Corporate governance and firm performance: empirical evidence from Pakistan

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Farooq ◽  
Amna Noor ◽  
Shoukat Ali
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Firm Size ◽  
Good Governance ◽  
Positive Impact ◽  
Least Square ◽  
Local Context ◽  
Content Type ◽  
Governance Index ◽  
Governance Quality

Purpose The purpose of this research is to look into the governance–performance relationship in the context of critical firm characteristics, such as firm size. Design/methodology/approach Based on total assets, sample firms were classified as small or large. The governance index, which is based on 29 governance provisions covering the audit committee, board committee, ownership and compensation structure of the respective firm, measures governance quality among sample firms. A higher governance index indicates a higher level of governance quality and vice versa. Accounting and market value measures are used to determine firm profitability. The authors used the two-stage least square (2SLS) method of estimation of the model to eliminate the simultaneous equation bias. Findings Corporate governance (CG) appears to have a positive impact on accounting return and market indices (Tobin’s Q), but it has little impact on return on equity. In terms of firm size, larger companies profited more from better governance implementation than smaller firms that lacked these principles, thus improving CG. The findings indicate that small businesses should improve their governance mechanisms to reap the benefits of CG in terms of increased profitability. Research limitations/implications There are certain drawbacks to this research. First, the authors omitted qualitative aspects of CG from the CG index, such as the board’s decision-making process, directors’ perceptions of the board’s position and directors’ age and qualifications. Such a qualitative component will improve the governance index in the future while building the governance index. Second, as the current study only looks at the nonfinancial sector, caution should be exercised before applying the findings to the entire population. Practical implications The findings show that companies that follow good governance standards have better accounting and market efficiency than those that do not. As a result, good governance practices can help firms in developing countries improve their performance. Academic researchers, regulators, investors, lenders and practitioners can find the findings useful in establishing a true relationship between firm performance and CG practices in Pakistan. Originality/value The relationship between governance and profitability in the context of firm size is examined in this research. Firms with varying resources and ability to implement CG codes have varying effects on profitability. To the authors’ knowledge, there was a gap in the literature that addressed this topic in the local context.

Corporate governance, globalization and firm performance in emerging economies

2018 ◽  
Vol 67 (8) ◽  
pp. 1310-1333 ◽  
Author(s):  
Neha Saini ◽  
Monica Singhania
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Panel Data ◽  
Foreign Capital ◽  
Good Governance ◽  
Foreign Ownership ◽  
Foreign Firms ◽  
Content Type ◽  
Governance Practices ◽  
The Relationship

PurposeThe purpose of this paper is to examine relationship between corporate governance (CG) and firm performance for a set of 255 foreign-funded firms in the form of foreign direct investment (FDI) and private equity (PE). The authors employ a wide range of CG measures including board size, meetings, board gender and foreign ownership which are used as the proxy of globalisation and control variables like firm age, leverage, firm size and capital expenditure to arrive at a conclusion.Design/methodology/approachPanel data set of 255 (187 companies funded by foreign capital in the form of FDI, and 68 companies having foreign capital in the form PE) companies listed on Bombay Stock Exchange, for the period of eight years (2008–2015) are analysed by using static (fixed and random effects) and dynamic (generalised method of moments (GMM)) panel data specifications to examine the relationship among CG, globalisation and firm performance.FindingsThe empirical results of static model indicate the relationship between CG and performance of foreign firms, which are not very strong in India. This is due to the fact that most of the firms are not following the guidelines and regulations strictly in the initial period of sample years. Diversity in board is found as an important variable in accessing firm performance. And the authors also found that foreign firms are very particular about the implementation of CG norms. The results of GMM model highlight the interaction term of foreign ownership with governance indicators. CG is having a positive and significant impact over performance, inferring that higher foreign ownership (in the form of FDI and PE) in firm leading to positive effect on profitability.Practical implicationsThe investor’s preference of financing a unit is guided by the performance of a firm. Investors are more inclined towards high-performing firms, and hence higher profitability leads to higher inflow of capital. The result indicates that higher accounting and market performance may be achieved by good governance practices, in turn, leading to reduced agency costs. Countries with high governance scores attract more of foreign capital. Similar to the best governed countries, the companies having good governance practices attract more foreign inflows in the form of capital.Originality/valueWhile previous literature considered a single measurement framework in the form of a CG index, the authors tried to incorporate a range of CG indicators to study the effect of globalisation and CG on firm performance. The authors segregated foreign-owned funds into two parts, especially FDI and PE. This paper examined heterogeneity in the form of FDI-funded and PE-funded firms, as no prior literature is available which has evaluated different sets of foreign funds simultaneously on CG.

scholarly journals Firm- and country-level antecedents of corporate governance compliance and disclosure in MENA countries

2018 ◽  
Vol 33 (6/7) ◽  
pp. 558-585 ◽  
Author(s):  
Ahmed A. Sarhan ◽  
Collins G. Ntim
Keyword(s):  
Corporate Governance ◽  
Best Practice ◽  
Least Square ◽  
Content Type ◽  
Mena Countries ◽  
Practice Recommendations ◽  
Country Level ◽  
Voluntary Compliance ◽  
Analysis Technique ◽  
Governance Quality

Purpose This paper aims to investigate the level of compliance with, and disclosure of, corporate governance best practice recommendations and the firm- and country-level factors that can explain discernible differences in the level of compliance with, and disclosure of, corporate governance best practice recommendations in a number of Middle Eastern and North African (MENA) countries. Design/methodology/approach The authors use the widely used content analysis technique to examine the level of compliance with, and disclosure of, corporate governance best practice recommendations in a sample of listed corporations in MENA countries. In addition, the authors use the ordinary least square multiple regression analysis technique to examine the firm- and country-level antecedents of the level of compliance with, and disclosure of, corporate governance best practice recommendations. The findings are generally robust to different types of firm- and country-level factors, alternative measures and potential endogeneity problems. Findings The findings of this study are two-fold. First, the level of voluntary compliance with, and disclosure of, corporate governance best practice recommendations among MENA listed corporations is low and differs substantially across firms. Second, the evidence suggests that firm- and country-level factors, including religiosity, national governance quality and macroeconomic factors, have a positive and significant impact on voluntary compliance with, and disclosure of, corporate governance best practice recommendations. Originality/value To the best of the authors’ knowledge, this paper is the first to examine both the potential firm- and country-level factors affecting voluntary compliance with, and disclosure of, corporate governance best practice recommendations among MENA listed corporations from a neo-institutional theoretical perspective. The results of our study provide regulators and policymakers with the impetus to encourage greater efforts towards pursuing reforms that seek to improve national governance quality, economic environment and positive religious practices.

scholarly journals The governance-performance relationship: evidence from Ghana

2016 ◽  
Vol 17 (3) ◽  
pp. 285-310 ◽  
Author(s):  
Andrews Owusu ◽  
Charlie Weir
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Fixed Effects ◽  
Developing Economies ◽  
Policy Makers ◽  
Content Type ◽  
Governance Index ◽  
Code Of Corporate Governance ◽  
The Impact ◽  
Post Code

Purpose The purpose of this paper is to investigate the impact corporate governance, measured by a governance index, on the performance of listed firms in a developing economy, Ghana. It also evaluates the effect of the introduction of a code of corporate governance on compliance rates across Ghanaian firms as well as assessing the impact of the code’s introduction on firm performance for the study period 2000-2009. Design/methodology/approach The paper develops a Ghanaian corporate governance index (GCGI) containing 33 provisions to measure corporate governance quality during the pre-code and the post-code sub-periods. The authors use a panel data analytical framework and fixed effects regressions to analyse the governance-performance relationships. Findings After controlling for endogeneity, the authors find a statistically significant and positive relationship between the GCGI and firm performance. The analysis shows evidence of a statistically significant increase in the degree of compliance with the Ghanaian Code from the pre-2003 sub-period to the post-2003 sub-period. The authors also find that the introduction of the code has led to improved firm performance. However, not all elements of corporate governance appear to have a significant effect on firm performance. Research limitations/implications One limitation of this study is the development of a corporate governance index. The binary coding used to construct the GCGI may not reflect the relative importance of the different corporate governance provisions. This means that all elements included in the index are given equal weighting. Future research may assign weights to each of the corporate governance provisions but this may have the disadvantage of making subjective judgements relative to the importance of each corporate governance provision recommended by the Ghanaian Code. Practical implications These results have important implications for both policy makers and companies. For policy makers, it is encouraging for the development of a code of corporate governance to regulate firms rather than enforcing rigid laws that may not be value relevant. For companies, the improvement in compliance with a code of corporate governance can provide a means of achieving improved performance. Originality/value This paper adds to the limited evidence on the governance-performance relationship in developing economies and in particular it analyses the role of a governance index. It is also the first paper to compare the pre- and the post-code governance index-performance relationship in an African or developing country.

scholarly journals Corporate Governance in Russian electric power industry in terms of consumer requirements to its funding sources

2018 ◽  
Vol 58 ◽  
pp. 02004
Author(s):  
G.I. Sheveleva
Keyword(s):  
Power Generation ◽  
Corporate Governance ◽  
Information Disclosure ◽  
Good Governance ◽  
Electric Power Industry ◽  
Transparency International ◽  
Governance Index ◽  
Governance Quality ◽  
Corporate Governance Quality ◽  
International Good

The paper highlights a strong interest of energy consumers in attracting investment in the development of Russian power generation companies. The importance of corporate governance for enhancing the investment attractiveness of these companies is emphasized. An in-depth evaluation of their current corporate practices was carried out within the framework of the existing ownership structure. The study identified the indicators of corporate governance quality for the benefit of modern investors that are the least observed by the overwhelming majority of power companies. The indicators were obtained on the basis of whether or not the companies satisfy the criteria of the new Russian Corporate Governance Code, and the criteria of the methodologies of Standard & Poor’s, Spencer Stuart and Transparency International. The study shows a slight increase in the transparency of the companies in the post-reform period and compares it with the information disclosure by the major corporations of Great Britain, the USA and Europe. The study shows high correlation of the approach and composition of the identified indicators of the corporate governance quality for Russian power generation companies with the 2017 Russian Corporate Governance Index. This Index is based on the international Good Governance Index methodology adapted to the Russian conditions.

scholarly journals Macroeconomic uncertainty, corporate governance and corporate capital structure

2018 ◽  
Vol 14 (3) ◽  
pp. 301-321 ◽  
Author(s):  
Yee Peng Chow ◽  
Junaina Muhammad ◽  
A.N. Bany-Ariffin ◽  
Fan Fah Cheng
Keyword(s):  
Corporate Governance ◽  
Capital Structure ◽  
Good Governance ◽  
Policy Makers ◽  
Content Type ◽  
Corporate Capital ◽  
Macroeconomic Uncertainty ◽  
Corporate Capital Structure ◽  
Governance Quality ◽  
The Relationship

PurposeThe purpose of this paper is to examine how corporate governance moderates the relationship between macroeconomic uncertainty and corporate capital structure.Design/methodology/approachThis paper employs the two-step system generalized method of moments regression, considering a sample of 907 listed non-financial firms from seven Asia Pacific countries during the period 2004-2014.FindingsThis study finds that macroeconomic uncertainty has a significant negative impact on the capital structure decisions of firms. The results also reveal that the overall effect of macroeconomic uncertainty on capital structure among firms with better governance quality is significantly negative. The evidence suggests that corporate governance acts as an effective mechanism to curb the usage of leverage during times of high volatility. Further analysis shows that board independence, the separation between the roles of CEO and chairman of the board and blockholders’ ownership are effective governance mechanisms, whereas similar observations do not hold for board size and institutional ownership.Research limitations/implicationsThe findings of this study may be useful to policy makers to formulate appropriate policies to mitigate the adverse effects caused by macroeconomic uncertainty. This is important because macroeconomic uncertainty may have potential destabilizing effects on a country’s or region’s development by jeopardizing the firms’ ability to formulate sound investment, production and financing decisions. Additionally, the results suggest that good governance quality can act as a check and balance to ensure that firms use less leverage when they are facing volatility in the macroeconomic environment. These findings could help to reinforce the importance of good governance among policy makers of a country as well as managers of firms.Originality/valueThe authors make the first attempt to examine the moderating effect of corporate governance on the relationship between macroeconomic uncertainty and corporate capital structure.

scholarly journals The Influence Of Corporate Governance, Capital Structure, and Company Size on The Company's Financial Performance

2021 ◽  
Vol 5 (2) ◽  
pp. 98-108
Author(s):  
Muhammad Abdul Izzatur Rahman ◽  
Subagio Subagio
Keyword(s):  
Corporate Governance ◽  
Capital Structure ◽  
Financial Performance ◽  
Firm Size ◽  
Financial Services ◽  
Good Governance ◽  
Positive Impact ◽  
Company Size ◽  
Bank Capital ◽  
The Impact

This study aims to examine the effect of the implementation of corporate governance, capital structure, and firm size on the financial performance of banking companies. The implementation of good corporate governance is an obligation that must be carried out by companies which already have guidelines from the Financial Services Authority and other institutions. In fact, not all companies have applied good governance even though it can improve the performance of the company so it becomes interesting to study the impact of good governance implementation in Indonesia. This study uses panel data regression analysis with research samples from banking companies listed on the Indonesia Stock Exchange (IDX) from 2017 to 2019. The results of the study as overall show that corporate governance, capital structure and firm size have a positive effect on the company's financial performance. Managerial ownership as corporate governance proxy has a significant positive impact on financial performance partially. Keywords: bank, capital structure, corporate governance, company size

Impact of corporate governance attributes on cost of equity

2019 ◽  
Vol 34 (2) ◽  
pp. 142-161 ◽  
Author(s):  
Varnita Srivastava ◽  
Niladri Das ◽  
Jamini Kanta Pattanayak
Keyword(s):  
Corporate Governance ◽  
Emerging Economies ◽  
Audit Committee ◽  
Local Context ◽  
Special Focus ◽  
Cost Of Equity ◽  
Content Type ◽  
Governance Index ◽  
Ease Of Access ◽  
The Cost

Purpose The purpose of this study is to construct a comprehensive Indian corporate governance index in light of the recently introduced Companies Act, 2013, which is further validated by analyzing its impact on the cost of equity of a firm. Design/methodology/approach Based on the hand-collected data from firms listed on S&P BSE 500 from 2001 to 2016, this index comprises seven equally weighted sub-indices, comprising a total of 43 corporate governance attributes. This index and the sub-indices have further been regressed with the cost of equity of a firm. Findings The results suggest a negative significant relationship between the overall corporate governance and the cost of equity. The study also suggests that among all the sub-indices, board composition predicts the cost of equity to a greater extent. Other than this, the audit committee sub-index has a negative significant association with the cost of equity. The findings imply that a well-governed firm enjoys ease of access to equity finance from the market. Originality/value The corporate governance index is based on the recent regulatory reforms introduced in India. The index, with certain changes suitable to the local context, can be applied to similar emerging economies as well. The causal relationship tested using this method is the first one done in India. This study adds to the domain of corporate governance literature with special focus on the construction of an index for an emerging economy.

Dual-class firms and governance: an acquisition perspective

2015 ◽  
Vol 41 (11) ◽  
pp. 1221-1235 ◽  
Author(s):  
Ashrafee Tanvir Hossain
Keyword(s):  
Good Governance ◽  
Positive Impact ◽  
Content Type ◽  
Corporate Takeovers ◽  
Governance Quality ◽  
Return On Sales ◽  
Dual Class ◽  
Term Performance ◽  
The Impact

Purpose – The purpose of this paper is to examine the impact of governance quality on firms with multiple voting structures. Design/methodology/approach – The sample includes 487 acquisitions undertaken by dual-class firms from 1996 to 2009. The author used event studies (Patell, 1976) for short-term performance analysis around merger announcement dates; Berkovitch and Narayanan (1993) methods to identify the motive behind these transactions; and standard benchmark adjusted return on assets (and return on sales) (Barber and Lyon, 1996) and BHAR (Mitchell and Stafford, 2000) to analyze long-term post-acquisition performance. Findings – First, dual-class acquirers with better governance quality show stronger performance around takeovers which indicates that these firms make better acquisition decisions. These results hold even after controlling for different firm and deal characteristics. Second, transactions undertaken by acquirers with good governance show little or no sign of agency motive. This reinforces the findings in first. Third, the author reports that acquirers with above-median governance quality display stronger long-term post-acquisition operating as well as stock performances. These results are robust to different benchmarks used for this study. Originality/value – This paper expands the literature on dual-class firms by showing the impact of governance quality on acquisition activities undertaken by these firms. This is the first study to show that despite agency issues inherent in the dual-class structure, improving governance quality would have a positive impact, at least in the case of corporate takeovers.

scholarly journals Does firm performance increase with risk-taking behavior under information technological turbulence?

2018 ◽  
Vol 19 (4) ◽  
pp. 361-378 ◽  
Author(s):  
Aluisius Hery Pratono
Keyword(s):  
Firm Performance ◽  
Risk Taking ◽  
Positive Impact ◽  
Partial Least Square ◽  
Least Square ◽  
Mediating Effect ◽  
Equation Modeling ◽  
Content Type ◽  
Technological Turbulence ◽  
Risk Taking Behavior

Purpose This paper aims to contribute to the risk management studies in small and medium enterprises (SMEs) by examining the complicated relationship between risk-taking behavior and firm performance. Design/methodology/approach The study conducted a survey of the Indonesian SME owner-managers and used partial least square structural equation modeling to examine the mediating effect of pricing capability and moderating effects of information technological turbulence. Findings The results do not only confirm the positive impact of risk-taking behavior on firm performance but also identify that impact of risk-taking behavior on firm performance is more effective at the low information technological turbulence than at the high one. Research limitations/implications This study relied on information from the owner-managers in SMEs, which may bias against the perspective of their employees and the business partners. Originality/value This study advances the risk-taking behavior research in SMEs context by introducing the effect of pricing capability and information technological turbulence.

An investigation into the effect of surplus free cash flow, corporate governance and firm size on earnings predictability

2014 ◽  
Vol 22 (2) ◽  
pp. 118-133 ◽  
Author(s):  
Redhwan Ahmed AL-Dhamari ◽  
Ku Nor Izah Ku Ismail
Keyword(s):  
Corporate Governance ◽  
Cash Flow ◽  
Firm Size ◽  
Negative Impact ◽  
Governance Structure ◽  
Free Cash Flow ◽  
Least Square ◽  
Content Type ◽  
Earnings Predictability ◽  
The Impact

Purpose – Existing studies on corporate governance mainly focus on how a strong governance system enhances the valuation of firms with cash holding or free cash flow agency problem. The aims of this paper are threefold. First, it investigates the impact of surplus free cash flows (SFCF) on earnings predictability. Second, it investigates whether corporate governance variables moderate the negative impact of SFCF on earnings predictability. Finally, this study examines whether the ability of corporate governance to mitigate SFCF and improve the predictive value of earnings varies between large and small firms. Design/methodology/approach – This paper uses heteroskedasticity-corrected least square regressions upon a sample of Malaysian listed firms. Findings – This paper finds that firms with high SFCF experience less earnings predictability. It also indicates that earnings of firms with high SFCF are more predictable when institutional investors hold a large stake of shares and when a chairperson is independent. Finally, this paper reveals that the role of institutional and managerial ownership in mitigating agency conflict of free cash flow and improving earnings predictability is more prominent in larger firms. This study implies that investors still have reservations about the ability of boards to enhance earnings numbers in Malaysia, although efforts were taken to reform the corporate governance mechanisms following the Asian financial crisis. Originality/value – This research is considered as the first attempt to examine the relationships between SFCF, corporate governance, firm size, and earnings predictability in a developing county such as Malaysia. The findings of this paper serve as a wake-up call to policy makers to evaluate the importance of governance structure in enhancing earnings predictability in emerging economies.

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