Board Independence, Ownership Structure and Firm Performance: Evidence from Pakistan

The present study carried out to examine the relationship between ownership structure, board independence and firm performance of eighty listed firms at KSE for the period of 2005-2009. Performance is evaluated with the help of market based and accounting based performance measures. Marris ratio and Tobin‟s Q are used as estimators of market performance, while ROA, ROE has been used as accounting performance estimators. Percentage of shares held by CEO, directors, their spouses and children are used as proxy of Ownership structure. Percentage of independent directors on board and board size has been used as proxy for board independence. Size and leverage have been used as control variables. Common effect model has been applied as data analysis technique to test the significance of these relationships. The study found significant positive effect of board size on both market based and accounting based performance measures and significant negative effect of insider ownership on ROA, while board independence has significant positive impact on market based performance measures. The research is limited to the number of companies selected as sample and one dimension of ownership structure. Other dimension of ownership structure may have more influential and generalizeable results. The study provides the valuable information regarding board size and managerial ownership that form a significant part of decision making of companies.