Corporate Governance Practices and Capital Structure Empirical Evidence from Pakistani Listed Companies

The study examines the relationship of quality of corporate governance of a company, as measured by a specially constructed CO Index on the basis of a survey, to its capital structure measured by Debt to Debt + market value of equity and Debt to Debt + book value of equity. A total of 120 listed Companies have been investigated to analyze the capital structure relationship for the period 2002 to 2007. The paper examines the relationship between capital structure and individual variables of corporate governance as well as the overall quality of CO which in turn has been measured by selecting, and assigning weights to, individual factors on the basis of a survey. Descriptive statistics, Correlation Matrix, and common effect models have been applied to test the panel data. We found negative relationship between Capital structure and CGI. Managerial ownership has been found positively associated with gearing ratio in both cases. It has also been found that presence of CEO and chairman duality attracts more debt in capital structure. It may be due to the transition phase through which the Pakistani companies are passing after promulgation of code of corporate governance in 2002.