Board characteristics, institutional ownership, and investment efficiency: Evidence from an emerging market

This study investigates the impact of board governance mechanism on investment efficiency (IE) in PSX-listed firms. The study also examines the role of institutional ownership (IO) in board-IE relationships. In addition, we extend our analysis to re-examine this relationship by splitting the sample into two groups, i.e., the introductory phase of corporate governance (CG) i.e., 2004 to 2013, and revised codes of CG (2014 to 2018) to examine the impact of these separately on IE. The sample data comprises 155 non-financial PSX-listed firms from 2004 to 2018. IE is measured using firms' growth opportunities. The random effect model is used to test the study's hypotheses. A robustness test is also performed to validate the study's findings. The paired-sample t-test results show a significant improvement in IE after revising the CG codes in 2012. According to the regression results, board size has a significant direct, whereas board diversity has a significant inverse effect on IE. Regarding moderating effect, IO was found to moderate the relationship between board independence and IE significantly. Furthermore, it was discovered that following the issuance of revised CG codes-2012, the level of board independence and diversity increased in PSX-listed firms; however, only diversity positively impacted IE, and board independence had no impact on IE from 2014 to 2018. Despite the issuance of revised CG codes-2012, the level of CG among PSX-listed firms is low, which is a source of concern for regulators such as the Securities and Exchange Commission of Pakistan.