IMPACT OF ORGANIZATIONAL CAPITAL, OWNERSHIP STRUCTURE, AND CAPITAL STRUCTURE ON FIRM VALUE WITH MODERATING ROLE OF AUDIT QUALITY AND TAX AVOIDANCE-EVIDENCE FROM PAKISTAN

Abstract

The current study investigates the role of organizational capital, ownership structure, and capital structure on firm performance, measured by firm value (FV) and return on equity (ROE) of 130 non-financial companies listed on the Pakistan Stock Exchange for the period 2014-2024. It's guided by the resource-based perspective (RBV) and agency theory and explores how intangible resources and the governance mechanisms influence firm performance in the context of an emerging economy. Findings from the study use dynamic panel GMM estimation and show that both ownership structure and organizational capital have a positive performance effect on FV and ROE, while director ownership has a modest or negative performance effect, and leverage reduces performance. Firm size does contribute positively to performance.

Importantly, audit quality (AQ) strengthens the positive effect of organizational capital and ownership structure on both FV and ROE. The positive effect of AQ on firm value creation demonstrates the importance of high-quality audit in contributing to firm governance. Tax avoidance had a significant moderating effect on ROE, further suggesting that viable tax avoidance is a key factor of higher profitable firms, but the moderating effect of tax avoidance on FV (Tobin Q) had a modest effect.

The contributions of this study serve as the foundation for understanding that investments in intangible assets, effective governance mechanisms, and strategic financial practices all play an important role in enhancing firm performance in Pakistan. The contributions serve not just as an empirical study for theory testing, but also practical considerations in management, investing, and policy to improve value creation.