IDEAS home Printed from https://ideas.repec.org/a/ani/irdjom/v4y2022i2p398-408.html

Impact of Board Characteristics, Firm Level Factors and Political Connections on Cost of Capital: Evidence from Pakistan

Author

Listed:
  • Muhammad Bilal Ijaz

    (Lecturer, Department of Management Sciences, University of Gujrat, Gujrat, Pakistan.)

  • Awais Javeed

    (Lecturer, Department of Management Sciences, University of Gujrat, Gujrat, Pakistan)

  • Sahar Afshan

    (M.Phil Scholar, Department of Management Sciences, University of Gujrat, Pakistan)

Abstract

The purpose of the study is to analyze the impact of board characteristics, firm level factors and political connections on cost of capital. The sample of study comprises of 175 non-financial companies listed on Pakistan Stock Exchange from 2008 to 2021. Fixed effect model is used for analysis of data. The findings revealed that Increasing board independence and leverage has a negativeinfluence on the cost of capital. Whereas, Board size, Audit committee size impact the cost of capital positively. The study resolute that the cost of capital is not influenced by political connections, firm size, or institutional ownership. The research identified that there was a decline in the cost of capital, along with an increase in board independence and leverage. In addition, the cost of capital is unaffected by political connections, the size of firms and institutional shareholdings. In contrast, the cost of capital grew due to an increase in the size of the Board and the Audit Committee. The study suggests that In Pakistan non-financial firm’s maximum family own business and very low focus on management and foreign owners. Alternative prospective of managerial and foreign ownership firms should minimized the agency problems as family ownership. And for the best improvement of corporate governance board of directors should bring a transparency, accountability and fairness financial reporting.

Suggested Citation

  • Muhammad Bilal Ijaz & Awais Javeed & Sahar Afshan, 2022. "Impact of Board Characteristics, Firm Level Factors and Political Connections on Cost of Capital: Evidence from Pakistan," iRASD Journal of Management, International Research Alliance for Sustainable Development (iRASD), vol. 4(2), pages 400-410, june.
    • Handle: RePEc:ani:irdjom:v:4:y:2022:i:2:p:398-408
    DOI: 10.52131/jom.2022.0402.0087
    as

    Download full text from publisher

    File URL: https://journals.internationalrasd.org/index.php/jom/article/view/846/498
    Download Restriction: no
    File URL: https://journals.internationalrasd.org/index.php/jom/article/view/846
    Download Restriction: no
    File URL: https://libkey.io/10.52131/jom.2022.0402.0087?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Beck, Thorsten & Demirgüç-Kunt, Asli & Maksimovic, Vojislav, 2008. "Financing patterns around the world: Are small firms different?," Journal of Financial Economics, Elsevier, vol. 89(3), pages 467-487, September.
    2. Ashraf, Junaid & Ghani, WaQar I., 2005. "Accounting development in Pakistan," The International Journal of Accounting, Elsevier, vol. 40(2), pages 175-201.
    3. Wong, Wai-Yan & Hooy, Chee-Wooi, 2018. "Do types of political connection affect firm performance differently?," Pacific-Basin Finance Journal, Elsevier, vol. 51(C), pages 297-317.
    4. Berger, Philip G & Ofek, Eli & Yermack, David L, 1997. "Managerial Entrenchment and Capital Structure Decisions," Journal of Finance, American Finance Association, vol. 52(4), pages 1411-1438, September.
    5. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    6. Roe, Mark J., 2006. "Political Determinants of Corporate Governance: Political Context, Corporate Impact," OUP Catalogue, Oxford University Press, number 9780199205301.
    7. Marcus V. Braga‐Alves & Kuldeep Shastri, 2011. "Corporate Governance, Valuation, and Performance: Evidence from a Voluntary Market Reform in Brazil," Financial Management, Financial Management Association International, vol. 40(1), pages 139-157, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rana El Bahsh & Ali Alattar & Aziz N. Yusuf, 2018. "Firm, Industry and Country Level Determinants of Capital Structure: Evidence from Jordan," International Journal of Economics and Financial Issues, Econjournals, vol. 8(2), pages 175-190.
    2. Keasey, Kevin & Martinez, Beatriz & Pindado, Julio, 2015. "Young family firms: Financing decisions and the willingness to dilute control," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 47-63.
    3. Mateev, Miroslav & Poutziouris, Panikkos & Ivanov, Konstantin, 2013. "On the determinants of SME capital structure in Central and Eastern Europe: A dynamic panel analysis," Research in International Business and Finance, Elsevier, vol. 27(1), pages 28-51.
    4. Wei Huang & Agyenim Boateng & Alexander Newman, 2016. "Capital structure of Chinese listed SMEs: an agency theory perspective," Small Business Economics, Springer, vol. 47(2), pages 535-550, August.
    5. Tan, Monica & Liu, Bin, 2016. "CEO's managerial power, board committee memberships and idiosyncratic volatility," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 21-30.
    6. repec:jaf:journl:v:9:y:2018:i:1:n:107 is not listed on IDEAS
    7. Keith D. Harvey & Ronald E. Shrieves, 2001. "Executive Compensation Structure And Corporate Governance Choices," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(4), pages 495-512, December.
    8. Xin Qu & Majella Percy & Fang Hu & Jenny Stewart, 2022. "Can CEO equity‐based compensation limit investment‐related agency problems?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2579-2614, June.
    9. Irene Wei Kiong Ting & Imen Tebourbi & Wen-Min Lu & Qian Long Kweh, 2021. "The effects of managerial ability on firm performance and the mediating role of capital structure: evidence from Taiwan," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-23, December.
    10. Chang, Ya-Kai & Chou, Robin K. & Huang, Tai-Hsin, 2014. "Corporate governance and the dynamics of capital structure: New evidence," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 374-385.
    11. Vo, Xuan Vinh, 2017. "Determinants of capital structure in emerging markets: Evidence from Vietnam," Research in International Business and Finance, Elsevier, vol. 40(C), pages 105-113.
    12. Demirgüç-Kunt, Asli & Horváth, Bálint L. & Huizinga, Harry, 2017. "How does long-term finance affect economic volatility?," Journal of Financial Stability, Elsevier, vol. 33(C), pages 41-59.
    13. Henrik Cronqvist & Fredrik Heyman & Mattias Nilsson & Helena Svaleryd & Jonas Vlachos, 2009. "Do Entrenched Managers Pay Their Workers More?," Journal of Finance, American Finance Association, vol. 64(1), pages 309-339, February.
    14. Yusuf, Fatima & Yousaf, Amna & Saeed, Abubakr, 2018. "Rethinking agency theory in developing countries: A case study of Pakistan," Accounting forum, Elsevier, vol. 42(4), pages 281-292.
    15. Chakraborty, Atreya & Gao, Lucia Silva & Sheikh, Shahbaz, 2019. "Managerial risk taking incentives, corporate social responsibility and firm risk," Journal of Economics and Business, Elsevier, vol. 101(C), pages 58-72.
    16. Mónica López-Puertas Lamy, 2012. "How does Ownership Structure Influence Bank Risk? Analyzing the Role of Managerial Incentives," Working Papers 1208, Departament Empresa, Universitat Autònoma de Barcelona, revised Nov 2012.
    17. Ayman Hassan Bazhair & Mohammed Naif Alshareef, 2022. "Dynamic relationship between ownership structure and financial performance: a Saudi experience," Cogent Business & Management, Taylor & Francis Journals, vol. 9(1), pages 2098636-209, December.
    18. de Jong, A., 2001. "The Disciplining Role of Leverage in Dutch Firms," Discussion Paper 2001-48, Tilburg University, Center for Economic Research.
    19. Nicholas Apergis, 2020. "Financial market imperfections and profitability: New evidence from a large panel of US SME firms," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 39(2), pages 220-241, March.
    20. Erwan Morellec & Boris Nikolov & Norman Schürhoff, 2018. "Agency Conflicts around the World," The Review of Financial Studies, Society for Financial Studies, vol. 31(11), pages 4232-4287.
    21. Bing Wang & Si Xu & Kung-Cheng Ho & I-Ming Jiang & Hung-Yi Huang, 2019. "Information Disclosure Ranking, Industry Production Market Competition, and Mispricing: An Empirical Analysis," Sustainability, MDPI, vol. 11(1), pages 1-16, January.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ani:irdjom:v:4:y:2022:i:2:p:398-408. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Pranav Kumar (email available below). General contact details of provider: https://journals.internationalrasd.org/index.php/jom/index .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.