Corporate Governance and Firm Performance in Pakistan: The Case of Karachi Stock Exchange (KSE)-30

Abstract

This paper examine the relationship between four important corporate governance mechanisms (board size, board composition, CEO/chairman duality and audit committee) and two firm performance measures (return on equity, ROE, and profit margin, PM), for a sample of 30 Pakistani listed firms between 2008 and 2009. The results provide evidence of a positive significant relationship between ROE and PM and three corporate governance mechanisms (board size, board composition and audit committee). The implication of this is that, the board size should be limited to a sizeable limit and board must be a right mixture of executive and non-executive directors. The study, however, could not provide a significant relationship between the two performance measures (ROE and PM) and CEO/Chairman duality. These results are consistent with prior empirical studies.

The Effect of Board of Directors Characteristics, Audit Committee Characteristics and Executive Committee Characteristics on Firm Performance in Oman: An Empirical Study

“…Thus, hypothesis H1b is supported. This finding is consistent with previous studies that found a positive relationship between board size and Tobin`s Q either in developed countries such as Khanchel, 2007;Larmou & Vafeas, 2010;Premuroso & Bhattacharya, 2007;Sueyoshi et al, 2010 or in developing countries like Kang and Kim (2011), Khan and Javid (2011, Kyereboah-Coleman (2007, Kyereboah-Coleman andBiekpe (2006), Ll, Kankpang andOkonkwo (2012), Najjar (2012), Obiyo andLenee (2011), Swamy (2011), Uadiale (2010) and Yasser, Entebang and Mansor (2011). One probable clarification for the positive significant association between board size and Tobin`s is that this result is supported by resource dependence theory, which postulates that the board has to be more strict when it comes to monitoring of management to ensure minimal financial fraud.…”

“…Hence, hypothesis H10 is not supported. The result of this variable is similar to previous studies that revealed positive relationship between them whether in developed countries (Dey, 2008;Khanchel, 2007) or developing countries (Abdullah et al, 2008;Nuryanah& Islam, 2011;Saibaba & Ansari, 2011;Swamy, 2011;Yasser et al, 2011). One explanation for the positive significant relationship between audit committee independence and Tobin`s Q is that this finding is supported by both agency theory and resource dependence theory where autonomy is given to make the right decision without any restriction or condition, to detect errors and to reveal them without any problems because independent reviewers are not related to the company in any way.…”

“…Several studies have generally reported a positive effect of board composition upon performance in developed countries like Nanka-Bruce (2011), O`Connell and Cramer (2010), Saibaba and Ansari (2011) and Shan and McIver (2011). Also, many researchers in the developing countries have been getting a positive relationship between the board independence and firm performance (Hasnah, 2009;Hsu & Petchsakulwong, 2010;Kang & Kim, 2011;Khan et al, 2011;Ll et al, 2012;Nuryanah & Islam, 2011;Obiyo & Lenee, 2011;Swamy, 2011;Uadiale, 2010;Yasser et al, 2011).…”

“…The audit committee independence-firm performance relationship is expected to be positive. Nevertheless, only few studies that investigated this relation in developed countries (Dey, 2008;Khanchel, 2007) and developing countries (Abdullah et al, 2008;Nuryanah & Islam, 2011;Saibab & Ansari, 2011;Swamy, 2011;Yasser et al, 2011) found a positive result.…”

Audit Committee Characteristics and Executive Committee Characteristics and Firm Performance in Oman: Empirical Study

“…The data used in this study was based on the recent two years 2011 and 2012 like previous studies (Braun & Sharma, 2007;Dey, 2008;Kim & Yoon, 2008;Yasser, Entebang, & Mansor, 2011). The next section is to provide a wide discussion of the relevant literature.…”