Yoke of Corporate Governance and Firm Performance: A Study of Listed Firms in Pakistan

Ali, Amjad and Alim, Wajid and Ahmed, Jawad and Nisar, Sabahat (2022): Yoke of Corporate Governance and Firm Performance: A Study of Listed Firms in Pakistan.

Abstract

The objective of this exploration is to show the relationships between corporate governance tools (board size, board independence, CEO status, Board Education, and Established Years of the firm) and firm performance which is determined by the return on asset (ROA). Quantitative data are used to discover the association between the variables. The top 75 companies registered on the Pakistan Stock Exchange involving the period from 2010 to 2019 are taken as a sample. The research found that there is a connection between the performance of the firm with the overall extent of directors, board independence, and average education of board representatives. Insignificant results came for CEO duality and established years of the firm. The result predicted that an increase in total board members and average education of board members will increase firm performance (ROA), whereas a reduction in board independence will reduce firm performance (ROA) which explains the importance of corporate governance for the success of firm performance. Unlike the previous studies, this study tried to find the long-term influence of corporate governance on firm performance by analyzing five different variables for the listed firms in Pakistan. The study provides the importance of corporate governance tools and their effectiveness for the success of organizations, especially in Pakistan.

• Item Type: MPRA Paper
• Language: English
• Keywords: Board education, board independence, the board size, CEO duality, corporate governance, firm performance, Pakistan, return on asset
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance; G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General

References

Abdullah, S. N. (2004). Board composition, CEO duality and performance among Malaysian listed Companies. Corporate Governance, 4(4), 47-61.

Abor, J. (2007). Debt policy and performance of SMEs: Evidence from Ghanaian and South African firms. Journal of Risk Finance, 8(4), 364-379.

Agrawal, A., & Knoeber, C. (1996). Firm performance and mechanisms to control agency problems between managers and shareholders. Journal of Financial and Quantitative Analysis, 31, 377-397.

Akhtar, S., Khan, T., & Khan, P. A. (2020). Examine the key drivers affecting bottom line: A panel estimation study of Indian commercial bank. Journal of Critical Reviews, 7(9), 2020.

Audi, M & Ali, A. (2017). Socio-Economic Status and Life Expectancy in Lebanon: An Empirical Analysis. Archives of Business Research, 5(11), 159-170

Audi, M. & Ali, A. (2017). Environmental Degradation, Energy consumption, Population Density and Economic Development in Lebanon: A time series Analysis (1971-2014). Journal of International Finance and Economics, 17(1), 7-20.

Audi, M. Sadiq, A. Ali, A. and Roussel, Y. (2021). Performance Evaluation of Islamic and Non-Islamic Equity and Bonds Indices: Evidence from Selected Emerging and Developed Countries. Journal of Applied Economic Sciences, 16(73), 251– 269.

Audi, M., & Ali, A. (2016). A Causality and Co-integration Analysis of Some Selected Socio-Economic Determinants of Fertility: Empirics from Tunisia. Bulletin of Business and Economics (BBE), 5(1), 20-36.

Audi, M., Ali, A., & Al-Masri, R. (2022). Determinants of Advancement in Information Communication Technologies and its Prospect under the role of Aggregate and Disaggregate Globalization. Scientific Annals of Economics and Business. https://doi.org/10.47743/saeb-2022-0009.

Audi, M., Ali, A., & Roussel, Y. (2021). Aggregate and Disaggregate Natural Resources Agglomeration and Foreign Direct Investment in France. International Journal of Economics and Financial Issues, 11(1), 147-156.

Audi, M., Ali, A., & Roussel, Y. (2021). Measuring the Tax Buoyancy: Empirics from South Asian Association for Regional Cooperation (SAARC). Empirical Economics Letters, 20(12).

Audi, M., Ali, A., & Roussel, Y. (2021). The Advancement in Information and Communication Technologies (ICT) and Economic Development: A Panel Analysis. International Journal of Innovation, Creativity and Change, 15(4), 1013-1039.

Brickley, J. A., Coles, J. L., & Jarrell, G. (1997). Leadership structure: Separating the CEO and chairman of the board. Journal of corporate Finance, 3(3), 189-220.

Cadbury Committee. (1992). The Report of the Committee on the Financial Aspects of Corporate Governance, Cadbury Committee, London.

Casillas, J. C., & Pastor, F. (2015). The Top 250 Multinational Family Firms, Chair of Santander Family Business, University of Seville, Spain.

Chan, A. W., & Cheung, H. Y. (2012). Cultural dimensions, ethical sensitivity, and corporate governance. Journal of Business Ethics, 110(1), 45-59.

Chrisman, J. J. (2019). Stewardship theory: Realism, relevance and family governance. Entrepreneurship Theory and Practice, 43(3), 104225871983847.

Coles, J. W., McWilliams, V. B., & Sen, N. (2001). An examination of the relationship of governance mechanisms to performance. Journal of Management, 27(1), 23-50.

Daily, C. M., & Dalton, D. R. (1992). The relationship between governance structures and corporate performance in entrepreneurial firms. Journal of Business Venturing, 7(5), 375-386.

Daily, C. M., & Dalton, D. R. (1997a). Separate, but not independent: Board leadership structure in large corporations. Corporate Governance, 5(3), 126-136.

Deegan, C. (2004), Financial Accounting Theory, McGraw-Hill Australia Pty Ltd, NSW, New York

Dmytriyev, S. D., Freeman, R. E., & Hörisch, J. (2021). The relationship between stakeholder theory and corporate social responsibility: Differences, similarities, and implications for social issues in management. Journal of Management Studies, 58(6), 1441-1470.

Donaldson, L., & Davis, J. H. (1991). Stewardship theory or agency theory? CEO governance and shareholder returns. Australian Journal of Management, 16(1), 49-65.

Ehikioya, B. I. (2009). Corporate governance structure and firm performance in developing economies: Evidence from Nigeria. Corporate Governance, 9(3), 231-43.

Eloumi, F., & Gueyie, J. P. (2001). Financial distress and corporate governance: An empirical analysis. International Journal of Business and Society, 1(1), 15-23.

Fama, E. F., & Jensen, M. C. (1983), Separation of ownership and control. The Journal of Law and Economics, 26(2), 301-325.

Fan, J. P., Wei, K. J., & Xu, X. (2011). Corporate finance and governance in emerging markets: A selective review and an agenda for future research. Journal of Corporate Finance, 17(2), 207-214.

Floyd, S. W., & Lane, P. J. (2000). Strategising throughout the organisation: managing role conflict in strategic renewal. Academy of Management Review, 25(1), 154-177.

Goergen, M., Manjon, M. C., & Renneboog, L. (2008). Is the German system of corporate governance converging towards the Anglo-American model? Journal of Management and Governance, 12(1), 37-71.

Golden, B. R., & Zajac, E. J. (2001). When will boards influence strategy? Inclination× power= strategic change. Strategic Management Journal, 22(12), 1087-1111.

Gompers, P. A., Ishii, J. L., & Metrick, A. (2003). Corporate governance and equity prices. Quarterly Journal of Economics, 118(1), 107-155.

Gulzar, M., & Wang, Z. (2010). Corporate governance and non-listed family owned businesses: An evidence from Pakistan. International Journal of Innovation, Management and Technology, 1(2), 124.

Guo, Z., & Kumara, U. (2012). Corporate governance and firm performance of listed firms in Sri Lanka. Journal of Education, Society and Behavioural Science, 40, 664-667.

Hermalin, B. E., & Weisbach, M. S. (1998). Endogenously chosen boards of directors and their monitoring of the CEO. American Economic Review, 88, 96-118.

Houcine, A., Zitouni, M., & Srairi, S. (2021). The impact of corporate governance and IFRS on the relationship between financial reporting quality and investment efficiency in a continental accounting system. EuroMed Journal of Business, 96-108.

Hussain, S., & Safdar, N. (2018). Tunneling: Evidence from family business groups of Pakistan. Business and Economic Review, 10(2), 97-121.

Jackling, B., & Johl, S. (2009). Board structure and firm performance. Corporate Governance, 17(4), 492-509.

Jan, A. A., Lai, F. W., Draz, M. U., Tahir, M., Ali, S. E. A., Zahid, M., & Shad, M. K. (2021). Integrating sustainability practices into islamic corporate governance for sustainable firm performance: From the lens of agency and stakeholder theories. Quality and Quantity, 1-24.

Kang, E., & Zardkoohi, A. (2005). Board leadership structure and firm performance. Corporate Governance, 13(6), 785-799.

Khan, P. A., & Johl, S. K. (2019). Nexus of comprehensive green innovation, environmental management system-14001-2015 and firm performance. Cogent Business and Management, 6(1), 1691833.

Khan, P. A., & Johl, S. K. (2020). Firm Performance from the Lens of Comprehensive Green Innovation and Environmental Management System ISO. Processes, 8(9), 1152.

Khan, P. A., Johl, S. K., & Johl, S. K. (2021). Does adoption of ISO 56002‐2019 and green innovation reporting enhance the firm sustainable development goal performance? An emerging paradigm. Business Strategy and the Environment, 30(7), 2922-2936.

Kiel, G. C., & Nicholson, G. J. (2003). Board composition and corporate performance: How the Australian experience informs contrasting theories of corporate governance. Corporate Governance, 11(3), 189-205.

Krivogorsky, V. (2006). Ownership, board structure, and performance in continental Europe. The International Journal of Accounting, 41, 176-197.

Laing, D. & Weir, C. M. (1999). Governance structures, size and corporate performance in UK Firms. Journal of Management Decision, 37(5), 457-464.

Lam, T. Y., & Lee, S. K. (2008). CEO duality and firm performance: Evidence from Hong Kong. Corporate Governance, 8(3), 299-316.

Li, H. X., Wang, Z. J., & Deng X. L. (2008). Ownership, independent directors, agency cost and financial distress: Evidence from Chinese listed companies. Corporate Governance, 8(5), 622-636.

Mashayekhi, B., & Bazaz, M. S. (2008). Corporate governance and firm performance in Iran. Journal of Contemporary Accounting and Economics, 4(2), 156-172.

Miller, D., & Breton-Miller, I. L. (2006). Family governance and firm performance: Agency, stewardship and capabilities. Family Business Review, 19(1), 73-87.

Mohd Ghazali, N. A. (2010), Ownership structure, corporate governance and corporate performance in Malaysia. International Journal of Commerce and Management, 20(2), 109-119.

Nandelstadh, V. A., & Rosenberg, M. (2003). Corporate Governance Mechanisms and Firm Performance: Evidence from Finland. Helsinki: Working Papers, No. 497, Hanken School of Economics.

Pande, S., & Ansari, V. A. (2014). A theoretical framework for corporate governance. Indian Journal of Corporate Governance, 7(1), 56-72.

Porfírio, J., Felício, J., & Carrilho, T. (2020). Family business succession: Analysis of the drivers of success based on entrepreneurship theory. Journal of Business Research, 115, 250-257.

Rosentein, S., & Wyatt, J. G. (1990). Outside directors, board independence, and shareholder wealth. Journal of Financial Economics, 26, 175-191.

Sami, H., Wang, J., & Zhou, H. (2011). Corporate governance and operating performance of Chinese listed firms. Journal of International Accounting, Auditing and Taxation, 20, 106-114.

Shaheen, R., & Nishat, M. (2005). Corporate Governance and Firm Performance an Exploratory Analysis. Paper Presented at Conference.

Sharma, P., & Irving, P. (2005). Four bases of family business successor commitment: Antecedents and consequences. Entrepreneurship Theory and Practice, 29(1), 13-33.

Sheikh, M. F., Shah, S. Z. A., & Akbar, S. (2018). Firm performance, corporate governance and executive compensation in Pakistan. Applied Economics, 50(18), 2012-2027.

Smallman, C. (2004). Exploring theoretical paradigms in corporate governance. International Journal of Business Governance and Ethics, 1(1), 78-94.

Spanos, L. J. (2005). Corporate governance in Greece: Developments and policy implcations. Corporate Governance, 5(1), 15-30.

Switzer, L. N., & Tahaoglu, C. (2015). The benefits of international diversification: Market development, corporate governance, market cap, and structural change effects. International Review of Financial Analysis, 42, 76-97.

Toha, M., Johl, S. K., & Khan, P. A. (2020). Firm’s sustainability and societal development from the lens of fishbone eco-innovation: A moderating role of ISO 14001-2015 environmental management system. Processes, 8(9), 1152.

Ujunwa, A. (2012). Board characteristics and the financial performance of Nigerian quoted firms. Corporate Governance, 12(5), 656-674.

Vafeas, N. (1999). Board meeting frequency and firm performance. Journal of Financial Economics, 53, 113-142.

Vieira, E. S. (2018). Board of directors characteristics and performance in family firms and under the crisis. Corporate Governance, 18(1), 119-142.

Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40, 185-211.

Zellweger, T. (2017). Managing the Family Business: Theory and Practice. Cheltenham, United Kingdom: Edward Elgar Publishing.