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Ownership structure and financial Ownership

structure and
constraints – Evidence from financial
constraints
an emerging market
Muhammad Farooq 1007
Department of Management Sciences,
The Islamia University of Bahawalpur, Bahawalnagar Campus, Received 24 December 2021
Revised 5 April 2022
Bahawalnagar, Pakistan 22 April 2022
Accepted 23 April 2022
Asad Afzal Humayon
Management Sciences Department, COMSATS University Islamabad,
Vehari Campus, Vehari, Pakistan
Muhammad Imran Khan
Department of Commerce, Bahauddin Zakariya University, Multan, Pakistan, and
Sarmad Ali
Department of Business Economics,
Universit
a degli Studi Gabriele d’Annunzio Chieti Pescara, Pescara, Italy

Abstract
Purpose – The purpose of this research is to examine the impact of corporate governance proxies by
ownership structure on financial constraints for a sample of 215 non-financial Pakistan Stock Exchange (PSX)
listed firms between 2010 and 2018.
Design/methodology/approach – The dynamic generalized method of moments (GMM) estimator is used to
determine the influence of ownership structure on financial constraints. The ownership structure of sample
enterprises is measured using seven variables: managerial, family, institutional, foreign, associated, presence of
block holder, and concentrated ownership, while financial limitations are determined using the KZ Index. The
WW Index is used to assess the robustness of the results. In addition, for robustness, we also used OLS and FE.
Findings – Based on the system GMM results, it was discovered that firm ownership structure has a
significant impact on the likelihood of financial constraints. In the case of Pakistan, the results show that
institutional ownership, foreign ownership, and the presence of a block holder in the ownership structure have
a significant negative impact on financial constraints, whereas family ownership and ownership concentration
have a significant positive impact. This finding remains true when financial constraints are measured using the
WW Index.
Practical implications – The findings of the study provide business managers and investors with more
information regarding the relationship between corporate governance quality and the degree of financial
constraint in Pakistani firms. Furthermore, this study contributes new information from emerging nations like
Pakistan to the existing literature, which will help regulatory bodies and policymakers build long-term
corporate governance solutions to manage financial constraints. It is well established that improving the
quality of corporate governance practices improves capital market efficiency and lowers the likelihood of
financial constraints.
Originality/value – The study adds to the body of existing work on corporate governance and the possibility
of financial constraints, with a focus on Pakistan. The findings show that when projecting company financial
constraints, regulators should pay special attention to the quality of corporate governance, specifically
ownership structure.
Keywords Corporate governance, Ownership structure, KZ index, Financial constraints
Paper type Research paper

1. Introduction Managerial Finance

The primary goal of the firm is to capitalize on the investment opportunity by selecting the Vol. 48 No. 7, 2022
pp. 1007-1028
most appealing financing (Kumar and Ranjani, 2018). Firms have three options for meeting © Emerald Publishing Limited
0307-4358
financial needs: internal funds, borrowings, or the issuance of new equity. According to the DOI 10.1108/MF-12-2021-0620
MF pecking order theory, the choice of funding is determined by the cost involved. As a result,
48,7 firms prefer internal funds to external financing, followed by issuing new equity to fund
upcoming positive net present value (NPV) projects. It is the most cost-effective source of
financing and can later engage firms in a financial constraint situation. Perfect capital
market assumptions state that firms can pursue any profitable investment project
regardless of the availability of internal funds because they can raise external funds at no
additional cost. However, in practice, this would not occur due to the tax burden,
1008 information asymmetry, agency conflict, and so on. The existence of these market
fundamentals raises the issue of “financial constraints.” According to this concept, there is
an incongruity between internal and extrinsic financing sources, which prevents the
company from making an investment that it would have made if internal funds were
available (Kaplan and Zingales, 1995). In other words, a firm may pass up positive
investment opportunities due to a lack of external funds, which is an example of a financial
constraint. Whited and Wu (2006) find that the most financially constrained firms invest
18% less than the least constrained ones.
Traditional financial constraints theory proclaimed that information asymmetry, agency
problems, and transaction costs are the primary source of financial constraints (Myers and
Majluf, 1984; Gertler, 1992). Financial constraints hamper firm investment and economic
growth (Galindo and Schiantarelli, 2002). According to the literature, asymmetric information
problems may be even more severe in emerging markets due to weaker corporate governance
and market institutions’ lower ability to correctly analyze a firm’s investment programs and
financial state (Kalatzis et al., 2008). Effective firm-level corporate governance practices
suppress information asymmetry and agency problems and regain investors’ confidence
(Ginglinger and Saddour, 2008). Literature has called attention to the need for more research
to better understand the effects of ownership structure on a firm’s investment and financial
policies.
In literature, very few studies are available about financial constraints and corporate
governance. Among the very limited studies available that studies the impact of ownership
structure on financial constraints (Chu et al., 2016). There are also many studies witnessed in
the literature that examine the direct association between ownership structure and financial
constraints. In this regard, Lin et al. (2011) suggested the positive interaction between control
ownership and financial constraints. Hanazaki and Liu (2007) and Lins et al. (2013) conclude
that financial constraints are more severe in family-owned firms as large shareholders are
more inclined to look upon their interests at the cost of minority shareholders. The same is
also endorsed by Chu et al. (2016), who studied Malaysian family-controlled firms and
suggested a positive impact on financial constraints. Further, ownership concentration is
positively associated with financial constraints as in those firms; there is a high level of
information asymmetry and less governance disclosure; which in turn increases the level of
financial constraints (Chen et al., 2008). Foreign ownership, another important type
of ownership structure, is negatively associated with financial constraints. Since these firms
have easy access to the foreign capital market and get instant help from the parent company,
these firms are less prone to be financially constrained during financial crises (Blalock et al.,
2008). Institutional investors, according to recent corporate governance literature,
significantly improve corporate governance structures (Shinokaki et al., 2016).
Furthermore, because institutional investors own a sizable portion of the company’s stock,
they are more concerned with strategic decisions than other shareholders. According to
Schain and Stiebale (2021), institutional investors can help to reduce information asymmetry
in the credit market and improve access to finance. Firms may benefit from institutional
ownership directly through lower financing costs, or indirectly through institutional
investors’ monitoring activities and financial expertise, which may serve as a signal to
creditors that their funds are being used productively (Boucly et al., 2011).
 After carefully reviewing the existing studies on ownership structure and financial Ownership
constraints, it was discovered that there are very few studies in the literature to study this structure and
specific relationship. Furthermore, only managerial ownership, institutional ownership, and
family ownership are discussed in terms of financial constraints in this small number of
financial
studies. Other ownership structures, such as ownership concentration and individual constraints
ownership, are being ignored. This represents a research gap, and the current study seeks to
fill it. Furthermore, due to the unique characteristics of its economy, such as an
underdeveloped capital market, weak infrastructure, pyramidal ownership structure in 1009
large firms, weak shareholder’s rights, and a high level of financial constraints faced by
Pakistani firms, Pakistan provides an appropriate avenue for this study. All of these
characteristics make Pakistan an intriguing setting for this research. The main contribution
of this paper is to examine the impact of ownership structure on the degree to which a firm is
financially constrained, which has not been studied in Pakistani literature.
The following is how the rest of the paper is structured: The second section contains a
review of the literature, followed by a discussion of the research methods in the third section.
Section 4 contains the results, whereas Section 5 contains the conclusion.

2. Literature review and hypothesis development

2.1 Ownership structure and financial constraints
As previously stated, there are a limited number of studies in the literature that investigate
the impact of ownership structure on financial constraints. Corporate finance theories
provide a simple motivation for linking corporate insider control-ownership divergence and
firm financing constraints. Corporate insiders and controlling shareholders pursue their
benefits through various channels such as outright theft, transfer pricing, investor dilution,
overinvestment in negative NPV projects, and other self-serving financial transactions.
Investors are hesitant to invest in those firms in anticipation of adopting the insiders’ self-
serving behavior (La Porta et al., 2000). As a result, such businesses face financial constraints
as a result of high costs or a lack of access to external financing.
Lin et al. (2011) used a large sample of 1994–2002 to investigate the potential effect of
control-ownership divergence on financial constraints. To arrive at their conclusions, they
used a generalized method of moments (GMM) estimation of an investment Euler equation.
The findings suggested that control-ownership divergence is positively related to financial
constraints. The greater the disparity between insider ownership and control rights, the
higher the cost of external funds. The other finding suggested that increased information
opacity increased financial constraints, financial misreporting among the firm, and
institutional investors moderated.
Corporate finance theories demonstrate a link between a corporate insider’s ownership
and the firm’s financial constraints. Controlling shareholders and corporate insiders
expropriate the wealth of minority shareholders through various self-dealing activities
(Djankov et al., 2008). This tendency exists not only in developing countries but also in
developed countries. This expropriation by corporate insiders is more effective when they
have more control rights than cash flow rights because they have fewer financial
consequences (Johnson et al., 2000). Masulis et al. (2009) support this argument by concluding
that insiders with excessive control rights waste the organization’s resources at the expense
of minority shareholders. Shareholders and creditors are hesitant to make equity investments
in organizations that have been expropriated by corporate insiders because they anticipate
that their investment will be less materialized. As a result, these firms should be more
financially constrained due to limited or no access to external finance.
Due to the incentives associated with family ownership via ownership and control
diagnoses, family firms face financial constraints. Family members typically invest their
MF savings in businesses and become overly reliant on that income source. Second, there is a
48,7 wedge between the internal and external cost of funds due to market imperfections that
increase information asymmetry, agency costs, and high transaction costs. Prior research has
also found that information asymmetry is greater for small and young firms (Petersen and
Rajan, 1992); both of which are key characteristics of family businesses. Furthermore, family
businesses are hesitant to enter the equity market because it will gradually dilute their
ownership stake and undermine their controlling position. These arguments suggest that
1010 family businesses are more vulnerable to financial constraints because all financing sources
imply a potential disadvantage for the primary shareholder. Hanazaki and Liu (2007)
concluded that financial constraints are more severe for family-owned businesses because
large shareholders are more involved in confiscating minor shareholders’ wealth and looking
out for their interests. Lins et al. (2013) demonstrate that during 2008–2009, family-owned
financially unconstrained firms outperformed non-family-controlled firms. This poor
performance demonstrates the misapplication of free cash flow and underinvestment by
family-owned businesses. Furthermore, during financial crises, family-owned businesses are
less able to alleviate financial constraints than non-family-controlled businesses. They also
discover that during financial crises, investment in non-family owned firms and return on
investment are higher in non-family controlled firms. The same is also reported by Chu et al.
(2016), who studied Malaysian family-controlled firms during the global financial period of
2007–08. After using regression analysis, it was discovered that family firms are more
financially constrained than non-family-controlled firms due to low investment efficiency in
family-controlled firms.
Along with family-owned businesses, there have been some studies on the relationship
between foreign ownership and financial constraints in the literature. Firms that have access to
foreign capital markets are less likely to face financial constraints than those that rely solely on
domestic capital markets in times of need (Carreira and Silva, 2010). In this regard, Blalock et al.
(2008) investigate the investment behavior of Indonesian firms during the Asian Financial
Crisis of 1997. They observe that domestic exporters are unable to expand investment during
the liquidity crisis, thereby invalidating the trade theory. Those exporters with foreign
ownership, on the other hand, took advantage of the opportunity and increased their
investment to fill the market gap. Foreign-owned firms received assistance from the parent
company, ensuring the availability of funds during this period of liquidity crunch. The findings
revealed that foreign-owned firms’ investment increased post-crisis capital stock by about 4%
more than if all firms were domestically owned. As a result of their easy access to the foreign
capital market, foreign-owned firms are less financially constrained during financial crises than
domestically owned firms. In support of these arguments, Hutchinson and Xavier (2006) and
Ruiz-Vargas (2000) discovered that foreign-owned firms in Slovenia and Puerto Rico are less
financially constrained. Desai et al. (2008) discovered that multinational affiliates perform better
during currency depreciation periods, such as 1991 to 1999, than local firms that are only
limited to the internal market for funds. Finally, Beck et al. (2006) researched 80 countries and
discovered that domestic businesses face greater financial constraints.
Because of the greater stake in the organization, institutional ownership places a greater
check on management. Furthermore, institutional ownership may alleviate the problem of
asymmetric information in credit markets and improve access to finance (Schain and Stiebale,
2021). Firms may benefit directly from institutional ownership through lower financing costs,
or indirectly through institutional investors’ monitoring activities and financial expertise,
which may serve as a signal to creditors that their funds are being used productively (Boucly
et al., 2011). Firms’ affiliation with business groups may reduce information asymmetry
(Dewenter and Warther, 1998) and increase access to external finance (Manos et al., 2007).
Similarly, Khanna and Palepu (2000) find that group-affiliated firms have easier access to
foreign capital and technology. Consistent with the above arguments, Chang and Hong (2000)
observe that group-affiliated firms can share a group-wide reputation, improving their access Ownership
to external creditors. structure and
The greater the concentration of ownership, the bigger the mismatch between control and
cash flow rights. This permitted controlling shareholders to redirect company resources
financial
away from minority stockholders (Claessens et al., 2002). As a result, these firms with highly constraints
concentrated ownership must publish less firm-specific information to disguise
management’s opportunistic behavior, resulting in higher information asymmetry between
management and outside shareholders (Chen et al., 2008). Hence, these firms are more 1011
financially constrained than their counterpart firms due to increased information asymmetry.
Based on the above discussion, we developed the hypothesis as follows:
H1. Managerial ownership has a positive impact on financial constraints in PSX-
listed firms.
H2. Family ownership is positively associated with financial constraints in PSX-
listed firms.
H3. Institutional ownership has a negative impact on financial constraints in PSX-
listed firms.
H4. Foreign ownership has a negative impact on financial constraints in PSX-
listed firms.
H5. Associated ownership is negatively associated with financial constraints.
H6. Block holder ownership is negatively associated with the level of financial
constraints in PSX-listed firms.
H7. Concentrated ownership is positively associated with financial constraints.

3. Research methodology
This study covers all non-financial Pakistan Stock Exchange (PSX) listed firms from 2010 to
2018. The reason for using data from 2010 is that there was a renewed global financial crisis
before 2010, which harmed the organization’s financial performance globally. As a result of
the global financial crisis, sample firms’ financial constraints are mismeasured. The
preliminary sample for the study includes all 599 listed firms on the PSX on June 30, 2018.
Because of the greater variation in financial reporting, accounting rules and regulations, and
corporate governance requirements (Udin et al., 2017), financial firms skip the initial sample.
Such variations may have an impact on the accuracy of accounting measures (Shahwan,
2015). To be included in the study, firms must be operational during the study period, there
must be no mergers or acquisitions during that period, the firm must be listed on the PSX, and
all required variable information must be available. The first two sample selection criteria
may result in a survivorship bias in our sample. Following the study of Demirg€ uç-Kunt et al.
(2020), we attempt to address this issue by using various approaches to quantify FC and
different regression techniques. Following the application of these filtering techniques, the
sample firm population is reduced to 215 firms with complete governance data, financial
distress cost, and financial constraints variables for the study. As a result, our final sample
includes 215 non-financial firms with a total of 1935 firm-year observations from 2012 to 2018.
Certain variables required a one-year lag value to be measured accurately by financial
constraints. As a result, 2009 was used as a lag year when measuring financial constraints.
Industry–wise sample distribution is presented in Table 1.
Data relating to ownership structure and proxies of financial constraints was gathered
from respected firms’ annual reports, SBP balance sheet data analysis, the business recorder
MF *Total listed **Final % of % of
48,7 Sr. # Industrial sector firms sample sector sample

1 Automobile and Parts 22 17 77 7.907

2 Cable and Electrical Goods 7 4 57 1.86
3 Cement 20 15 75 6.977
4 Chemicals and Fertilizers 34 27 79 12.558
1012 5 Engineering 17 7 41 3.256
7 Food and Personal Care products 20 18 100 8.372
8 Glass and Ceramics 9 5 56 2.326
9 Leather and Tanneries 5 2 40 0.93
10 Miscellaneous 22 8 36 3.721
11 Oil and Gas 16 14 87 6.512
13 Paper and Board 10 6 60 2.791
14 Pharmaceuticals 12 6 50 2.791
15 Power Generation and 19 7 37 3.256
Distribution
16 Sugar and Allied Products 32 23 72 10.698
17 Synthetic and Rayon 11 6 55 2.791
18 Technology and Communication 11 6 55 2.791
19 Textile 146 39 27 18.14
20 Tobacco 3 2 67 0.93
21 Transport 4 2 50 0.93
22 Woolen 2 1 50 0.465
Table 1. Grand total (Non-financial) 422 215 51 100
Industry–wise sample Note(s): Table 1 shows the distribution of sample firms. * Total number of listed firms at PSE on December
distribution 31st, 2018. ** Finally, selected sample of the study

website (www.brecorder.com), open doors websites, and PSX historical data. Following the
collection of data on financial constraints and ownership structure, the initial data screening
process reveals the presence of outliers, which disrupts the generalization of empirical results.
To address this issue, following Shahab et al. (2018), we winsorized all continuous variables at
1 and 99%, respectively.

3.1 Measurement of variables

3.1.1 Measurement of financial constraint. The present study measures financial constraints
status by using three proxies. The following section describes the measurement of these
financial constraints proxies in detail.
KZ index. We use the Lamont et al. (2001) KZ Index to classify firms as financially
constrained or unconstrained. This index includes variables related to financial constraints,
and it will identify firms that are more likely to be considered a financial constraint. Although
it employs a smaller number of variables once it captures the essence of the firm’s financial
constraints, it is regarded as a good measure of financial constraints.
   
CF LTD
KZ Indexit ¼ − 1:0019: þ 3:139 *  1:1315: FCF (1)
Kt  1 it Kt  1 it

where
Kit stock capital for firm i time t;
CFit cash flow variable for firm i time t;
LTDit long-term debt for firm i time t;
 FCFit free cash flow for firm i time t. Ownership
Based on the equation we compute the value of the KZ Index of sample data; the higher the structure and
value of the KZ Index more will be the firm has financial constraints. The measurement of financial
financial constraint variables used in this study is shown in Table 2. constraints
3.1.2 Ownership structure. The sample firms’ ownership structure can be measured in
terms of managerial ownership, family ownership, institutional ownership, foreign
ownership, the presence of block holders, associated ownership, and ownership 1013
concentration. Along with the explanatory variable, we used firm size, Tobin’s Q, leverage,
and dividend payout as control variables. Table 3 contains information on variable
measurement and description.

Variable name Variable description

K Capital Stock, Measured by the property plant and equipment, net of depreciation
I Firm’s investment, measured by (KtKt1)
NI Net Income
DA Depreciation and amortization
CF Cash flow, measured by (NI þ DA)
S Sales
LTD Long term debt, measured by Long-term liabilities
TA Total assets
SE Stockholders’ equity
CL Current Liabilities
FCF Free Cash flow, measured by (CF þ I)/S
TD Total Debt, measured by (LTD þ STD)
TE Total equity, measured by (PCþ ELP þ PL) Table 2.
ROA The ratio of NI to TA Variables definition of
OI Operational income KZ index

Variable Measurement

Panel A: ownership structure measures

MNG_Own Insiders ownership calculated by number of shares owned by all insiders/total
outstanding shares
Family_Own Family ownership measured by number of shares owned by entire family members/total
outstanding shares
Inst_Own Institutional ownership is equal to total number of shares held by institutions/total
outstanding shares
Block Dummy variable equal to “1” if any external hold 10% of the shares outstanding or “0”
otherwise
Frgn_Own Foreign ownership measured by total number of shares held by foreigners/total
outstanding shares
Ass_Own Associated ownership is equal to number of shares held by associates or rated party
firms/total outstanding shares
Con_Own Concentrated ownership calculated by number of shares own by 5 big shareholders/total
outstanding shares
Panel B: control variables
Firm Size Log of Total Assets
Firm Leverage Total Debt/Total Assets Table 3.
Firm Market Market Value of Equity/Net Assets Measurement of
Value ownership mechanism
Dividend Payout Dividend per share/Earnings per share and control variables
MF 3.2 Model of the study
48,7 To examine the impact of ownership structure on the financial constraints, we specify the
following econometric models:
FCit ¼ β0 þ θFCit−1 þ β1 OWNit þ β2 Fsizeit þ β3 Tobin0s Qit þ β4 LVRGit þ β5 Div_Payoutit
þ εit
1014 (2)

where i and t denote the cross-sectional units and period, respectively. The variable KZ Index
is used as a proxy of financial constraints (FCit). In equation (2), one lag of FCit is included in
the specification to control the endogeneity problem. Following Shahwan (2015), we use
(OWNit) as a proxy for ownership structure. The variable OWNit includes managerial
ownership (MNG_Ownit), family ownership (Family_Ownit), institutional ownership
(Inst_Ownit), foreign ownership (Frgn_Ownit), and associated ownership (Asso_Ownit),
presence of block holder (Blockit), and concentrated ownership (Con_Ownit). The control
variables are firm size (Fsizeit), Tobin’s Q (Tobin’s Qit), leverage (LVRGit), and dividend
payout ratio (Div_Payoutit). The εit is a composite error term.

3.3 Methodology
To test our hypothesis, we might use a variety of panel estimators, such as OLS, fixed effect,
random effect, 2SLS, and GMM. However, when estimating our model, we took endogeneity
into account first. Endogeneity problems in regression models can arise from a variety of
causes, including omitted variable bias, measurement error, and simultaneity/reverse
causation. Endogeneity would render the OLS, fixed effect, and random effect inconsistent,
resulting in a biased outcome. We used the Generalized Method of Moments (GMM) in our
estimation due to the lack of a valid instrument, which is a requirement of the 2SLS. Following
the work of Alhassan et al. (2014), we have adopted the system GMM, which suggests that the
difference GMM proposed by Arrellano and Bond (1991), as suggested by Blundell and Bond
(1998), has inferior predictive capacity in a small sample with a short period. To produce
robust results when employing the system GMM, the lagged values of the explanatory
variables are employed as instruments, as introduced by Blundell and Bond (1998) as valid
instrumental variables, rather than external instruments. We also utilized the Hansen and
Sargent test of over-identifying constraints to determine their validity (Roodman, 2009).
In this study, the Durbin-Wu-Hausman test is utilized to identify whether or not the model
has an endogeneity issue (Durbin, 1954). This test is used to assess whether regression is
endogenous or exogenous. The DW test for endogeneity yields a value of x2 (p-value) of
25.9562 (0.000), indicating that the null hypothesis that variables are exogenous is rejected.
Because the regressors’ variable is endogenous, if there is a substantial difference between
OLS and IV estimation, instrumental variables must be utilized. A suitable instrumental
variable should be connected with a meaningful variable or a non-endogenous independent
variable but not with the model’s error term (Wooldridge, 2002). According to Al Farooque
et al. (2019), 2SLS and 3SLS are inefficient when the error term is correlated due to
autocorrelation and heteroscedasticity, and identifying excellent instrumental variables is
also problematic. As a result, the lagged difference of both the dependent and endogenous
independent variables was used as the instrumental variable in this study’s system GMM.

4. Results
4.1 Descriptive results
Descriptive results of the studied variables are reported in Table 4. Financial constraints
measured with the KZ Index. The higher value of the index shows the higher level of financial
Variable Obs Mean Std. Dev Min Max
Ownership
structure and
KZ Index 1935 1.089 0.755 0.375 3.866 financial
MNG_Own 1935 0.202 0.240 0.000 0.906
Family_Own 1935 0.193 0.243 0.000 0.885 constraints
Inst_Own 1935 0.098 0.099 0.000 0.449
Frgn_Own 1935 0.054 0.148 0.000 0.947
Ass_Own 1935 0.316 0.305 0.000 0.947 1015
Block 1932 0.696 0.460 0.000 1
Con_Own 1935 0.653 0.197 0.187 0.985
Fsize 1931 9.781 0.707 8.082 11.511
Tobins’q 1931 1.483 1.422 0.292 9.221
LVRG 1931 0.549 0.281 0.056 1.730 Table 4.
Div_Payout 1926 0.318 0.402 0.000 2.214 Descriptive statistics

constraints faced by the firms. The KZ Index ranges from 0.3750 to 3.8664, with a mean
value of 1.0922. The median value of the KZ Index is 1.3536, and the standard deviation is
0.7542. Chen et al. (2009) reported that the KZ Index’s mean value is 0.5618 in Taiwanese listed
firms. Similarly, Kowsari and Shorwarzi (2017), in their respective study on Iranian firms,
reported the mean value of the KZ Index is 1.53, which shows that Iranian firms bear more
significant financial constraints than the PSX listed firms.
Table 5 also includes descriptive statistics about the ownership structure. The average
insider ownership of sample firms is 20%, with a minimum of 0% and a maximum of 90%.
The average percentage of family ownership in the sample firms is 19%, with a range of 24
percent. Nazir and Afza (2018) report family ownership rates of 21 and 22%, respectively,
which is consistent with the current study’s findings. Financial institutions have a very low
level of ownership on average, with a mean value of only 9% and a variation of 10%
in ownership. Shahwan (2015) reported 3% institutional ownership in Egyptian firms.
Foreign ownership, another important type of ownership, has a mean value of 5%, with
minimum ownership at 0% and maximum ownership at 95%. The findings are consistent
with Nazir and Afza (2018). Associated companies own an average of 31% of the sample
firms, demonstrating their influential role and reaping economies of scale. Sample firms
calculate ownership structure, ownership concentration, and block holder dummy. The
Herfindahl Index measures ownership concentration as the sum of the squares of the top five
largest shareholders’ shareholdings. The average value of concentrated ownership is 65
percent, with a median of 67 percent and a variance of 20%.
Descriptive statistics of control variables show that the average firm size is 19542.88
million PKR, with a minimum and maximum total asset value of 22.195 million PKR and
395943 million PKR, respectively. Tobin’s Q has an average value of 1.4832 and a standard
deviation of 1.4224. This average value demonstrates investor confidence in the stock market.
The leverage ratio reveals that the sample firms are highly leveraged, with an average ratio of
55%. Similarly, the average dividend payout ratio is 32%, indicating that sample firms
distribute 32% of their earnings to shareholders in the form of dividends.
The correlation analysis of the variables under consideration is shown in Table 5. It shows
the relationship between variables, whether they are positively or negatively related to one
another. Furthermore, the correlational study reveals whether or not the data contains
multicollinearity. According to Gujarati and Porter (2003), there is a collinearity problem
between variables if the correlation value is greater than 0.80. The correlation between
manager and family ownership is 0.887, however, it cannot cause multicollinearity because
both independent variables are calculated in separate regressions because we use stepwise
regression to observe the results. Initially, following the literature, we take the short-term
 MF
48,7

1016

Table 5.
Matrix of correlations
Variables (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)

MNG_Own 1.000
Family_Own 0.887 1.000
Inst_Own 0.220 0.234 1.000
Frgn_Own 0.161 0.156 0.005 1.000
Ass_Own 0.612 0.570 0.051 0.043 1.000
Block 0.596 0.542 0.176 0.137 0.562 1.000
Con_Own 0.083 0.093 0.192 0.040 0.508 0.283 1.000
Fsize 0.271 0.249 0.143 0.087 0.235 0.169 0.078 1.000
Tobins’q 0.183 0.190 0.125 0.072 0.308 0.163 0.283 0.039 1.000
LVRG 0.157 0.137 0.064 0.049 0.091 0.125 0.125 0.076 0.021 1.000
Div_Payout 0.196 0.199 0.106 0.092 0.223 0.183 0.098 0.171 0.277 0.234 1.000
credit as a control variable. The correlation value between leverage and short-term credit is Ownership
0.793. As a result, we exclude one control variable, short-term credit, to avoid the risk of structure and
multicollinearity in regression. The variance inflation factor (VIF) of the study variables is
also computed. The VIF result presented in Table 6, also demonstrates the multicollinearity
financial
issue in the management ownership variable, since the VIF value is 5.726, which is larger than constraints
the threshold level of 5. Overall, there is no issue of multicollinearity between the predicting
variables of the study.
1017
4.2 Regression results
The findings of the panel regression on the effect of ownership structure on the firms’
financial constraints are shown in Table 7. Managerial ownership was found to have an
insignificant relationship with financial constraints. Family ownership has a significant
positive relationship with financial constraints in sample firms. This positive relationship
demonstrates that family businesses are subject to a severe investment cash flow sensitivity
relationship. Shleifer and Vishny (1986), Hanazaki and Liu (2007), Andres (2011), and Chu
et al. (2016) all found a positive relationship between family ownership and investment cash
flow sensitivity. This shows that Pakistani family-owned firms because of the risk of diluting
ownership and control are hesitant to issue new stock. These arguments lead to the
conclusion that family businesses face more financial constraints than non-family
businesses.
Institutional shareholdings, as measured by the fraction of shares held by institutions,
have a significant inverse relationship with financial constraints. The greater an institution’s
ownership stake in an organization, the less likely financial constraints are. The findings
support the work of Lin et al. (2011), who argue that the cost of funds is significantly but
inversely related to a firm’s institutional ownership. This negative association demonstrates
the active role of institutional investors in monitoring corporate insiders’ expropriation
activities. Furthermore, institutional shareholders experience lower agency costs as a result
of their monitoring capacity over management and ability to collect more information than
investors, which reduces financial constraints (Yegon et al., 2014). Furthermore, it also
increases voluntary disclosure among firms, as suggested by Soheilyfar et al. (2014), which
not only reduces information asymmetry but also aids in the reduction of financial
constraints.
Foreign-owned firms show a significant negative relationship with financial constraints.
Firms with an approach to foreign capital markets are less prone to financial constraints than
locally owned firms with higher information asymmetry, which face severe financial

VIF 1/VIF

MNG_Own 5.726 0.175

Family_Own 4.809 0.208
LVRG 2.924 0.342
Ass_Own 2.893 0.346
Block 1.835 0.545
Con_Own 1.699 0.589
Inst_Own 1.243 0.805
Tobins’q 1.240 0.806
Div_payout 1.219 0.820
Frgn_Own 1.138 0.879 Table 6.
Fsize 1.126 0.888 Variance inflation
Mean VIF 2.391 factor
 MF
48,7

1018

Table 7.
System GMM
regression results
Variables MNG_Own Family_Own Inst_Own Frgn_Own Ass_Own Block Con_Own

L.kzindex 0.270*** (0.028) 0.269*** (0.028) 0.271*** (0.028) 0.272*** (0.028) 0.279*** (0.029) 0.271*** (0.028) 0.273*** (0.028)
MNG-Own 0.215 (0.146)
Family_Own 0.0996** (0.145)
Inst_Own 0.176*** (0.229)
Frgn_Own 0.0258*** (0.180)
Ass_Own 0.198 (0.153)
Block 0.125* (0.121)
Con_Own 0.122* (0.163)
Fsize 0.0664 (0.067) 0.0646 (0.068) 0.0649 (0.067) 0.0718 (0.067) 0.083 (0.068) 0.0682 (0.067) 0.0742 (0.067)
Tobins’q 0.0346*** (0.013) 0.0353*** (0.013) 0.0350*** (0.013) 0.0362*** (0.013) 0.0348*** (0.013) 0.0351*** (0.013) 0.0356*** (0.013)
LVRG 2.192*** (0.114) 2.179*** (0.114) 2.174*** (0.113) 2.169*** (0.113) 2.184*** (0.114) 2.180*** (0.114) 2.177*** (0.114)
Div_Payout 0.202*** (0.035) 0.201*** (0.035) 0.201*** (0.035) 0.201*** (0.035) 0.201*** (0.036) 0.199*** (0.035) 0.202*** (0.035)
Constant 1 (0.66) 0.998 (0.67) 1.002 (0.67) 1.089* (0.66) 1.350* (0.69) 1.095* (0.66) 1.037 (0.66)
Wald test 865.27 (0.000) 864.95 (0.000) 863.87 (0.000) 861.40 (0.000) 857.09 (0.000) 864.42 (0.000) 861.85 (0.000)
AR(1) 0.030 0.000 0.040 0.000 0.010 0.000 0.000
AR(2) 0.348 0.654 0.388 0.743 0.732 0.673 0.546
Hansen test 0.120 0.250 0.175 0.155 0.135 0.165 0.085
Sargent test 0.664 0.764 0.885 0.786 0.885 0.999 0.546
Observations 1,713 1,713 1,713 1,713 1,710 1,713 1,713
Number of coid 215 215 215 215 215 215 215
Note(s): Standard errors in parentheses. ***p < 0.01, **p < 0.05, *p < 0.1
constraints. This supports the arguments of Hutchinson and Xavier (2006) and Ruiz-Vargas Ownership
(2000), who discovered that foreign-owned firms in Slovenia and Puerto Rico are less structure and
financially constrained. In addition, researchers like Vijayakumaran (2019), and Lu and Li
(2019) argued that foreign investors exert active control over management through their
financial
expertise and business knowledge, resulting in higher financial performance and lower constraints
agency costs. Similarly, foreign ownership is associated with voluntary disclosure, which
leads to fewer financial constraints (Alhazaimeh et al., 2014).
The presence of block holders reduces the financial constraints of sample firms, as 1019
suggested by the results presented in Table 7. Block holders can influence the firm’s
investment and financial decisions. Block holders are more effective at managing monitoring,
minimizing fund misuse, and positively influencing creditor communication (Goergen and
Renneboog, 2001). Block holder provides more active management monitoring, keeping a
close eye on management and reducing the possibility of overinvestment. This reduces
agency conflict and improves communication in the financing market, which increases the
availability of funds in times of need by eliminating information asymmetry, among other
things.
Concentrated ownership is negatively related to financial constraints, as expected. This
negative association lends support to the argument that it reduced the number of block
holders, decreased agency conflict, and significantly reduced management monitoring. As a
result, managers are unable to waste valuable economic resources on low-value projects while
also ensuring the availability of necessary funds for needed investment opportunities.
Furthermore, because of its concentrated ownership, it has easy access to external finance,
alleviating its financial constraints. In addition, concentrated ownership is adversely
associated with information asymmetry (Chen et al., 2008) and positively connected with
voluntary disclosure (Jiang and Kim, 2004), all of which reduce the level of financial
constraints.
The last variable of ownership structure, associated ownership, was found to have an
insignificant relationship with financial constraints. In addition to corporate governance
variables, firm size, Tobin’s Q, and leverage were found to be significantly positively
associated with financial constraints.

4.3 Robustness test

To test the robustness of the results, this study used the WW index proposed by Whited and
Wu (2006) to measure sample firms’ financial constraints. Several studies, such as Bao et al.
(2012), Zhao and Xiao (2019), use a similar approach of using the WW index to capture the
impact of financial constraints. Furthermore, we examine the impact of ownership structure
on FC using various regression techniques such as OLS and fixed effect (FE). These estimates
help us identify whether our results are influenced by survivorship bias, which in the context
of our estimates may be attributable to sample selection criteria.
We calculated WW as follows:
WWit ¼ −0:091CASHFLOWit –0:062 * DIVPOSit þ 0:021 * TLTDit –0:044 * SIZEit
þ 0:102 * ISGit –0:035 * SGit (3)

whereas:
CASHFLOW – net cash flow from operations,
DIVPOS – dummy variable that represents 1 if firm i pays a cash dividend in year t and
0 otherwise;
TLTD – ratio of long-term debt to total assets;
MF SIZE – size is computed by taking the natural log of total assets;
48,7 ISG – ISG is the average industry sales growth computed based on SBP financial
statement analysis,
SG – SG is the firm’s sales growth.
We used the dynamic GMM to investigate the effect of ownership structure on financial
1020 constraints. The regression results presented in Table 8 remain quantitatively unchanged
and are consistent with those of our main regression.

4.4 Additional test

We also utilized the OLS and FE methods as a robustness check, noting that they are unable
to adjust for dynamic endogeneity/causality/simultaneity, as reported by Al Farooque et al.
(2019). Table 9 shows the results of the regression. Overall, the conclusions given in the
system GMM on the association between ownership structure and FC are confirmed by both
OLS and FE estimations.
To test the robustness of the results, we divide the firms into two categories: large firms
and small firms. For this purpose, we first compute the median value of firm size; firms with a
firm size more than the median value of firm size are called large firms, while firms with a firm
size less than the median value are deemed small firms. We evaluated the impact of
ownership structure on financial restrictions on both groups independently after classifying
the firm into two groups. The results are shown in Tables 10 and Table 11. With a few
exceptions, the results are nearly identical to the main findings. Managers in small firms, for
example, are considerably inversely related to financial limitations, indicating that managers
in small firms have greater decision-making authority. As a result of self-serving behavior,
the level of financial restriction in respective firms increases. Similarly, foreign ownership is
fairly limited in small enterprises, and hence it does not play a large role in the context of
financial limitations. Moreover, the results in large enterprises are essentially identical to the
primary findings.

5. Conclusion
The 2008 financial crisis and corporate frauds in large corporations such as Enron,
WorldCom, AIG, Lehman Brothers, and others drew the attention of policymakers and
researchers to the role of corporate governance and its potential impact on financial
constraints. There is widespread agreement that weak regulatory systems, poor law
enforcement, and inefficient governance practices are major contributors to such failures,
which eventually undermine investor confidence in the capital market. The current study
focuses on one aspect of corporate governance mechanisms, namely ownership structure,
and investigates its impact on financial constraints on PSX-listed firms. The study examined
the effect of five external and two internal ownership measures on financial constraints in a
sample of 215 PSX-listed firms from 2010 to 2018. The level of financial constraints is
measured through KZ Index. According to the regression results, family ownership and
ownership concentration are found to be significantly positively related to financial
constraints, whereas institutional ownership, foreign ownership, and the presence of block
holder in the ownership structure are significantly negatively related to financial constraints.
Because of the fear of dilution of ownership, family firms are hesitant to issue new equity,
there is greater information asymmetry, and agency issues prevail. Furthermore, investors
do not see family ownership as a positive phenomenon and are thus unwilling to invest in
these businesses. As a result, family businesses face greater financial constraints than non-
family businesses. Associated ownership typically has less information asymmetry, enjoys
Variables MNG_Own Family_Own Inst_Own Frgn_Own Ass_Own Block Con_Own

L.wwindex 0.147*** (0.031) 0.144*** (0.031) 0.144*** (0.031) 0.144*** (0.031) 0.145*** (0.031) 0.147*** (0.032) 0.146*** (0.031)
MNG_Own 0.0253* (0.015)
Family_Own 0.0086** (0.014)
Inst_Own 0.0027*** (0.024)
Frgn_Own 0.0023** (0.019)
Ass_Own 0.00467 (0.012)
Block 0.0079 (0.015)
Con_Own 0.0070** (0.017)
Fsize 0.0518*** (0.007) 0.0513*** (0.007) 0.0505*** (0.007) 0.0505*** (0.007) 0.0508*** (0.007) 0.0495*** (0.008) 0.0504*** (0.007)
Tobins’q 0.00401*** (0.001) 0.00402*** (0.001) 0.00395*** (0.001) 0.00398*** (0.001) 0.00398*** (0.001) 0.00405*** (0.001) 0.00398*** (0.001)
LVRG 0.0579*** (0.013) 0.0567*** (0.013) 0.0562*** (0.012) 0.0562*** (0.012) 0.0563*** (0.013) 0.0555*** (0.013) 0.0557*** (0.013)
Div_Payout 0.0181*** (0.004) 0.0183*** (0.004) 0.0184*** (0.004) 0.0184*** (0.004) 0.0184*** (0.004) 0.0185*** (0.004) 0.0184*** (0.004)
Constant 0.0982 (0.071) 0.0888 (0.072) 0.0785 (0.071) 0.0794 (0.070) 0.0811 (0.070) 0.0654 (0.074) 0.0746 (0.071)
Wald test 221.00 (0.000) 218.56 (0.000) 218.17 (0.000) 218.39 (0.000) 217.84 (0.000) 216.06 (0.000) 217.68 (0.000)
AR(1) 0.000 0.030 0.030 0.000 0.000 0.020 0.000
AR(2) 0.420 0.470 0.560 0.640 0.550 0.450 0.390
Hansen test 0.220 0.250 0.190 0.210 0.230 0.250 0.180
Sargent test 0.580 0.880 0.790 0.650 0.740 0.690 0.700
Observations 1,711 1,711 1,711 1,711 1,711 1,708 1,711
Number of 215 215 215 215 215 215 215
coid
Note(s): Standard errors in parentheses. ***p < 0.01, **p < 0.05, *p < 0.1
constraints
structure and

1021
Ownership
financial

WW Index)
measures through
Table 8.
Robustness test
(Financial constraints
 MF
48,7

1022

Table 9.

constraints
structure on financial
Regression results for
the effect of ownership
OLS
Variables MNG-own Family_Own Inst_Own Frgn_Own Ass_Own Block Con_Own

MNG_Own 0.230*** (0.051)

Family_Own 0.243*** (0.050)
Inst_Own 0.357*** (0.119)
Frgn_Own 0.267*** (0.077)
Ass_Own 0.159*** (0.041)
Block 0.0679** (0.026)
Con_Own 0.187*** (0.061)
Fsize 0.0282* (0.017) 0.0275* (0.017) 0.00375 (0.016) 0.0137 (0.016) 0.0234 (0.017) 0.0157 (0.017) 0.0133 (0.016)
Tobins’q 0.0495*** (0.01) 0.0491*** (0.01) 0.0507*** (0.01) 0.0538*** (0.01) 0.0460*** (0.01) 0.0524*** (0.01) 0.0484*** (0.01)
LVRG 2.147*** (0.07) 2.152*** (0.07) 2.074*** (0.07) 2.117*** (0.07) 2.122*** (0.07) 2.121*** (0.07) 2.092*** (0.07)
Div_Payout 0.220*** (0.031) 0.218*** (0.031) 0.242*** (0.031) 0.226*** (0.031) 0.220*** (0.031) 0.223*** (0.031) 0.227*** (0.031)
Constant 0.151 (0.169) 0.148 (0.167) 0.0954 (0.162) 0.0492 (0.162) 0.0204 (0.163) 0.0634 (0.162) 0.141 (0.163)
Observations 1,926 1,926 1,926 1,926 1,926 1,923 1,926
R-squared 0.569 0.57 0.567 0.568 0.568 0.567 0.567
Number of coid

FE
Variables MNG-own Family_Own Inst_Own Frgn_Own Ass_Own Block Con_Own

MNG_Own 0.0411 (0.097)

Family_Own 0.0605* (0.094)
Inst_Own 0.236** (0.157)
Frgn_Own 0.251** (0.107)
Ass_Own 0.0195 (0.082)
Block 0.0733** (0.092)
Con_Own 0.108* (0.115)
Fsize 0.0856* (0.051) 0.0872* (0.051) 0.0747 (0.051) 0.0906* (0.050) 0.0857* (0.051) 0.0845* (0.051) 0.0871* (0.051)
Tobins’q 0.0647*** (0.01) 0.0648*** (0.01) 0.0642*** (0.01) 0.0622*** (0.01) 0.0645*** (0.01) 0.0645*** (0.01) 0.0644*** (0.01)
LVRG 2.086*** (0.07) 2.087*** (0.07) 2.083*** (0.07) 2.090*** (0.07) 2.088*** (0.07) 2.090*** (0.07) 2.091*** (0.07)
Div_Payout 0.156*** (0.027) 0.155*** (0.027) 0.154*** (0.027) 0.158*** (0.027) 0.156*** (0.027) 0.158*** (0.027) 0.156*** (0.027)
Constant 0.921* (0.498) 0.941* (0.500) 0.781 (0.503) 0.948* (0.496) 0.910* (0.497) 0.956* (0.505) 0.862* (0.499)
Observations 1,926 1,926 1,926 1,926 1,926 1,923 1,926
R-squared 0.411 0.411 0.412 0.413 0.411 0.412 0.411
Number of coid 215 215 215 215 215 215 215
Note(s): Standard errors in parentheses. ***p < 0.01, **p < 0.05, *p < 0.1
Variables MNG_Own Family_Own Inst_Own Frgn_Own Ass_Own Block Con_Own

L.kzindex 0.325*** (0.046) 0.321*** (0.046) 0.330*** (0.047) 0.324*** (0.046) 0.322*** (0.046) 0.327*** (0.047) 0.325*** (0.046)
MNG_Own 0.136 (0.261)
Family_Own 0.202* (0.219)
Inst_Own 0.508* (0.287)
Frgn_Own 0.0389** (0.179)
Ass_Own 0.0151 (0.140)
Block 0.0924** (0.193)
Con_Own 0.0724* (0.206)
Fsize 0.461*** (0.108) 0.439*** (0.109) 0.461*** (0.108) 0.452*** (0.108) 0.452*** (0.107) 0.464*** (0.108) 0.459*** (0.108)
Tobin’s Q 0.0535*** (0.017) 0.0536*** (0.017) 0.0548*** (0.017) 0.0546*** (0.018) 0.0539*** (0.017) 0.0534*** (0.017) 0.0540*** (0.017)
LVRG 2.003*** (0.146) 1.989*** (0.146) 1.969*** (0.148) 1.998*** (0.146) 2.001*** (0.146) 2.000*** (0.147) 1.999*** (0.146)
Div_Payout 0.176*** (0.052) 0.171*** (0.052) 0.169*** (0.052) 0.174*** (0.052) 0.174*** (0.052) 0.171*** (0.053) 0.174*** (0.052)
Constant 5.263*** (1.137) 4.979*** (1.141) 5.288*** (1.126) 5.155*** (1.128) 5.155*** (1.122) 5.201*** (1.131) 5.177*** (1.123)
Observations 811 811 811 811 811 808 811
Number of coid 129 129 129 129 129 129 129
Wald χ 2 425.960 429.100 427.250 426.330 426.820 425.960 426.210
2
Prob > χ 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Note(s): Standard errors in parentheses. ***p < 0.01, **p < 0.05, *p < 0.1
constraints
structure and

1023
Ownership
financial

Ownership Structure
Table 10.

(Large firms)
Constraints
and Financial
 MF
48,7

1024

Table 11.

constraints
and financial

(Small Firms)
Ownership structure
Variables MNG_Own Family_Own Inst_Own Frgn_Own Ass_Own Block Con_Own

L.kzindex 0.198*** (0.039) 0.188*** (0.039) 0.193*** (0.039) 0.193*** (0.039) 0.200*** (0.039) 0.205*** (0.041) 0.198*** (0.039)
MNG_Own 0.375** (0.187)
Family_Own 0.178*** (0.196)
Inst_Own 0.731** (0.315)
Frgn_Own 0.291 (0.384)
Ass_Own 0.376* (0.198)
Block 0.178 (0.176)
Con_Own 0.358 (0.237)
Fsize 0.17 (0.120) 0.203* (0.118) 0.229* (0.119) 0.195 (0.119) 0.186 (0.119) 0.167 (0.125) 0.194 (0.119)
Tobin’s Q 0.0131 (0.017) 0.0144 (0.017) 0.0113 (0.017) 0.0136 (0.017) 0.0148 (0.017) 0.0133 (0.017) 0.013 (0.017)
LVRG 2.022*** (0.120) 2.000*** (0.119) 1.983*** (0.118) 1.989*** (0.119) 2.002*** (0.119) 1.994*** (0.120) 2.006*** (0.119)
Div_Payout 0.215*** (0.048) 0.210*** (0.048) 0.208*** (0.048) 0.207*** (0.048) 0.207*** (0.048) 0.211*** (0.048) 0.211*** (0.048)
Constant 1.328 (1.109) 1.605 (1.101) 1.870* (1.111) 1.495 (1.104) 1.295 (1.111) 1.101 (1.202) 1.697 (1.108)
Observations 817 817 817 817 817 817 817
Number of coid 124 124 124 124 124 124 124
Wald χ 2 437.480 438.430 441.300 435.630 436.190 431.040 435.880
Prob > χ 2 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Note(s): Standard errors in parentheses. ***p < 0.01, **p < 0.05, *p < 0.1
lower-cost external funds, and can be passed on to subsidiaries or affiliated companies. As a Ownership
result, associated companies discovered low investment-cash flow sensitivity. We test the structure and
robustness of the results by using another proxy, the WW Index, to calculate the FC. We also
run the OLS and FE models to validate the results. In addition, to further check the robustness
financial
of the results we categorize the firms into two-halves, i.e. large firms and small firms, and constraints
examine the impact of ownership structure on financial constraints separately for both
groups of firms. The results are consistent with our earlier findings, which validates our
findings. 1025
The current study also offers some guidelines and recommendations to investors,
policymakers/regulators, and corporate executives. It is suggested that increasing
managerial ownership up to a certain threshold level is also necessary to save the firm
from financial constraints. Furthermore, the results show that the leverage ratio increases
sample firms’ financial constraints and financial distress costs. The management of listed
companies strictly focuses on their debt level to stay within the threshold level and save the
firm from an unstable situation in the future. Existing and potential investors may benefit
from the current research as well. Investors should carefully examine the corporate
governance mechanisms of respective firms before making investment decisions to make
more rational investment decisions. Before making an investment decision, investors should
carefully examine factors such as family ownership, the presence of block holders, foreign
ownership, and associated company ownership. Furthermore, insider ownership,
institutional ownership, and the presence of block holders all play an active role in
reducing agency conflict between minorities and controlling shareholders. This study has
several limitations as well. More firms from various industries and with a longer time horizon
are recommended to generalize the findings. Furthermore, due to a lack of data in the case of
Pakistan, the current study omitted some governance variables such as financial expertise of
directors, tenure and experience of board members, non-executive directors’ participation
rate, the experience of board members, the role of board committees, and non-executive
directors’ participation rate, as well as more control variables.

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Corresponding author
Muhammad Farooq can be contacted at: alihussnain155@yahoo.com

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