Abstract

This study examines the effect of operational efficiency and institutional ownership on the cost of debt, providing valuable insights for managers in shaping financial policies within organizations. Using a dataset of Pakistani companies spanning the period 2009 to 2024, the analysis employs the factor effect model to explore the proposed relationships. In this framework, operational efficiency and institutional ownership are considered as the independent variables, while the cost of debt serves as the dependent variable. The findings of our study reveal that institutional ownership has a significant positive effect on the cost of debt, suggesting that greater ownership by institutions may increase monitoring, thereby influencing borrowing conditions. Similarly, operational efficiency is also found to have a strong positive effect on the cost of debt, indicating that firms with improved efficiency are more likely to experience changes in their financing costs. Overall, the study establishes a positive relationship between institutional ownership, operational efficiency, and the cost of debt, contributing to the literature on corporate governance and financial management.