The Impact of Corporate Governance on Firm Performance: The Mediating Role of Investment Efficiency and the Moderating Role of Financial Constraints

Abstract

The present study investigates the impact of corporate governance on firm performance, emphasizing the mediating role of investment efficiency and the moderating role of financial constraints in Pakistani firms. Using a sample of 120 non-financial firms listed on the Pakistan Stock Exchange over the period 2018–2024, data were analyzed through Partial Least Squares Structural Equation Modeling (PLS-SEM). The results indicate that corporate governance significantly enhances firm performance, both directly and indirectly through improved investment efficiency. Investment efficiency is found to partially mediate the governance–performance relationship, highlighting the importance of optimal capital allocation. Furthermore, financial constraints are observed to weaken the positive effects of governance and investment efficiency on firm performance, underscoring the conditional nature of these relationships. The study contributes to corporate governance literature by integrating mediation and moderation mechanisms and provides actionable insights for managers, investors, and policymakers seeking to enhance firm performance in resource-constrained environments.

Keywords:

Corporate Governance, Firm Performance, Investment Efficiency, Financial Constraints, Emerging Markets, PLS-SEM