is to realize the key factors and examine the effect of corporate governance and capital structure on firms’ financial performance belonging to petroleum sector which are registered on Pakistan Stock Exchange (PSX). The study focuses on data gathered from five companies of petroleum sector keeping in view the present situation of Pakistan and current economic, political and legislative environment to evaluate and judge the challenges and risks affecting the firms’ performance. Only a single source of data is used which is secondary. The sample employed in the current research is comprised of five firms listed in the PSX index under the petroleum sector. The sample size selected for the purpose of this research is consisting of nine years annual data of the variables starting from year 2007 to year 2015 used. Multiple Regression model is used as the statistical technique and SPSS statistics has been used for examination of hypotheses. The empirical results investigated that Short term debt ratio and Long term debt ratio has significantly negative correlation with ROA. The firms with lesser STD & LTD ratio lead to higher financial performance. Consequently, board size and no. of shareholders has insignificant relationship with ROA. Furthermore, the study investigatedthat ROE has insignificant either negative or positive relationship with all the independent variables namely Board size, No. of shareholders, Short-term debt ratio and Long-term debt ratio.