Chapter #1: INTRODUCTION

BACKGROUND

Corporate governance deals with the companies governing bodies. Corporate body does not only
includes companies but also counts businesses of all kind. Corporate Governance deals only
with the wealth it does not deals with the profit of any business. Corporate Governance always
give protection to the all stake holders from expropriation. Corporate governance have a large
contribution in making stability of the economy and also gives access of the outside capital.
Corporate governance also helps in making the policy objective for the public. Corporate
Governance also reduces. the weakness of the financial .crises, obtains the cost of. capital with
transaction cost. Corporate Governance have a relationship between directors of board, all
shareholders included controlling, monitoring. Corporate governance deals with the political and
social environment the system also does some practices to produce the illegal and legal
environment. Corporate governance plays an important role in every organization, that’s why if
there is good. corporate governance. it enhances the performance of the firm. Every organization
must implement the polices made by the higher authorities so they can achieve the direction
goals. In the past many a lot of research work has been done in detail about the corporate
governance and its impact on any firm. The impact of corporate governance varies with the
organization over which we are studying the impact. The corporate governance effects different
sort of organization in different ways, so it’s important to study the impact considering all the
relevant variables so that more clear and obvious results can be deduced.

CORPORATE GOVERNANCE

Corporate governance allot the resources that increase the stake holder’s value. According to
World Bank governance can be defines as the use of resources that should be institutional and
politics allowance that can solve the problems of the society and can manage the society issues.

Corporate governance basically deals with the polices that are made by the corporations. Laws
that are made by the institutions. It has also a relationship with all the stakeholders, the goals
which are governed by the corporations. In modern business all the stake holders, may be
external or internal, or groups of suppliers, creditors have impact on the activities of the
corporation. Board of directors, employees, executive’s they all are counted in internal
stakeholders. Many of the models of corporate governance are in the world. [Corporate
Governance – Concepts and Issues Sreeti Raut].

The basic but the important principles of the corporate governance is OECD.OECD in 1999
accepted broadly by directors, officials and politicians .A company name SAHA based in
turkey, they issues their methods, that were based on OECD.

DEFINITIONS

There is very strong and effective relationship between the firm performance and the corporate
governance. The term corporate governance have both term has many hypothetical and
experimental definitions .Since decades there is no such specific definition of corporate
governance beceause it is very broad subject. (Said by Solomon, 2004).

“La Porta et al. in 1999 says that corporate governance is a set A set of instrument’s in which
ouside investors protect them from the inner .

“(Shleifer and Vishny) in 1997 says that the financier’s assure themselves of generating returns
on their investments .

Parkinson in 1994 says that it is a process that supervise and control the management act which
includes the shareholders interest.

Corporate governance is the process of supervision and control intended to ensure that
company’s management acts in accordance with the interests of shareholders”. Siebens (2002)
defines “Corporate governance as both the knowledge and the art of weighting divided interests
of all the stakeholders. In other words, it is the effort of balancing the relationships of power. It
has been realized all over the world with the integration and liberalization of financial markets”.

IMPORTANCE OF CORPORATE GOVERNANCE

The importance of corporate governance lies in its contribution both to business prosperity and to
accountability.

Corporate governance makes the relationship between the stake holders and the board of
directors. It deals the problems that occurs in the organization through a mechanism.
Corporate governance is a standard for investment in the competing co.to get the strongest
position in the financials market.

Corporate governance provides facilities to the entrepreneurs’ for their success and for the
extension of the business. From last two decades the researchers have a focus on this area of
corporate governance. Firms with weak governance face many agency problems. The agency
problem allows manager to extract more private benefits. Firms needs to make improvement for
the long term survival and well growth.

Corporate governance can be best if there is a good and balanced relationship among
stakeholders, ownership. This method help in emerging the positive attitude between the
manager and shareholders and decreases the problems of agency in the firms. Corporate
governance importance depend on the efforts for economic growth. Effective corporate
governance encourages the effective use of resources in the country as well as outside of the
country. Investors are ready for paying the premium to the companies which are well governed
and they adopted good board practices.’ Well-governed companies are also.better positioned to
fulfill their economic, environmental, and social responsibilities, and contribute to sustainable
growth.

"Improving corporate governance practices can improve the decision-making process within and
between companies' governing bodies and should therefore increase the effectiveness of financial
and business activities." Better corporate governance also leads to an improved accountability
system that reduces the risk of fraud or insider fraud. Managing Leadership Minimized An
effective governance system should help to ensure compliance with applicable laws and
regulations and allow companies to avoid costly litigation "(IFC, 2004).

The increased attention to corporate governance is partly due to an increase in the number of
scandals and financial crises such as Maxell Corporation (1991), Barings Bank (1995), Enron
(2001), WorldCom (2002) and Parmalat (2003). are examples of bribery scandals. These
scandals and crises highlight why corporate governance has become more important to economic
development and the political agenda in many countries.

RESEARCH GAP
If we talk about the work done regarding in research regarding the corporate governance and its
impact on a firm performance; many reports, research papers and documentations are available
and a break through study and research has been done.

Many researchers have explained the integration of corporate governance framework with the
firm performance evaluation. Various studies have been conducted regarding some specific firms
for e.g. the cement industry, oil industry, gap industry, stock exchanges and other firms that are
proving themselves to be one of the building blocks of a countries economy and are playing a
pivotal role in the economical stature of any state.

This report is focus over the study of corporate governance and it impact on firm performance
and all the relevant evidences are taken from the non – financial firms of Pakistan. They study
over the data from 2007 to 2010 is available and has already being studied over various variables
so we have conducted a study and evaluated the data from 2010 to 2016 taking in account around
88 non-financial firms of Pakistan.

The study presented in this report examines the impact of elements of the corporate governance
system on several non-financial companies. Analyze the occasional relationship. Board size,
board ownership, firm size, asset size, capital structure and board composition were considered
as independent variables and the ROE was considered as a dependent variable for measuring
company performance. Previously, a study was conducted on Pakistan's growing industry,
cement, with 58 companies taken into account over the 2007-2010 period. In this study, the data
submitted by 88 non-financial companies from 2010 to 2016 were taken.

PROBLEM STATEMENT

According.to available literature on this topic, few researches were carried out to explain the
impact of corporate governance on firm’s performance. Problem is to explore more about the
relationship of corporate governance and firm performance. Investors come to know about the
relationship and make better decisions.
SUPPORTING THEORIES
Apart from these theories which made us understand the priorities of different organizations as
per their need and their requirements, there are two more theories which are more generic and
every calculations and concluded results should go consistent with these.

 Trade off theory of the capital structure

 Jenson (1986) free cash flow theory

Static Trade-Off Theory

This theory basically tells us about the balance between the debt and equity financing. Main
purpose of this theory is to define that corporate finance by debt & equity, which stated that with
more increase in debt, it means tax benefits. This theory more explained by Myers in 1984,
which divided it into STT and POT. STT tells us about the taxes and bankruptcy. In STT,
leverage and tax have a positive correlation, which means that higher corporate taxes can
increase debt, which increases market value and also provides the benefit for improving cash
flow. However, the continuously increases in loans and debts creates chances for bankruptcy.
Bankruptcy has two types. In Direct Bankruptcy Cost Admin and managerial cost used for
process of bankruptcy. If company is larger in size and ability it may suffer from bankruptcy. But
in case of small size firms the cost is greater. On the other hand, if the organization expects it to
go bankrupt in the future, they will change the strategies to avoid bankruptcy by indirect costs.
JENSON (1986) FREE CASH FLOW THEORY

Free cash flow is well known as one of the verification criteria, performance and financial
condition of the companies that were at the origin proposed by Jensen in 1986. As stated by
Jensen (1986), free cash flow cash means excess cash flow for all projects who have a positive
result current value (NPV).

Free cash flow can be useful and important. Applications for shareholders and entity managers.
The important thing about free cash flow. are the agency fees of these funds. In a situation where
the company has significant free cash flow, managers can invest the excess funds. on different
occasions. Managers will do this to limit the possibilities of insured and profitable investments.
probably also invest in projects. less profitable than the cost of capital of the company or too
risky. These costs are imposed on the shareholders in these cases. The situations are called "the
available costs of the Treasury Agency". (Jensen, 1986)
Jensen (1976) with the cash flow theory, debts can play an important role. important role in
reducing agency costs. Holders of debt securities have no say in the Company's business, unless
the debt has to be renewed or the business does not fulfill the contract. However, debt is a form
of strong commitment: it is a contract that could be included. a guarantee and requires the
managers to comply with the terms of payment. Managers are therefore required to invest in
wise.

The theory of free cash flow proposed by the Jensen States. this allows more internal money. to
avoid managers. control of the market. In this situation, they do not need shareholder approval
and they are free to decide. on investments according to their will. Managers do not tend to. Pay
in cash (like dividends) and they are motivated to invest, even if there is no investment with a
current positive value (Drobetz et al., 2010).

On the basis of this theory, managers are overly motivated. Collect the funds to increase. their
under-controlled resources and the judgment and decision-making power of the Therefore, they
act with the. solid means to avoid. provide detailed information to the capital market, although it
is possible for managers to invest in projects that may be negative. Impact on shareholders'
assets. (Ferreira et al., 2004)

According to Jensen's theory, much research has explored the role of free cash flow in decisions
about investment activities and financing. Most of this research supported Jenson's theory and
confirmed the agency problems in high free cash flow companies.

RESEARCH QUESTION

Followings are the questions which were explored by our research.

 Do corporate governance factors impact on the performance of firm in non-financials

factors of Pakistan?
 Does capital structure, board ownership, board size, firm size, board of composition and
asset turnover having any impact on ROE?

RESEARCH OBJECTIVE

 To explore the impact of corporate governance factors on firms performance in non-

financials factors of Pakistan.
  To find out capital structure, board ownership, board size, firm size, board of
composition and asset turnover having any impact on ROE or Not.

SIGNIFICANCE OF THE STUDY

This research study will be important for business growth. Corporate governance is a method of
controlling the business, for example: For example, from the developed state, the effective use of
resources, policies and laws for its employees at the highest level. Corporate governance needs to
increase the accountability of your business and avoid massive disasters before they happen.
Good corporate governance should resemble the internal affairs department of a police
department and solve problems with the best judgment. A company without corporate
governance is like a soulless body. Corporate governance helps keep a business honest and
hassle free. This study makes it possible to better understand the different aspects of losses
before they occur. A company can also arrange meetings with debtors, internal members,
shareholders, suppliers, managers, and community clients to meet their current needs.

Chapter# 2: LITERATURE REVIEW

A lot of research has been done in this area of study. Researchers have done and are doing and
progressing in this domain while opting different research methodologies, processes, use of
different variables and consideration of different facts and figures yielding different results and
hypothesis and theories. For this research we have done a significant amount of literature review
so that a solid foundation and understanding of the subject can be made through the study of
already done researches and results.

The empirical work of Stefan Beiner, Wolfgang Drobetz, Markus Schmid and Heinz
Zimmermann from October 2003 shows a positive relationship between specific business
management and business valuation, as measured by Tobin's Q. Instead of a single control
mechanism, you use a broad corporate governance index. and other variables related to
ownership structure, board characteristics, and leverage to provide a complete description of
corporate governance at the corporate level for a large number of companies Swiss. In order to
avoid a problem inherent in the majority of the previous literature, the endogeneity of these
control mechanisms is carefully controlled. They have developed a system of simultaneous
equations in which all control mechanisms can influence each other, as well as Tobin's Q, while
Tobin's Q can also influence the choice of each mechanism. Their findings corroborate the
widespread assumption of a positive relationship between corporate governance and Tobin's Q.
Increasing our corporate governance index by one point (where the index is between 1 and 100)
results in an increase in market capitalization of approximately 8%. Book value of a company.
They also reported a number of other interesting findings on the relationship between Tobin's Q
and the various control mechanisms.

The research works accepted by Duc Hong VO and Tri Minh Nguyen for companies listed in
Vietnam in April 2014 were conducted to examine the relationship between corporate
governance and corporate performance. In his study, corporate governance is based on a number
of variables, including a dual role of chief executive officer, size of board, independence of
board and concentration of capital. In addition, the company's performance is measured by four
different variables:

(1) Return on Equity (ROE)

(2) Return on Assets (ROA)
(3) Z-Score by Altman (1968)
(4) Tobin’s Q

Accepted in July 2011 by Qaiser Rafique Yasser, Harry Entebang and Shazali Abu Mansor, the
paper examines the relationship between four key corporate governance mechanisms (board size,
board composition, diversity and audit committee) and two fixed returns on equity, ROE. and
Profit Margin, PM), for a sample of 30 companies listed in Pakistan between 2008 and 2009.
Their results demonstrate a significant positive relationship between ROE and PM and three
corporate governance mechanisms (board size, board composition and audit committee). As a
result, the size of the board should be limited to a sizeable limit, and the board should be an
appropriate mix of executive and non-executive directors. However, the study did not show any
significant relationship between the two performance measures (ROE and PM) and the duality
between the CEO and the Chairman of the Board. Their results are consistent with previous
empirical studies.

Muhammad Azeem, Masood ul Hassan and Rehana Kouser have done research in 2013 by using
the fixed effects estimation method of panel data of 50 largest (by market capitalization)
companies (listed at Karachi Stock Exchange), they found quality corporate governance
significantly determining firm performance. Leverage (measured by debt ratio) moderates the
relationship between quality corporate governance and firm performance by implying stronger
relation for high levered firms and negative relationship of governance scores with performance
for the case of low levered firms, firm size (measures by log natural of total assets) also changes
the intensity of relation for variables of study (stronger relation for larger firms but no relation
for small size firms). However, adoption of accounting standards doesn’t have any significant for
the association between the governance scores and firm performance. Their study targets to
gauge the impact of governance features on the performance through composite governance
scores.”

“The work of Muhammad Ashraf, Tayyeb Iqbal and Sidra Tariq empirically examines the impact
of corporate governance and corporate financing decisions on the performance of cement
industry of Pakistan. Multiple regression analysis is used in estimating the impact of corporate
governance and corporate financing decisions on firm performance measures such as return on
assets (ROA), return on equity (ROE), earning per share (EPS) and net profit margin (NPM) by
using sample of 19 cement industry listed in Karachi Stock Exchange (KSE) for the period 2006-
2016 and E-views technique used to apply the correlation and regression analysis. The data are
collected from annual reports of cement industry of Pakistan. The results of their study indicated
that firm with larger board size (BS) and managerial ownership (MO) leads higher return on
assets (ROA). CEO duality (CD), firm size (FS), short term debt ratio (STDR) and debt equity
ratio (DER) negatively influence the return on equity (ROE). Larger firm size, long term debt
(LTD), dividend policy (DP) positively influence the earning per share (EPS) and net profit
margin (NPM). In short these results indicate that corporate governance and corporate financing
decision impact the performance of cement industry of Pakistan.”

The result of their study may be helpful for investors, financial management consultants,
financial managers and overall management of the company to understand the effect of board
size, CEO duality, managerial ownership, board meeting, firm size, capital structure, debt
maturity structure and dividend policy on the performance of firms. This study add value to the
literature by exploring the impact of corporate governance and corporate financing decisions and
on the factors that have impact on firm performance.
Research work done by Waseem Ullah, Shahid Ali and Sajid Mehmood in 2017 attempts to
explore the effect of excess control, ownership structure and corporate governance on firm
performance in Pakistan. Their study takes a sample of 184 non-financial sectors’ group firms
listed on the Karachi Stock Exchange (KSE) covering a period from 2004 to 2012. The multiple
regression models are applied using panel data framework to test the significance of relationship.
The results are consistent with the findings of the prior studies conducted in both advanced and
emerging economies. The results show that firm ownership is a strong influential factor in
affecting firm performance in Pakistan. Both inside ownership and ownership concentration are
negatively related to firm performance consistent with divergence of interest effect and
entrenchment effect. However, inside ownership squared is strongly positively related to firm
performance indicating that inside ownership beyond a certain threshold level started to
influence firm performance positively consistent with incentives effect. Ownership disparity
affects strongly negatively the financial performance of group firms consistent with the
divergence of interest effect. Institutional ownership contributes positively towards firm
performance. Noticeably, board independence and outside block holdings play a significantly
positive role in affecting financial performance of the group firms in Pakistan. Their results
showed strong evidence that ultimate controllers in group firms use complex ownership and
pyramidal structures to extend their ultimate control over many firms with least cash flow rights.
The higher the divergence between ownership and control, the greater the potential of the
ultimate controllers exerted their entrenched behavior in group firms. Their results highlighted
the internal corporate governance problems faced by the group firms and suggest the need for
strengthening the corporate governance mechanism in Pakistan.”

“The research paper written by Rashid Zaman, Muhammad Arsalan and Muhammad Ayub
Siddiqui is towards the empirically examine of relationship between transparency and disclosure
and firm performance. Highlighting the importance of corporate governance in banking sector,
the paper has focused in depth over its role, level and its impact on performance in banking
industry of Pakistan. Design/methodology/approach: Their paper access this purpose by
constructing transparency and disclosure index for the past five year 2007-2011, using proxies
for three sub-categories which are board and management structure disclosure, ownership
structure disclosure and financial transparency disclosure. Their paper also investigated
structural changes of T&D Index and its effect on bank financial performance over the sample of
30 banks operating in Pakistan. “”
“Findings: Empirical analysis results by using ordinary least square regression model, reveals
that financial performance is positively related to the transparency and disclosure and their sub
levels except ownership structure disclosure which has negative relation with both ROA and
ROE.” “Furthermore the average T&D level in Pakistani banking sector is above average.
Practical implications: The current research paper aims for important policy implementation to
reduce information asymmetry and improve corporate governance and firm performance in
banking sector of Pakistan.”

“The study done by Muhammad Azam, Shahzad Usmani and Zia Abbasi focuses on the impact
of corporate governance on firm’s performance. A sample of 14 oil and gas related firms has
been taken for the period of 2005 to 2010 (N=14*6). Canonical regression analysis has been
done to analyze the impact of corporate governance on firm’s performance. The present study
focused on the three variables for measuring the firm’s performance such as Return on assets
(ROA), Return on Equity (ROE) and Net Profit Margin (NPM). The obtained results report that
corporate governance has significant and positive impact on firm’s performance and it shows
that firm’s performance can be increased by improving the corporate governance structure.”

In 2003 (Stefan beiner, Wolfgang Drobetaz, Markus Schimd and Heinz Zimmermann) conduct a
study on an integrated framework of corporate governance and frim valuation-evidence from
Switzerland. In this study the result is a positive relation among firm-level corporate governance
and Tobin’s. increasing in 1 point of corporate governance can change 8% in market
capitalization. Result also suggested that capital market have decent governance and push bad.
Corporate governance should be manage good that increase the performance.

In 2014, Duc Hong Vo and Tri Minh Nguyen published a study on the impact of corporate
governance on global performance: an empirical study in Vietnam. This shows the relationship
between corporate governance and corporate performance. The result shows that by studying the
stewardship theory, that the CEO needs to be a similar job to the president to improve the
performance of the company, the ownership of the CEO and the board of directors must be
different in the Frim performance. The size and performance of the company, as well as the
recent findings, constitute the important conclusion that the independence of the board of
directors and the proportion of independent members are inversely proportional to the
performance of the company.

In 2011 (Qaiser Rfique Yasser, Harry Entebang and Shazali Abu Mansor) conduct study on
corporate governance and firm performance: The case of Karachi stock exchange (KSE)-30.
Result of that study is to the impact of the firm performance by using two variable ( ROE and
PM) and four corporate governance varible (board size, board compositin CEO / chairman
duality and adult committee).

In 2013 (Muhammad Azeem, Masoodul Hassan, Rehan Kouser) conduct a study on impact of
quality corporate governance on firm performance: A ten year perceptive. The results of this
study shows that debt ratio have normal impact on both corporate governance and firm
performance as significant and negative impact of governance with the performance of the firm
by having low debt ratio. Organization size also deviat the impact of variable.

Chapter # 3: METHADOLOGY

DATA DESCRIPTION AND METHODOLOGY

This fragment of the study presents the data collection mechanism from where the data has
collected. Data collected only from non-financial firms of Pakistan and use of methodology to
capture the impact of independent variables (firm size, asset turnover, board of composition,
board ownership, board size, capital structure) on dependent variables (ROE return of equity) of
Pakistani non-financial firms.

POPLULATION

Population of this study consists on non-financial firms of Pakistan, listed on Pakistan Stock
Exchange.

SAMPLE

Sample size should be the representative of population. Sample size for this study includes data
of those non-financial firms which provide complete information related to this study is the part
of this work. The selection of sample is based on the basis of the availability of data according to
Pakistan Stock Exchange Rating for non-financial firms. Finally, in this study 88 companies are
selected as non-financial firms and their data has been taken for research purposes.

Trade credit deals in non-financial firms due to this the financial firms is not included in
working. Both cross sectional and time series data is included in this research and data collected
for six years from the year 2010 to 2016. List of selected companies according to industry wise
has also been provided.

SOURCE OF DATA

This study based on secondary data, which is already available and ready for use. Sources of
secondary data include government and private publications, financial reports of entities,
journals, magazines, newspapers, circulars, website of State bank of Pakistan (SBP). Secondary
data from annual financial accounts of non-financial firms are used related to trade credit. PSX
website is used to collect the data related to credit rating data of non-financial firms.

THEORATICAL FRAMEWORK

Below mentioned graphical representation is an explanation of theoretical framework which is

adopted in order to process and proceed and complete the research. It shows all the independent
variables those have been taken in consideration and the dependent variables on which the
impact of all the independent variables have been studied considering the impact of CEO duality
too.

INDEPENDENT VARIABLES DEPENDENT

VARIABLES
Governance Factors
Firms Performance
- Board Size
- Firm Size
- Board of composition
- ROE
- Board Ownership
- Asset Turnover
- Capital Structure
MODEL

SIMPLE REGRESSION MODEL

Model is simple effect model.

(ROE) it = βο+β1 (FS) it + β2 (ATO) it+β3 (B COMP) it + β4 (B OWN) it

+β5 (BS) it + β6 (CS) it + £

DEPENDENT VARIABLE

ROE (RETURN ON EQUITY)

Return on. equity (ROE) is measured by the. financial performance .we can find the ROE by
dividing profit after. tax with total equity shares. In corporate finance, the ROE. measures the
business. profitability. Is a measure of the profitability. we can also call it. net asset. ROE also
measures the. growth of the company.

INDEPENDENT VARIABLES

BOARD COMPOSITION

Board composition is our first independent variable.

Definition of board composition.

Board composition is related to board independence to deal their issues it includes diversity of
board members and board committees.

BOARD SIZE

Generally the board size consist of 9.2 members and the range of boards are from 3 to 31
member’s .According to analyst the ideal size is 7 members.

BOARD OWNERSHIP
Board ownership is basically the number of shares owned by the director’s .they are divided by
the total ordinary shares hold by the directors.

FIRM SIZE

Firm size depends on the total sales done by the firm.

ASSET TURNOVER

Asset turnover (ATO) is a financial term used to measures the efficiency of a company's use of
its assets in generating sales revenue or sales income to the company. The Companies which
have

VARIABLE ABBREVIATION NAME MEASUREMENT SOURCES

Profit After Tax Muhammad Ashraf

Total Equity Share
Return on Tayyeba Iqbal
ROE
DV equity
(Dependent
Variables)

Non executive director Harry Entebang,

Total no . of directors
Board
B COMP
Composition Shazali Abu Manso

No . of share owned by director Tayyeba Iqbal

Total equity share
Board
B OWN
Ownership
 Sidra Tariq,
Board Size No .of directors Tayyeba Iqbal
BS
IV
(Independent
Variables)
FS Firm size Total Net Sale Sidra Tariq

Net Sale Sidra Tariq,

ATO Total Asset
Asset Turnover Muhammad Ashraf

CS Capital Total Debt Sidra Tariq

Total Asset
Structure

low profit margins tends to have higher asset turnover, on other hand those with high profit
margins have lower asset turnover.

CAPITAL STRUCTURE

The capital structure is that how any firm finances its overall operations .total debts are divided
by total assets.

LIST OF VARIABLES

Multiple variables have been taken into consideration for doing this research. All the variables
are been mentioned as below

The formulas which are used for all of these independent and dependent variables are as follows

Chapter #4: RESULT AND DISCUSSION

Descriptive statics basically help to explain the basic aspect of the data and present
Easy and simple summaries about the sample and measures. Standard deviations
And values of mean were also reported in the Descriptive Statistic.

Results of descriptive sattistics

ATO B COMP B OWN BS CS FS ROE

 Mean  1.09563  0.05895  2.09403  7.90909  0.29291  7262191.  0.39033
0 6 8 1 9 8
 Median  0.83738  0.03014  0.08132  7.00000  0.19663  3036028.  0.00224
7 3 7 0 1 4
 Maximum  603.722  7.73140  245.334  13.0000  10.3726  9865189  12.4763
5 6 0 0 3 6 3
 Minimum - - -  2.00000 - - -
123.7860 12.37263 0.019691 0 0.546376 123665.0 2.797858
 Std. Dev.  26.0836  0.71831  14.4849  1.65225  0.66275  1214768  1.46584
2 9 0 1 9 1 8
 Skewness  19.7375 -  12.3457  0.40492  10.6204  3.664140  4.60719
3 7.079491 8 7 3 2
 Kurtosis  465.800  178.112  178.243  4.71360  144.326  20.47308  26.9479
8 2 7 3 3 5
Observation 616 616 616 616 616 616 616
s

The above table gives details about the descriptive statistics of the effect of corporate
governance.
The table has distributions of different sub parts, which specify about variables
Relationship of the effect of corporate governance of non-_financial _firms of Pakistan.
Measurement of the central tendency of variables include the value of mean. Mean is calculated
as the average value. Min. stands to explain the minimum level and Max., explain the maximum
level. Median indicates the difference of Max., and Min. Standard deviation, the measure of
variability; determines the dispersion of data. However the descriptive statistics provide the
useful summary of the risk when performing the empirical and analytical analysis.

It can be observed that the mean of the asset turnover is 1.095630. the ROE is independent
variable with the value of mean is 0.390338 with the maximum value of 603.7225 and the
minimum value of asset turnover is -123.7860.the standard deviation on average will deviate
26.08362.with the median of 0.837387.on the other hand the mean of the board of composition is
0.058958.ROE of board of composition is with the value of median is 0.0022.with the maximum
of 7.731406 and minimum of -12.37263.with the average standard deviation is 0.718319
deviated. The mean of the board owner ship is 2.094033 with the median of 0.081327 .ROE of
median is 0.002244.with the maximum value of 245.3340 minimum value is -0.019691.the
average of board ownership is deviated with 14.48490.the mean of board size is 7.909091 with
maximum of 13.00000and minimum with 2.000000.its standard deviation on average is deviated
with 1.652251.the median of board size is 7.000000.the capital structure with the mean of
0.292919and the median of 0.196631 with maximum of 10.37263 with minimum of
-0.546376.on average the standard deviation is deviated with 0.662759.the firm size with the
mean of 7262191.with the median of 3036028.the maximum value of firm size is 98651896 and
minimum with -123665.0.on the average of standard deviation is deviated with 12147681.ROE
with the maximum of 12.47633 with the minimum of -2.797858.the median of ROE is 0.002244
with the mean of 0.390338. on average the standard deviation of ROE is deviated with 1.465848.

Dependent Variable: ROE

Method: Panel Least Squares
Date: 01/25/19 Time: 15:46
Sample: 2010 2016
Periods included: 7
Cross-sections included: 88
Total panel (balanced) observations: 616

Variable Coefficient Std. Error t-Statistic Prob.  

C -1.025149 0.357277 -2.869338 0.0043

FIRM_SIZE 2.07E-08 6.19E-09 3.348011 0.0009
ASSET_TURNOVER -0.000430 0.001936 -0.222144 0.8243
BOARD_OF_COMPOSITION 0.144138 0.067039 2.150053 0.0320
BOARD_OWNERSHIP -0.004305 0.003320 -1.296505 0.1954
BOARD_SIZE 0.150778 0.045519 3.312390 0.0010
CAPITAL_STRUCTURE 0.250796 0.077699 3.227786 0.0013

Effects Specification

Cross-section fixed (dummy variables)

Period fixed (dummy variables)

R-squared 0.571248    Mean dependent var 0.390338

Adjusted R-squared 0.488987    S.D. dependent var 1.465848
S.E. of regression 1.047863    Akaike info criterion 3.078919
Sum squared resid 566.5771    Schwarz criterion 3.796978
Log likelihood -848.3069    Hannan-Quinn criter. 3.358115
F-statistic 6.944371    Durbin-Watson stat 2.107308
Prob(F-statistic) 0.000000

The above table shows the significance and insignificance level of dependent variable ROE with
the independent variables.

The R squared value is 0.57124 in the model which shows that the model is fit because it should
be more than 0.50.with the value of adjusted r square of 0.488987.the F statistics is with the
value of 6.944371 it shows the model is fit according to the standard value more than 3.696
.whereas the Prob of F stat is 0.00000. On the other hand the Durbin –Watson stat is 2.107308
the standard that the value should be in between 1.5 _ 2.5 .so our model is good according to our
result.

The model shows that the firm size have significant impact on dependent variable ROE with
positive increasing impact of value 2.07. There is insignificant effect of asset turnover on ROE
because its p value is greater than 0.05 with the negative decreasing effect of value -0.000430.
The simple regression model shows that the significant impact of board composition on ROE and
have positive effect with increase in value 0.144138. The independent variable board owner ship
have insignificant impact on ROE with decreasing value -0.004305.the independent variable
board size is significant with the positive impact with increasing value 0.150778.the independent
variable capital structure have significant effect on ROE and having positive effect with
increasing value of 0.250796.

Chapter # 5: CONCLUSION

According to over study we examined the impact of corporate governance on firms performance
from non-financial firms of Pakistan listed in stock exchange. Nine important non-financial
sectors which we selected are playing important role in the economy of Pakistan. There were 114
companies of these nine sectors and we chose 88 companies from these nine sectors, data of
remaining companies are not available. The reason behind, some companies were defaulters and
some companies were not listed in stock exchange at that time. We collect secondary data from
websites of KSE, PSX, SBP and companies own websites from time period 2011 to 2016.there Is
only one dependent variable ROE (return on equity )and there are six independent variables that
are board of composition , board size, board ownership ,firm size, asset turnover, capital
structure. We have computed descriptive statistics and correlation of all nine sectors. There is
significant relationship of ROE with board of composition, board size, firm size, capital
structure, and insignificant relationship with board ownership, asset turnover.

LIMITATIONS AND FUTURE RESEARCH

Our study is based on secondary data and we collect data of nine non-financial sectors in
Pakistan which limited the scope of this research at international level and these results are not
used for understanding financial sector.
Non-financial sectors play an important role in our economy and future research may be
conducted on other non-financial sectors and at international level by including data of other
countries for better understanding and comparison.