This study provides the evidence on the effect of managerial ownership on the firm’s performance and financial policies through the induction of agency theoretic approach. It includes 140 non-financial firms of the manufacturing sector of Pakistan. An interdependent relationship is investigated between firm’s performance variables, financial policy variables and managerial share ownership of the firms and to tackle the simultaneity, technique of generalized method of moments is applied. Panel data estimation technique is used for this purpose and both fixed and random effect models are estimated. Firstly, effect of managerial ownership on dividend and leverage polices of the firm is investigated the result implies that financial policies of firms are strongly affected by managerial ownership. Secondly, the impact of managerial ownership on the performance of the firms is undertaken. Thirdly, the response of managerial share ownership is examined on the agency cost of the firms under consideration. Managerial ownership is divided in three levels, low level (below 10%), moderate level (10%-25%) and high concentrated level (above 25%). The study finds conclusive evidence that managerial ownership exerts significant and positive influence on firm performance only up to a moderate level. The relationship revolves around the cubic function of managerial ownership and firm performance by following convergence of interests (Incentive alignment theory) and entrenchment theories. Furthermore, study reveals negative association of managerial ownership and agency cost captured by asset utilization ratio. The results show that managerial ownership is an important instrument to reduce agency cost in case of manufacturing sector of Pakistan. Supervisor:- Dr. Attiya Yasmin Javid