A Study on the Impact of Corporate Governance on Financial Performance

The Cadbury Report defines Corporate Governance as the "system by which businesses are directed and controlled" (Cadbury, 1992). Corporate governance refers to generally accepted norms, customs, laws, habits and regulations determining the manner of running the company. Though concrete evidence does not substantiate the relationship between good corporate governance and creation of value for an organization, there is strong evidence in the past to affirm the destruction of good values by bad corporate governance. This descriptive research endeavours to establish the relationship between financial performance of firms and corporate governance of 30 Indian companies, listed on the BSE. Data pertaining to Return on Assets and Corporate Governance variables of Board Size (number of directors in board), Duality (if chairman and managing director are same), Remuneration to the board of directors, independence (Number of non-executive directors) and Board Ownership (Shareholding pattern of promoter and promoter's group) of these companies have been collected for the five year period of 01/04/2009 to 31/03/2014 from moneycontrol.com and CMIE data source and analysed using SPSS, employing the statistical tools of correlation, regression and Mean. Results reveal that the two Corporate Governance variables of Board Ownership and Duality are exerting a significant impact on ROA at 5% level.