World Governance Indicators and Stakeholder Value: An Empirical Investigation of Non-Financial Listed Firms of Pakistan Stock Exchange

Abstract

The purpose of this study is to investigate the relationship between governance indicators and the financial performance of firms in Pakistan. Government effectiveness, rule of law, regulatory quality, political stability, lack of violence/terrorism, and control of corruption are the major areas that have been tested on the stakeholders’ value. The data of World Governance Indicators (WGI) has been taken from website of world bank and data on individual firms to look at how institutional quality affects financial performance of non-financial companies listed in Pakistan Stock Exchange (PSX) downloaded from the State Bank of Pakistan (SBP) and the websites of the relevant companies. The data was checked through the regression analysis performed by STATA-17. The results are contrary; no factor is prominent in the case of ROE. The reforms in policy are necessary to promote sustainable business growth in Pakistan by improving institutional bases, improving regulatory prosecution, and increasing transparency. These results determine the difficulty of the governance-performance linkages in developing countries.

Keywords: Word Governance Indicators, ROE, PSX, Stakeholders’ Value