Effect of Corporate Governance and Financial Leverage on Market value Added in Pakistan

Abstract

This paper examines the impact of corporate governance rules and regulations and financial leverage on the market value added in Pakistan. Market value added (MVA) is our dependent variable and corporate governance and financial leverage are our independent variables and examine their combined effect on the market value added. This study will help the Pakistani firms who are going to lever their firms and going to practicing the corporate governance rules and regulations. For this purpose we have taken the listed non-financial companies of Pakistan from 2006-2015 because they are actively practicing the corporate governance rules and regulations. The results indicate that the proxy variable of corporate governance which is board size also have the significant and negative impact on the MVA in Pakistan. Interest coverage ratio indicates that if the firm's ability to pay its interest expenses increases as results MVA also increases. Debt ratio is the proxy variable of financial leverage which is our next independent variable. By the help of our regression model we concluded that Debt also have the positive significant effect on the market value added on the firms in Pakistan. It means if a firm wants to increase their market value they should go for the debt instead of equity. Debt will help firms in Pakistan to increase their market value.