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Assessing the Impact of Corporate Governance on Non-Performing Loans: Empirical Analysis of the Listed Commercial Banks of Pakistan Vol. IV, No. III (Summer 2019) 189 Hence, it is reported that CG plays its important role to attract capital flows into the banking industry. Moreover, it is reported that CGimplementation in the banking sector of Pakistan are only recently scratching implementation. Hence, the Central Bank of Pakistan is reforming its prudential regulations in light of the CG code and is also focusing on its effective implementations. Among the number of indicators, Non-Performing Loans (NPLs) act as an indicator of the credit risk of an economy as well as business failures (Williamson, 1987). Moreover, other studies reported that a comparison of a country’s net charge off rate to losses of loans represents the instability of the banking system (Keeton & Morris, (1987). Similarly, it is found that NPLs may act as a determinant of economic performance. However, it cannot directly affect economic performance (Drees & Pazrbasioglu, 1998). Moreover, it is demonstrated that NPLs not only affect a single economy adversely but it also create a warning situation for the world capital markets. Therefore, each economy takes initiatives to identify distinct factors on their behalf which are responsible for NPLs (Adebola, Yousaff, & Dahalan, 2011). Moreover, the research on NPLs emerged after the financial crisis (Saba et al., 2012). Hence, it is concluded that CG acts as a mechanism tool to reduce NPLs and in the perspective of Pakistan as a developing economy in this paper its role is empirically investigated. The Securities and Exchange Commission of Pakistan is one of the major regulatory bodies to regulate and implement the good CG practices at the corporate level. Moreover, the CG code of Pakistan is assisted through guidelines of the Asian Development and World Banks. In addition, the Pakistan Stock Exchange (PSX) established a board committee to monitor the CG practices at the corporate level. Moreover, a section was established at the company affairs division and was assigned the responsibility to monitor firms’ reports to ensure compliance with the CG code. According to the CG code of Pakistan, shareholders have many rights and listed firms are responsible to protect their rights. Companies are responsible to disclose transparent information. Similarly, regulatory authorities have the power to ensure the implementation of good CG practices such as transparency. Effective and efficient systems of governance affect financial system performance. Moreover, indicators of financial performance are measured in different ways (Kaufmann et al., 2008). Hence, among these factors, the most effective factors that affect the quality of asset of financial firms are NPLs. In addition, in developing economies the inefficient judicial systems, bureaucracy and political level corruptions can accelerate NPLs and such practices slow down the loan processing procedures and recovery process (Creane et al., 2004). The level of NPLs can be reduced through an efficient regulations system. NPLs are high because of the weak institutional system. Hence, the level of true information disclosures is low due to corruption in Pakistan. Moreover, it is concluded that both country and corporate level governance systems are needed in the current situation to control the mismanagement of financial systems. Similarly, Vishny and Shleifer (1997) concluded that to create an environment to protect the interests of investors CG mechanisms are necessary to implement. Finally, in light of the above discussion it is concluded that the practices of CG and its implementation to control NPLs in the context of developing economy are required to empirically investigate matters. Thus, in this paper the impact of CG on NPLs of banks listed on PSX is investigated.