Like other emerging and developing economies of the world, business groups dominate the Pakistani economic landscape. The political economy of the country makes it easier for business groups to take bold business decisions in uncertain and inconsistent policy regimes. By incorporating new subsidiaries and affiliates, business groups are better able to fetch new business opportunities as they arise. A firm’s affiliation to a well-reputed group reduces the perceived risk of banks, customers, suppliers, and other stakeholders and enables it to avail of better and cheaper goods, services, and facilities. It even gets better access to credit when individual companies struggle in distress and a sluggish economy. Even though group-affiliated companies are generally operationally efficient, these firms face unique conflicts within their boards i.e. directors from controlling business groups face a dilemma to uphold the parent group’s interest at the expense of the firm’s long-term interests. This includes making such firms to be a cash cows for their parents by paying unsustainably high dividends, investing in riskier group endeavors by increasing debt in their capital structures, passing better business opportunities to other group firms, etc. In many cases, they involve in unfair practices like transfer pricing to tunnel their resources to groups’ other flagship companies. This study tries to determine how group affiliation benefits these firms in the presence of such principal-principal conflicts. This research tracked the financial performance of Pakistani firms for the six years from 2014 to 2019 in light of corporate governance measures, the presence of strategic block shareholding, capital structure, and related party transactions. The sample is composed of KSE-100 share index companies in the manufacturing and non-financial service sectors of the Pakistan Stock Exchange. Factor scores were generated to moderate the relationship between financial performance and group affiliation in MLA regression. The research concludes that group affiliation significantly adds to the ROE. Sound corporate governance structures, block holding, and leverage greatly enhance the group affiliation’s positive effect on ROE. In light of its findings, the study proposes the definition and characteristics of good group governance. In the end, the study put forward its recommendations to regulators, investors, and future scholars to watch for the best corporate and group governance practices
