A comparative Research on the Effect of Executive Ownership and the Characteristics of Boards on the Financial Results of companies

Abstract

Purpose- This study aims to examine the impact of executive ownership and board characteristics—including size, independence, audit committee structure, and CEO family affiliation—on the financial performance (ROA/ROE) of companies listed on the Pakistan Stock Exchange (PSX). It also seeks to explore how these governance factors influence the financial results of both financial and non-financial companies.

Study Design/Methodology/Approach - The study employs panel data, which includes both cross-sectional and time-series features, drawn from 30 financial companies over the period from 2010 to 2023, as well as the annual reports of 266 out of 375 listed companies. Data analysis is conducted using multiple regression and fixed effects techniques for both types of companies. Control variables include leverage and cash ratio for non-financial companies and firm size for financial companies, chosen due to their potential impact on financial performance.

Findings- The research findings reveal that executive ownership and board characteristics have a significant impact on the performance of non-financial companies. Additionally, the study indicates that the influence of executive ownership and board characteristics on financial performance varies across different types of companies, with financial companies showing minimal variation due to corporate governance practices.

Research Implications- The findings suggest that non-financial companies should emphasize corporate governance practices to enhance their financial performance. This has implications for policymakers, regulators, and company management, emphasizing the need for robust governance frameworks to improve company outcomes.

Originality/Novelty- This study contributes to the literature by providing insights into the relationship between executive ownership, board characteristics, and financial performance in the context of the Pakistan Stock Exchange. It offers a comparative analysis of the effects on financial and non-financial companies, filling a gap in understanding how corporate governance impacts different types of firms.