LEVERAGE AND DIVIDEND POLICY AS MEDIATORS IN THE CORPORATE GOVERNANCE AND FIRM PERFORMANCE RELATIONSHIP: INSIGHTS FROM MANUFACTURING FIRMS IN PAKISTAN

Abstract

This study aims at investigating the relationship between corporate governance and the performance of the firm, especially the mediating position of the dividend policy and the financial leverage. The research relies on the information of the manufacturing companies that are included in the KSE-100 index between 2018 and 2023. The methodological approach used in the study is also quite exhaustive because the author uses descriptive statistics, correlation assessments, regression modeling, and mediation analysis to extensively analyze the associations among the variables. The testing of mediation is performed according to the model of Preacher and Hayes (2004) and the significance of mediating effects is determined using Sobel, Aroian, and Goodman tests. The empirical results reveal that the board size and dividend policy have positive and statistically significant effect on the firm performance, so that the increased board size and higher dividend payments are associated with the improved business performance. On the other hand, an audit committee and high financial leverage are related negatively to the firm performance. These results indicate that although some governance mechanisms may be related to better results, others can impair performance maybe because of their inefficiency, high levels of debt, or inefficient auditing practices. In general, the paper suggests the significance of the well-developed and balanced corporation governance system that facilitates adequate financial policies. It highlights the subtle contribution of internal governance systems and financial policies in determining the success of firms. The insights have practical implications to policymakers, institutional investors, and corporate leaders that aim to perfect governance standards and improve financial performance in the manufacturing sector.