THE IMPACT OF CORPORATE GOVERNANCE AND CAPITAL STRUCTURE ON FINANCIAL PERFORMANCE: A CASE STUDY OF INSURANCE COMPANY OF PAKISTAN

Abstract

Insurance companies are one of the vital financial sector which constitute the most substantial proportion of all sectors. The intention of the study is to check the impact of corporate governance and capital structure on financial performance from insurance sector of Pakistan. The present study used secondary data from the annual reports of insurance companies and also from others sources like different articles, journals, thesis and insurance companies’ websites from 2016-2020 have been studied based on the panel data. Population of this study based on all companies (financial and non-financial) listed on PSX in which the financial sectors have been taken as a target population in out of 544 companies and 35 sectors. Insurance companies have been considered as sample by using purposive sampling technique based on the data availability because data is collected from 21 companies out of 29 insurance companies and also based on the efficient performance level. Shapiro-Wilk Test, Variance Inflating Factor (VIF), Breusch-Pagan Test, Fixed Effects Model, Hausman Test and Regression Model were used to analyze the data to get the results of this study. The finding of the study indicates that the implementation of corporate governance and its dimension (MO, IO, BOD), capital structure and its dimensions (STR, LTR, DER) proceed to better financial performance and higher revenues in the insurance sector of Pakistan as shown by the study that the overall model is fit and showing significant relationship but on the basis of hypothesis corporate governance and financial performance has insignificant relationship which is rejected whereas, capital structure and financial performance has significant relationship. Correspondingly, practitioners and officials are endorsed to make such strategies that allow uncomplicated implementation of corporate governance, capital structure and its dimensions in insurance sector of Pakistan. The study proposes the strong consciousness regarding the implementation of different policies in all the practices of insurance companies especially in Pakistan as per updated codes of CG by SECP (securities exchange commission of Pakistan). In order to improve the financial performance in insurance companies in Pakistan, a strong understanding about corporate governance and capital structure must be developed by employees for a better future of insurance sector.