Corporate Governance Mechanism, Dividend policy, and Firm Efficiency

Abstract

This study aims to investigate the impact of the corporate governance system on dividend policy and firm efficiency while combining the Principal component analysis and Panel regression models. We employed the first method principal component analysis to estimate the governance indices for the Karachi stock exchange (KSE). The second one incorporates investigating the association between governance indices and dividend policy. In addition, Cost efficiency is estimated through data envelopment analysis and Ordinary least square employed to estimate investment efficiency. Furthermore, hierarchical regression model estimates the interaction effect of investment efficiency between corporate governance indices and dividend policy. Applying these methods for sample incorporated in 2012-19 for Pakistani listed firms in KSE. We find that the Board diversity index of corporate governance is significantly associated with dividend policy. Moreover, firms involved in high investment efficiency are moderating the relationship of the diversity index with dividend policy.