Corporate Governance and Firm Efficiency: Empirical Study of Pakistan
governance on firm efficiency calculated through Data Envelopment Analysis (DEA) during the period from 2008-2017 for a sample of 136 non-financial firms listed on Pakistan Stock Exchange (PSX). DEA is a non-parametric technique developed by Charnes, Cooper and Rhodes (1978) which is used to measure firm efficiency by taking different input and output variables. In this study we have used three input and three output variables for firm overall technical efficiency (OTE) measurement, input variables were Total Assets, Total Liabilities and Cost of Goods Sold (CGS) and output variables were Gross Sales Revenue (Sales), Income before Tax (IBT) and Net Income (NI). Overall technical efficiency was calculated through DEA for selected non-financial firms. In the second stage, the association between firm efficiency measured through DEA and corporate governance estimated by Corporate Governance Index has been fully confirmed in selected firms. Firm size, growth, dummy variable for financial crises 2007-09, GDP growth, and operating cash flows (OCF) were used as control variables. The results show that better implementation of CG practices by the firms will help in increasing their efficiency. In other words, better CG practices help firms to utilize their resources in the better way to produce firm outputs (sales/Profit).