Corporate Governance and Downside Systematic Risk with a Moderating role of Socio-Political in Pakistan

Abstract

This research investigates the effect of corporate governance on downside systematic risk with moderating effect of socio-political factor. Corporate governance covers key areas such as board structure, ownership structure and audit quality. The research used two proxies, terrorism and assassination, to construct socio-political index, whereas downside-CAPM of Estrada (2002) is used as a measure of systematic risk. Using a sample of 201 non-financial firms from 2003 to 2014, this study has used the Arellano-Bond Dynamic Data-Estimation regression approach to uncover the relationship. Results revealed that the corporate governance mechanism reduces the firm’s downside systematic risk and socio-political factor moderates the relationship between corporate governance and downside systematic risk.