Corporate Governance in Pakistan: A analysis of Agency Theory in Companies Act, 2017

Abstract

This research article explores the application of agency theory within the framework of the Companies Act, 2017, and its implications for corporate governance in Pakistan. Agency theory, which addresses the conflicts of interest between principals (shareholders) and agents (managers), is fundamental in understanding the mechanisms that ensure effective corporate governance. The article examines key provisions of the Companies Act, 2017, particularly focusing on sections that mandate transparency, accountability, and the disclosure of interests by directors. Section 184, which requires directors to disclose any interests in contracts or arrangements with the company, is analyzed in detail to demonstrate how it mitigates agency problems by reducing information asymmetry and aligning the interests of directors with those of shareholders. By incorporating both theoretical perspectives and legislative analysis, this research highlights the role of regulatory frameworks in addressing agency costs and promoting ethical managerial behavior. The study concludes that while the Companies Act, 2017, provides a robust legal foundation to mitigate agency issues, continuous monitoring and enforcement are essential to ensure its effectiveness in fostering a transparent and accountable corporate environment.