Indian Journal of Finance

Open Access Open Access  Restricted Access Subscription Access

Corporate Governance and Firm Value – An Empirical Study of Financial Services Firms in India


Affiliations
1 Lal Bahadur Shastri Institute of Management, Plot No.11/7, Sector 11, Dwarka, New Delhi - 110 075, India
2 Lal Bahadur Shastri Institute of Management, Plot No.11/7, Sector 11, Dwarka, New Delhi - 110 075, India

   Subscribe/Renew Journal


Empirical evidence on the association between firm value and corporate governance has mixed results depending on the chosen attributes for governance and firm value. The study investigated this relationship for financial services firms in India. Based on the literature review, four attributes of corporate governance were chosen: ownership concentration, institutional ownership, board independence, and CEO duality. Tobin’s Q value was taken as a proxy for firm value. The dataset consisted of 20 companies formin part of the National Stock Exchange financial services index. An additional two control variables are included in the model: the firm’s size and leverage ratio. All data were sourced from the annual reports of the companies, and the period of study is from 2016 – 2020. The panel data were analyzed using the generalized method of moments. The empirical findings revealed a positive and significant impact of ownership concentration, institutional ownership, and board independence on firm value, while the CEO duality role had no impact on firm value. The study contributed to the corporate governance literature of financial services firms in India.

Keywords

Corporate Governance, Corporate Valuation, Financial Services, Generalized Method of Moments.

JEL Classification Codes : G20, G30, G32

Paper Submission Date : July 25, 2021 ; Paper sent back for Revision : May 23, 2022 ; Paper Acceptance Date : June 15, 2022 ; Paper Published Online : September 15, 2022

User
Subscription Login to verify subscription
Notifications
Font Size

  • Abdelzaher, A., & Abdelzaher, D. (2019). Women on boards and firm performance in Egypt: Post the Arab Spring. The Journal of Developing Areas, 53(1). https://doi.org/10.1353/jda.2019.0013

  • Adjaoud, F., Zeghal, D., & Andaleeb, S. (2007). The effect of board's quality on performance: A study of Canadian firms. Corporate Governance: An International Review, 15(4), 623–635. https://doi.org/10.1111/j.1467-8683.2007.00592.x

  • Aggarwal, R., Erel, I., Stulz, R. M., & Williamson, R. (2007). Do U.S. firms have the best corporate governance? A cross-country examination of the relation between corporate governance and shareholder wealth. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.954169

  • Ammann, M., Oesch, D., & Schmid, M. (2010). Corporate governance and firm value: International evidence. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1692222

  • Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277–297. https://doi.org/10.2307/2297968

  • Arora, A., & Sharma, C. (2016). Corporate governance and firm performance in developing countries: Evidence from India. Corporate Governance, 16(2), 420–436. https://doi.org/10.1108/cg-01-2016-0018

  • Baltagi, B. H. (2007). Forecasting with panel data. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1815319

  • Becht, M., Bolton, P., & Röell, A. (2002). Corporate governance and control. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.343461

  • Bhagat, S., & Black, B. S. (1998). The non-correlation between board independence and long-term firm performance. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.133808

  • Brown, L. D., & Caylor, M. L. (2006). Corporate governance and firm valuation. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.754484

  • Craswell, A. T., Taylor, S. L., & Saywell, R. A. (1997). Ownership structure and corporate performance: Australian evidence. Pacific-Basin Finance Journal, 5(3), 301–323. https://doi.org/10.1016/s0927-538x(96)00028-5

  • Dávila-Velásquez, J. P., & Lagos-Cortés, D. (2020). CEO duality and firm value: Evidence from Mexico. Entramado, 16(2), 12–23. https://doi.org/10.18041/1900-3803/entramado.2.6435

  • De Oliveira, R. M., Camara Leal, R. P., & Almeida, V. D. (2012). Large pension funds and the corporate governance practices of Brazilian companies. Corporate Ownership & Control, 9(2), 76–84. https://doi.org/10.22495/cocv9i2art6

  • Denis, D. K., & McConnell, J. J. (2003). International corporate governance. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.320121

  • Donaldson, L., & Davis, J. H. (1994). Boards and company performance - Research challenges the conventional wisdom. Corporate Governance: An International Review, 2(3), 151–160. https://doi.org/10.1111/j.1467-8683.1994.tb00071.x

  • Elsayed, K. (2007). Does CEO duality really affect corporate performance? Corporate Governance: An International Review, 15(6), 1203–1214. https://doi.org/10.1111/j.1467-8683.2007.00641.x

  • Gillies, J., & Dickinson, M. (1999). The governance of transnational firms: Some preliminary hypotheses. Corporate Governance: An International Review, 7(3), 237–247. https://doi.org/10.1111/1467-8683.00155

  • Glickman, M. (1996). Modigliani - Miller on capital structure: A post-Keynesian critique. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.46904

  • Goel, U., Bansal, N., & Sharma, A. K. (2015). Impact of corporate governance practices on working capital management efficiency: A structural equation modelling approach. Indian Journal of Finance, 9(1), 38 – 48. https://doi.org/10.17010//2015/v9i1/71534

  • Gompers, P., Ishii, J., & Metrick, A. (2003). Corporate governance and equity prices. The Quarterly Journal of Economics, 118(1), 107–156. https://doi.org/10.1162/00335530360535162

  • Gondrige, E. D., Clemente, A., & Espej, M. M. (2012). Composition of the board and firm value of Brazilian public companies. Brazilian Business Review, 9(3), 71–93. https://doi.org/10.15728/bbr.2012.9.3.4

  • Gupta, P. P., Kennedy, D. B., & Weaver, S. C. (2009). Corporate governance and firm value: Evidence from Canadian capital markets. Corporate Ownership & Control, 6(3–2), 293–307. https://doi.org/10.22495/cocv6i3c2p4

  • Hermalin, B. E., & Weisbach, M. S. (1991). The effects of board composition and direct incentives on firm performance. Financial Management, 20(4), 101–112. https://www.jstor.org/stable/3665716

  • Holderness, C. G., & Sheehan, D. P. (1988). The role of majority shareholders in publicly held corporations: An exploratory analysis. Journal of Financial Economics, 20, 317–346. https://doi.org/10.1016/0304-405x(88)90049-9

  • Jackling, B., & Johl, S. (2009). Board structure and firm performance: Evidence from India's top companies. Corporate Governance: An International Review, 17(4), 492–509. https://doi.org/10.1111/j.1467-8683.2009.00760.x

  • Javed, A. Y., Iqbal, R., & Hasan, L. (2006). Corporate governance and firm performance: Evidence from Karachi Stock Exchange. The Pakistan Development Review, 45(4), 947–964. http://www.jstor.org/stable/41260661

  • Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405x(76)90026-x

  • John, K., De Masi, S., & Paci, A. (2016). Corporate governance in banks. Corporate Governance: An International Review, 24(3), 303–321. https://doi.org/10.1111/corg.12161

  • Koerniadi, H., Krishnamurti, C., & Tourani-Rad, A. (2014). Corporate governance and the variability of stock returns. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1535082

  • Kolias, G., Arnis, N., & Kypriotelis, E. (2019). CEO duality and firm distress. Open Journal of Accounting, 8(2), 19–34. https://doi.org/10.4236/ojacct.2019.82002

  • Kumar, P., & Zattoni, A. (2015). Ownership structure, corporate governance and firm performance. Corporate Governance: An International Review, 23(6), 469–471. https://doi.org/10.1111/corg.12146

  • Kumar, S., & Prusty, T. (2017). Empirical evidence of corporate governance disclosure and board size modular with financial performance in select IT companies in India. NMIMS Journal of Economics and Public Policy, 2(1), 36–46.

  • Kumari, P., & Pattanayak, J. K. (2015). Earnings management and corporate governance issues in the banking and finance sector: A review of literature. Prabandhan: Indian Journal of Management, 7(12), 22–32. https://doi.org/10.17010/pijom/2014/v7i12/59287

  • Liu, R. (2019). CEO duality and firm performance under endogeneity. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3409469

  • McConnell, J. J., & Servaes, H. (1990). Additional evidence on equity ownership and corporate value. Journal of Financial Economics, 27(2), 595–612. https://doi.org/10.1016/0304-405x(90)90069-c

  • Means, G. C. (1991). The modern corporation and private property (2nd edition). Routledge. https://doi.org/10.4324/9781315133188

  • Minton, B. A., Taillard, J., & Williamson, R. (2012). Financial expertise of the board, risk taking, and performance: Evidence from bank holding companies. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1455997

  • Mishra, S., & Mohanty, P. (2014). Corporate governance as a value driver for firm performance: Evidence from India. Corporate Governance, 14(2), 265–280. https://doi.org/10.1108/cg-12-2012-0089

  • Mitton, T. (2000). A cross-firm analysis of the impact of corporate governance on the East Asian financial crisis. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.246030

  • Mohapatra, P. (2016). Board independence and firm performance in India. International Journal of Management Practice, 9(3), 317–332. https://doi.org/10.1504/ijmp.2016.077834

  • Navissi, F., & Naiker, V. (2006). Institutional ownership and corporate value. Managerial Finance, 32(3), 247–256. https://doi.org/10.1108/03074350610646753

  • Noronha, M. R., & Mehta, P. U. (2012). Corporate governance and investment decisions. Prabandhan: Indian Journal of Management, 5(5), 41–46. https://doi.org/10.17010/pijom/2012/v5i5/60202

  • Nursetya, R. P., & Nur Hidayati, L. (2021). How does firm size and capital structure affect firm value? Journal of Management and Entrepreneurship Research, 1(2), 67–76. https://doi.org/10.34001/jmer.2020.12.01.2-7

  • Rajpurohit, P. D., & Rijwani, P. R. (2020). Financial reporting practices and internal corporate governance mechanisms in emerging markets. Prabandhan: Indian Journal of Management, 13(8–9), 8–27. https://doi.org/10.17010/pijom/2020/v13i8-9/155230

  • Saibaba, M., & Ansari, V. A. (2012). Impact of board size: An empirical study of companies listed in BSE 100 index. Indian Journal of Corporate Governance, 5(2), 108–119. https://doi.org/10.1177/0974686220120202

  • Sandhya, S., & Parashar, N. (2020). An index to study corporate governance in banks in India. Corporate Governance and Sustainability Review, 4(2), 40–49. http://doi.org/10.22495/cgsrv4i2p4

  • Shleifer, A., & Vishny, R. W. (1986). Large shareholders and corporate control. Journal of Political Economy, 94(3), 461–488. https://doi.org/10.1086/261385

  • Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. The Journal of Finance, 52(2), 737–783. https://doi.org/10.1111/j.1540-6261.1997.tb04820.x

  • Souther, M. E. (2021). Does board independence increase firm value? Evidence from closed-end funds. Journal of Financial and Quantitative Analysis, 56(1), 313–336. https://doi.org/10.1017/s0022109019000929

  • Stiles, P., & Taylor, B. (1996). The strategic role of the board. Corporate Governance: An International Review, 4(1), 3–10. https://doi.org/10.1111/j.1467-8683.1996.tb00125.x

  • Strier, F. (2005). Conflicts of interest in corporate governance. Journal of Corporate Citizenship, 19, 79–89.

  • Suresh Kumar, M. V., & Lakshmana Rao, C. H. (2021). Legal protection of minority shareholders under corporate governance process. International Journal of Current Science Research and Review, 4(4), 308–316. https://doi.org/10.47191/ijcsrr/v4-i4-09

  • Thenmozhi, M., & Sasidharan, A. (2020). Does board independence enhance firm value of state-owned enterprises? Evidence from India and China. European Business Review, 32(5), 785–800. https://doi.org/10.1108/ebr-09-2019-0224

  • Uppal, N. (2020). CEO narcissism, CEO duality, TMT agreeableness and firm performance: An empirical investigation in auto industry in India. European Business Review, 32(4), 573–590. https://doi.org/10.1108/ebr-06-2019-0121

  • Venkatraman, K., & Selvam, M. (2014). Impact of corporate governance practices and firm performance: An empirical study. Indian Journal of Finance, 8(12), 34–45. https://doi.org/10.17010/ijf/2014/v8i12/71691

  • Yang, T., & Zhao, S. (2014). CEO duality and firm performance: Evidence from an exogenous shock to the competitive environment. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2177403

  • Zhu, F. (2014). Corporate governance and the cost of capital: An international study. International Review of Finance, 14(3), 393–429. https://doi.org/10.1111/irfi.12034


Abstract Views: 233

PDF Views: 0




  • Corporate Governance and Firm Value – An Empirical Study of Financial Services Firms in India

Abstract Views: 233  |  PDF Views: 0

Authors

Gautam Negi
Lal Bahadur Shastri Institute of Management, Plot No.11/7, Sector 11, Dwarka, New Delhi - 110 075, India
Arpit Jain
Lal Bahadur Shastri Institute of Management, Plot No.11/7, Sector 11, Dwarka, New Delhi - 110 075, India

Abstract


Empirical evidence on the association between firm value and corporate governance has mixed results depending on the chosen attributes for governance and firm value. The study investigated this relationship for financial services firms in India. Based on the literature review, four attributes of corporate governance were chosen: ownership concentration, institutional ownership, board independence, and CEO duality. Tobin’s Q value was taken as a proxy for firm value. The dataset consisted of 20 companies formin part of the National Stock Exchange financial services index. An additional two control variables are included in the model: the firm’s size and leverage ratio. All data were sourced from the annual reports of the companies, and the period of study is from 2016 – 2020. The panel data were analyzed using the generalized method of moments. The empirical findings revealed a positive and significant impact of ownership concentration, institutional ownership, and board independence on firm value, while the CEO duality role had no impact on firm value. The study contributed to the corporate governance literature of financial services firms in India.

Keywords


Corporate Governance, Corporate Valuation, Financial Services, Generalized Method of Moments.

JEL Classification Codes : G20, G30, G32

Paper Submission Date : July 25, 2021 ; Paper sent back for Revision : May 23, 2022 ; Paper Acceptance Date : June 15, 2022 ; Paper Published Online : September 15, 2022


References





DOI: https://doi.org/10.17010/ijf%2F2022%2Fv16i9%2F172159