Role of Public Revenue and Public Expending in Achieving Sustainable Economic Development in the Perspective of Local Project Approach

Abstract

This study extends the governance literature by examining the impact of firm-level along with country-level governance quality on capital structure decisions in the developing economy of Pakistan. Several studies examined the effect of firm-level governance mechanisms on capital structure decisions of listed firms in Pakistan but there is a lack of focus on the link between country-level governance quality and capital structure. Thus, this study fills this gap by examining the impact of the firm and country-level governance on the capital structure decisions of firms at the same time. For this purpose, balance panel data (2009-2020) of 187 non-financial PSX listed firms have been used. The results substantially prove that firm and country-level governance quality significantly affect the capital structure decisions of firm. The results show that board size is positively associated with total debt ratio which implies that larger boards are more capable of raising external financing on the basis of their personal relations with creditors. The positive relationship of gender diversity with total debt ratio implies that female directors more actively participate in organizational activities and influence the decision-making process and actively control the opportunistic behavior of firm managers. Blockholders ownership is positively associated with total debt ratio which indicates that larger shareholders are better able to influence managers to borrow more funds to control their opportunistic behavior.