World Applied Sciences Journal 32 (7): 1369-1380, 2014 ISSN 1818-4952 © IDOSI Publications, 2014 DOI: 10.5829/idosi.wasj.2014.32.07.543 Corresponding Author: Hamid Ullah, Institute of Management Sciences, Peshawar, Pakistan. 1369 The Mediating Role of Multiple Banking Relationships in Managerial Ownership and Firm Value Hamid Ullah and Attaullah Shah Institute of Management Sciences, Peshawar, Pakistan Abstract: The objective of this study is to investigate thoroughly the impacts of managerial share ownership and number of banking relationship on the firm value specifically in the context of emerging markets. This study mainly focused on the mediating role of the diffused banking relationship in managerial ownership and performance of the firm. In order to test for the relationship, a panel data sample of one 150 non-financial firms has randomly selected from the Karachi stock exchange KSE- All index. Correlations and 2SLS regression model have been used resultantly for the analysis of data. The analysis suggested that the firm value has a significant relationship with the diffuse number of banks in relationship. Moreover, the analysis also envisaged the substitute effect of the managerial share ownership with the number of banks in relation. The firm with higher concentrated managerial ownership has a positive relation with the number of banks in relation; but the highly diffused banking relation has a negative impact on the firm value in case if managers have not provided proper incentives. This study has been based on the panel data of 150 non-financial firms, so same study can be conducted for the financial firms. Similarly, in order to investigate cross-sectional variation, more emerging countries panel data can be analyzed subsequently. Sectorial analysis can be conducted, while including dummy variable to incorporate sectorial variation across the different sectors. This study has implications for firm managers and owners as well as regulators. If the firm compensation plan is not employee’s motivational then multiple banking relationships can solve the agency problem through monitoring. Similarly, regulators can make rules to minimize and mitigate the conflict of interests between managers and firm owners through the mediating role of the banking industry. This is the first study up to the date which has studied this interrelationship of the managerial ownership and firm value, while addressed the endogenous role of the diffused bank system. Key words: Corporate Governance Emerging Markets Multiple Banking Relationship Firm value Managerial share ownership INTRODUCTION Pakistan is emerging economy, where firms having One paramount characteristic of emerging conflict between principal and agent that is directly markets is under developed capital markets. affecting the firm value. Managers take such decisions, Where firms mainly rely on the bank’s debt and it is which are not aligned with the shareholder’s interest and consider as the only available source of external funds. prioritize their interests due to weak governance structure Therefore, bank monitoring plays a vital role in the [5-6]. The bank-firm relation becomes one of the emerging markets. A good numbers of studies significant areas of research in Pakistan, after the documented the impacts of bank debts and bank publication of corporate governance code 2002 for monitoring on the firm performance in the developed publicly listed companies’ by security exchange economies [1-4]. However, the correlation of bank commission of Pakistan (SECP). Now the firms have monitoring and its impact on the firm in emerging developed internal governance mechanism based on economies has not been investigated and studied management stock option, management compensation well. and employment of high-level debts or multiple banking weak governance structure frequently lead to agency