BOARD STRUCTURE AND FIRM PERFORMANCE: ANALYZING THE ROLE OF AUDIT COMMITTEE IN PAKISTAN’S MODARABA SECTOR

Abstract

The purpose of this study is to examine the effects of board structure on firm performance, with particular attention to the audit committee's mediating function in Pakistan's Modaraba sector. Panel regression analysis is used in the study to investigate these
correlations using a sample of 28 Modaraba enterprises for the period of 2013-2022. Tobin's Q is measured as a proxy for firm performance, and the results show that board size influences Tobin's Q positively, but not statistically. Tobin's Q, however, is
significantly impacted negatively by board gender diversity, indicating that in this particular context, a higher proportion of women on boards may be associated with poorer firm performance. The mediation analysis reveals that the audit committee does not play a
significant mediating role between board structure and firm performance, implying that audit committees in the Modaraba sector may be more focused on compliance and ethical oversight rather than directly influencing firm performance. The findings of the study
indicate that the financial framework and governance procedures of the Modaraba sector, which adheres to Shariah, restrict the potential impact of gender diversity and larger boards on firm performance. This is in line with stakeholder and agency theories, providing regulators and businesses with useful information on how to best maximize governance structures and board composition for improved firm performance.