The Ownership Structure and Corporate Governance: A Case of Pakistan Stock Exchange

The current study investigates the impact of various proxies of ownership structure (such as ownership concentration, managerial ownership, institutional ownership and foreign ownership) on the internal corporate governance mechanism of the listed non-financial firms in Pakistan Stock Exchange (PSX). The study developed a corporate governance index by using 7 distinct proxies of corporate governance mechanism. The research analyzed an unbalanced panel of 287 firms from 2010 to 2016 listed on the Pakistan Stock Exchange (PSX). The study demonstrates that the ownership structure is an important determinant of corporate governance practice in Pakistani firms. Different proxies of ownership structure have a distinct impact on internal governance mechanism, for example, ownership concentration and managerial ownership is negatively associated with governance index. However, institutional ownership is positively associated with governance index while foreign ownership is found ineffective in promoting good corporate governance practices in firms. This study contributes empirically that different characteristics of ownership structure are reliable sources to explain the corporate governance mechanism. The diverse findings in the current study provide a deeper insight to the policy makers and regulatory bodies to fortify internal governance mechanism in order to enhance the trust of the investors.