Impact of corporate governance index on firm performance: evidence from Pakistani manufacturing sector

Abstract

Corporate governance is considered to have significant impact on the growth and development perspective of an economy. Sound corporate governance practices leads the economy towards the achievement of higher performance, provide sources for capital investment by increasing the creditability of shareholders. The purpose of this study is to empirically investigate the relationship of corporate governance and firm performance in terms of accounting as well as market performance i.e.to be measured by Return on asset, Return on equity and Tobin’s Q. The theoretical base to conduct the study is the demand of separation of ownership and control characterize as agency theory. The previous studies have yielded inconsistent result. To achieve the purpose 58 textile sector companies were selected listed in the Karachi stock exchange and data was taken from annual reports of the companies for the period of 2009 to 2013. Descriptive statistics, correlation analysis and regression estimation using pooled, fixed effect, random effect and Hausman specification test were carried out after developing a composite index based on 21 proxies. The result entails that corporate governance index (CGI) and firm performance has positive and significant association but the relationship for each specific index is dependent upon the measure of firm performance. The result also shows that companies having strong corporate governance mechanism has greater chances to acquire finance. The implication of study demands that the reform effort should be directed towards the improvement in internal corporate governance mechanism and regulatory framework for the governance system.

Earnings Quality: A Missing Link between Corporate Governance and Firm Value

“…Consequently, cost of capital of well governed firms will be lower accompanied by higher value. These findings are consistent with Ben (2014), Javaid and Saboor (2015), and Narwal and Jindal (2015).…”

The Effect of Corporate Governance and Premium Growth on the Performance of Insurance Companies in Indonesia

“…In addition to the growth of premiums, financial performance is also influenced by corporate governance. This is supported by Javaid and Saboor (2015) who state that corporate governance has a positive and significant impact on financial performance, corporate governance will improve the financial performance of a company. But this inconsistency still means there is still a research gap, as proposed by Purwani (2010) with the findings obtained that the implementation of corporate governance does not directly affect the company's performance.…”

“…Corporate governance has a positive and significant influence on financial performance because the basic principles of corporate governance have a purpose to provide progress to the financial performance of a company. The better the corporate governance in a company, the better the performance of the company (Javaid and Saboor, 2015). The signal theory, proposed by (Desai 2004, andBhattacharya et al, 2012) also supports performance.…”

“…The inconsistency of empirical research can be based on the size of the sample, short time period and the application of construction research is not a metric of financial research to measure company performance. Javaid and Saboor (2015) states that the Corporate Governance index (CGI) and the corporate performance have a positive and significant relationship. Okiro et al (2015) revealed that there is a positive and significant relationship between Corporate Governance and company performance.…”

“…in South Korea Corporate Governance with family control has a negative influence related to company performance. Research conducted by Javaid and Saboor (2015) states that Corporate Governance has a significant impact on achievement of higher corporate performance, but according to Tertius and Christiawan (2015) Corporate Governance as measured by board of Commissioners and managerial ownership has no significant effect on ROA. Meanwhile, independent commissioners and firm size have a negative and significant impact on ROA.…”