Firms’ Performance in Pakistan: The Impact of Government Policies, Capital Structure, and Board Diversity

Abstract

The present study has three main objectives. First, to investigate the effect of capital structure on firms' performance. The second is to investigate the effect of board member diversity on firms' performance. Third, given government interest in the thriving business sector, the study aims to access the impact of government support policies on the performance of firms, particularly in the construction and automobile sectors. For this, we selected 40 firms from these sectors from the period 2010 to 2021. The generalized method of movement (GMM) is used to test the relationships. The results of the present study show that capital structure has a significant and positive effect on firms' performance. The diversity of  board members, which is divided into two sub-categories i.e. demographic diversity and cognitive diversity has significant negative and positive effects on firms' performance. Lastly, there is a negative relationship between government support policies and firms’ performance. These findings provide unique insight to the government, policymakers, researchers, and managers in the context of Pakistan. The thriving business sector is key for the economic survival of a country and these finding can enable managers and policymakers to utilize capital structure and board composition for ensuring optimal performance and effective policy making.