This study discovers the relationship between good corporate governance and insolvency risk for financial and non-financial listed firms at Karachi stock exchange for the period 2006 to 2013. The findings provides the evidence that corporate governance is positively associated with bank insolvency risk, as proxied by the Z-Value (Z-Score).Moreover negatively allied with nonfinancial Firms (manufacturing) insolvency risk, as proxied by the O-Score and Z-score. Banks are special in that „good‟ corporate governance increases bank insolvency risk relatively more, where, in case of manufacturing firms good corporate governance reduces the insolvency risk of firms. Good corporate governance is specifically associated with higher asset volatility, lower tangible capital ratio and more non-performing loans. The results also enlighten different other factors, firm specific as well as macro, that has positive and negative impacts on firms insolvency risk in both sectors. Further, this study shows different contractions of firm specific variables and their impacts on insolvency risk as we find that capitalization, asset quality and size of the bank have negative influences on insolvency risk with negative and highly significant coefficients. Where, size of the firm has positive and significant relation with firm‟s distress. Alternatively, cash-cycle and interest coverage are negatively and highly significant to insolvency risk of the nonmanufacturing firm. Furthermore on the bases of findings one can conclude that good corporate governance encourages bank risk taking behavior. On the Other hand manufacturing side is strengthened by improving corporate governance and enjoys shareholders confidence. Supervisor: Dr. Attiya Yasmin Javid