This study is conducted to identify how agency cost and employee benefit obligation impact financial distress while taking foreign ownership as a moderator. The agency cost and employee benefits obligation acted as independent variables, while financial distress was the dependent variable, and foreign ownership was the moderator variable. The study uses a sample of 210 non-financial firms listed on the Pakistan Stock Exchange (PSX) over a period from 2017 to 2021.OLS regression was used to compute the results, and it showed that the agency cost has a significant negative impact on financial distress. It means that when agency costs increase, financial distress will decrease. Company financial health gets worse. When we discuss the moderating role of foreign ownership, the analysis suggests that it has a positive impact on financial distress. This means that in the case of foreign ownership, the company's financial health becomes better. The above discussion in the introduction section also suggests that foreign ownership presence in the firm affects employee benefit obligation. Foreign investors typically demand higher transparency and prudent financial governance, including proper disclosure and funding of employee benefits.

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*Corresponding author: Correspondence: bsf2104194@ue.edu.pk

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