Managerial Discretion and Corporate Governance Mechanism: A Case Study of Public Limited Firms of Pakistan

Abstract

The purpose of this study is to examine the impact of board independence, CEO duality (managerial discretion) and corporate governance mechanism on firm performance measured through accounting-base measures i.e. return on assets as well as market-based measure i.e. Tobin’s Q among Pakistan's KSE-listed non-financial firms from 2011 to 2021. The study used software (STATA 12) to analyze the data of 172 firms using the Generalized Method of Movements as well as Random Effect and Fixed Effect regression models to test how each corporate governance and managerial discretion variables contributes to the firm performance. Data was extracted from the annual reports, database, and websites of KSE-listed firms. The presence of board independence contributes positively to firm performance. The study highlights that although CEO duality has no impact on firm performance, but presence of board independence controls the managerial discretion provided by CEO duality and offer the necessary resources as well as monitoring the control the managerial discretion and improve firm performance. This article makes a significant theoretical contribution by synthesizing and extending key governance theories to offer a nuanced understanding of the intricate dynamics within corporate governance (CG), particularly in the specific context of KSE-registered non-financial firms in Pakistan. This research contributes actionable insights that span governance improvement, informed decision-making, regulatory considerations, and strategic performance enhancement, offering practical benefits for the diverse stakeholders in the corporate governance landscape.