Implications of corporate governance on financial performance: an analytical review of governance and social reporting reforms in India

Abstract

Currently the corporate governance reforms in India are at cross roads where though the intention behind the reforms is good yet there is a need to look for a complete solution addressing country specific challenges in Indian context. Keeping pace with developments at international level, India also introduced reforms for improving corporate, social and environment disclosures. This paper explores the effectiveness of these corporate governance reforms by analyzing the corporate governance practices followed by Indian companies in two reform periods (FY 2012-13 as Period 1) and (FY 2015-16 as Period 2). Considering mandatory regulations as per clause 49 of Listing agreement with Securities exchange board of India and the governance norms in the new Company Act, 2013, a corporate governance performance (CGP) index is developed to measure corporate governance score of Indian companies. Though there is a significant improvement in corporate governance structures implied by Indian companies but the number of independent directors inducted in the board decreases after the reforms in period 2. All the sectors under study show a significant improvement in following corporate governance practices after the reforms. The study reported a significant relationship between integrated framework of total corporate social performance and financial performance only in period 1. Corporate governance reforms do not impact financial linkages in Indian market in period 2.

An emerging economy perspective on corporate sustainability reporting – main actors’ views on the current state of affairs in Pakistan

“…Regulators are trying to make it mandatory. Mandatory SR is considered as the ultimate solution for raising transparency and accountability of the companies towards sustainability performance (Gatti et al 2018;Goel 2018;Bissoon 2018). However, there is some resistance by businesses as they are concerned about increased compliance and the possibility of increased corruption.…”

“…Some important insights are provided by researchers that have explored the perception of non-managerial stakeholders. Different studies of Belal and Roberts 2010;Nurunnabi 2016;Hossain et al 2017;Masud et al 2017Masud et al , 2018aMajeed et al 2015;Mahmood et al 2018;Malik and Kanwal 2016;Goel 2018;Hu andLoh 2018, Masud andHossain 2012, confirms that stakeholders favoured mandatory reporting and consider SR as an important mechanism to discharge accountability in a democratic and transparent manner. Stakeholders view the current practice as having failed to meet expectations.…”

“…Moreover, Masud et al 2018a, b andBae et al 2018 found that South Asian countries updated corporate governance and SR regulation explicitly and implicitly enhance social and environmental disclosure practice and the argument is also consistent with Mahmood et al 2018;Ehsan et al 2018;Yunis et al 2018 andIqbal et al 2018 (Pakistan). Moreover, mandatory CSR regulation of India since 2013 significantly encourages SR implementation in the country (Gatti et al 2018;Goel 2018).…”

Impact of Corporate Governance on Financial Performance of Information Technology Companies

“…Bae and Goyal [1] analyzed the corporate governance practices followed in Korean companies and reported that equity market performance has direct and positive relationship with adoption of good corporate governance practices.Dua and Dua [6] documented that appropriate disclosure of corporate governance efforts leads to improvement in the market value of Indian companies. Goel [7] found that better Corporate governance results in improvement in financial performance of Indian companies. Contrary to the above research findings, few studies reported no correlation between corporate governance and financial performance of companies.…”

“…Different researchers have used different approaches to assess the financial performance of firms, i.e., Accounting Ratios [8], [2] or Market Valuation Ratios [10] or Mixed ratios [14], [7]. The study has used the first approach, i.e., Accounting Ratios and has taken Return on asset (ROA), and Return on Equity(ROE) as measures for assessing the financial performance of IT companies as these are profitability accounting ratios which are strategically crucial for all business undertakings.…”