Corporate Governance, Dividend Policy, Capital Structure and Firm Financial Performance with Moderating role of Political Instability

Abstract

The underpinning objective of current study is to examine the impact of corporate governance, dividend policy and capital structure on the firm’s financial performance and how political instability moderates the relationship. Textile sector of Pakistan is considered as unit of analysis to achieve the research objective. Total 56 companies from textile sector has been listed on Pakistan stock exchange out of which 27 companies has been selected over the period of 2012-2016 data has been collected from the audited annual reports. Three determinants of corporate governance has been used to measure the corporate governance, audit committee, board size and board composition, three determinants has been used to measure the dividend policy, dividend payout ratio, dividend yield and earning per share and two determinants has been used to measure capital structure, debt ratio and short-term debt. Returns on asset has been used as proxy as measure of firm’s financial performance. Political instability has been used as moderator and data has been collected from the World Bank indicators. In case of corporate governance all the determinant audit committee, board size and board composition are positive and significant relationship with returns of assets. In case of dividend policy all the determinant indicates a significance relationship, dividend payout and earning per share is positive while dividend yield indicates negative relationship with returns on assets. In case of capital structure, debt ratio and short-term debt indicates negative and significant relationship with returns on assets. Political instability indicates a perfect moderation, all the determinants of corporate governance, dividend policy and capital structure indicates insignificant relationship with returns on assets in the presence of political instability. Political instability is moderating the relationship between returns on assets and audit committee, board size, board composition, dividend payout ratio, dividend yield, earning per share, debt ratio and short-term debt.