Journal of Commerce and Accounting Research

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Firm Characteristics and Corporate Performance: Evidence from India


Affiliations
1 Ph.D. Scholar, Department of Economics, Meerut College, Ch. Charan Singh University, Meerut, Uttar Pradesh, India
2 Associate Professor, Department of Economics, Meerut College, Ch. Charan Singh University, Meerut, Uttar Pradesh, India
     

   Subscribe/Renew Journal


The objective is to analyse the efficacy of firm structure as a corporate governance tool. For this purpose, we examine the effect of firm size, firm age, firm growth, board size, and independent directors on a board, on corporate performance. To test our hypothesis, we use a sample of 270 Indian IT companies, all of which are listed on the National Stock Exchange. Our main empirical result depicts the positive impact of firm size, firm age, and independent directors on corporate performance. The larger board size can reduce corporate performance, which can lead to a lack of coordination, flexibility, and communication. More members on a board can be the cause of conflict, either in terms of views or opinions, which ultimately leads to wastage of financial and time resources. The growth of the firm seems to have an insignificant impact on corporate performance as sales figures have a recessionary impact.

Keywords

Firm Age, Firm Growth, Firm Size, Corporate Performance, Board Size, Governance, Independent Directors
Subscription Login to verify subscription
User
Notifications
Font Size


  • Aduda, J., Kiragu, P., & Ndwiga, J. (2013). The relationship between agency banking and financial performance of commercial banks in Kenya. The University of Nairobi.

  • Agarwal, R., & Gort, M. (1996). The evolution of markets and entry, exit, and survival of firms. The Review of Economics and Statistics, 78(3), 489-498.

  • Akinyomi, O. J., & Olagunj, A. (2013). Effect of firm size on profitability: Evidence from Nigerian manufacturing sector. Prime Journal of Business Administration and Management, 3(9), 1171-1175.

  • Aldrich, H., & Auster, E. R. (1986). Even dwarfs started small: Liabilities of age and size and their strategic implications. Research in Organizational Behaviour, 8, 165-186.

  • Anderson, R. C., Mansi, S. A., & Reeb, D. M. (2004). Board characteristics, accounting report integrity, and cost of debt. Journal of Accounting and Economics, 37(3), 315-342.

  • Balik, B. H., and Gort, M. (1993). Decomposing learning by doing in new plants. Journal of Political Economy, 101(4), 561-583.

  • Barroso Castro, C., Villegas Perinan, M. M., & Perez-Calero, L. (2010). Son efectivos los consejos de administracion? La eficacia del consejo y los resultados de la empresa. Investigaciones Europeas de Direccion y Economia de la Empresa, 16, 107-126.

  • Beasley, M. S. (1996). An empirical analysis of the relation between the board of directors composition and financial statement fraud. The Accounting Review, 71, 443-465.

  • Beck, T., Demirguc-Kunt, A., & Maksimovic, V. (2005). Financial and legal constraints to growth: Does firm size matter? The Journal of Finance, 60(1), 137-177.

  • Bennedsen, M., Kongsted, H. C., & Nielsen, K. M. (2008). The casual effect of board size in the performance of small and medium-sized firms. Journal of Banking and Finance, 32, 1098-1109.

  • Bercovitz, J., & Mitchell, W. (2007). When is better? The impact of business scale and scope on long-term business survival, while controlling for profitability. Strategic Management Journal, 28(1), 61-79.

  • Coad, A., Segarra, A., & Teruel, M. (2013). Like milk or wine: Does firm performance improve with age? Structural Change and Economic Dynamics, 24, 173-189.

  • Dalton, C. M., & Dalton, D. R. (2005). Board of directors: Utilizing empirical evidence in developing practical prescriptions. British Journal of Management, 16(1), 91-97.

  • Dalton, D. R., Daily, C. M., Johnson, J. L., & Ellstrand, A. E. (1999). Number of directors and financial performance: A meta-analysis. Academy of Management Journal, 42, 674-686.

  • Forbes, D. P., & Milliken, F. (1999). Cognition and corporate governance: Understanding board of directors as the strategic decision: Making groups. Academy of Management Review, 3, 489-505.

  • Garcia-Olalla, M., & Garcia-Ramos, R. (2010). Family ownership, structure, and board of director’s effectiveness: Empirical evidence from European firms. In 9th Annual IFERA Conference Lancaster, United Kingdom.

  • Goodstein, J., Gautam, K., & Boeker, W. (1994). The effects of board size and diversity on strategic change. Strategic Management Journal, 22, 1087-1111.

  • Halil, E. A., & Hasan, A. K. (2012). The effect of firm size on profitability: An empirical Icelandic firm. Bifrost Journal of Social Science, 1, 33-42.

  • Hermalin, B. E., & Weisbach, M. S. (1991). The effects of board composition and direct incentives on firm performance. Financial Management, 20, 101-112.

  • Holtz, L., & Neto, A. S. (2014). Effects of board of directors’ characteristics on the quality of accounting information in Brazil (vol. 25, no. 66, pp. 255-266). Paper Presented at the VII Anpcont Congress, Fortaleza, CE, Brazil, R. Cont. Fin. – USP, Sao Paulo.

  • Jensen, M. C., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3, 305-360.

  • Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. Journal of Finance, 48, 831-880.

  • Johnson, J. L., Daily, C. M., & Ellstrand, A. E. (1996). Boards of directors: A review and research agenda. Journal of Management, 22, 409-438.

  • Kesner, I. F., Victor, B., & Lamont, B. T. (1986). Board composition and the commission of illegal acts: An investigation of Fortune 500 companies. Academy of Management Journal, 29(4), 789-799.

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

  • Lipton, M., & Lorsch, J. (1992). A modest proposal for improved corporate governance. Business Lawyer, 48, 59-77.

  • Majumdar, S. K., & Chhibber, P. (1999). Capital structure and performance: Evidence from a transition economy on aspect of corporate governance. Public Choice, 98, 287-305.

  • Mishra, C. S., & Nielsen, J. F. (2000). Board independence and compensation policies in large bank holding companies. Financial Management Association, 29(3).

  • Mutlua, C. C., Essenb, M. V., Peng, M. W., Sabrina, F. S., & Durane, P. (2018). Corporate Governance in China: A meta-analysis. Journal of Management Studies.

  • Papadogonas, T. A. (2007). The financial performance of large and small firms: Evidence from Greece. International Journal of Financial Service Management, 2(12), 14-20.

  • Pfeffer, J. (1973). Size, composition, and function of hospital boards of directors: A study of organization environment linkage. Administrative Science Quarterly, 18, 349-364.

  • Pfeffer, J., & Salancik, G. R. (1978). The external control of organizations: A resource dependence perspective. New York: Harper and Row.

  • Prevost, A. K., Rao, R. P., & Hossain, M. (2002). Determinants of board composition in New Zealand: A simultaneous equations approach. Journal of Empirical Finance, 9(4), 373-397.

  • Raheja, C. G. (2005). Determinants of board size and composition: A theory of corporate boards. Journal of Financial and Quantitative Analysis, 40, 283-306.

  • Risheh, K. A., & Al-Saeed, M. (2012). The impact of good corporate governance practices on financial reporting quality: Empirical evidence from Jordanian listed companies. Corporate Ownership and Control Journal, 9(4), 178-186.

  • Schiffer, M., & Weder, B. (2001). Firm size and the business environment: Worldwide survey results. World Bank Publications, 43.

  • Scherr, F. C., & Hulburt, H. M. (2001). The debt maturity structure of small firms. Financial Management, 30, 85-11.

  • Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. Journal of Finance, 52, 737-783.

  • Short, H., & Keasey, K. (1999). Managerial ownership and the performance of firms: Evidence from the UK. Journal of Corporate Finance, 5, 79-101.

  • Star, A. D., & Massel, M. Z. (1981). Survival rates for retailers. Journal of Retailing, 57(2), 87-99.

  • Van den Berghe, L. A. A., & Levrau, A. (2004). Evaluating boards of directors: What constitutes a good corporate board? Corporate Governance: An International Review, 12, 461-478.

  • Vincent, O. O., Peter, O. K. O., Ogutu, M., & Eric, M. (2015). Board composition and financial performance: Empirical analysis of companies listed at the Nairobi Securities Exchange. International Journal of Economics and Financial Issues, 5(1), 23-43.

  • Williamson, O. E. (1967). Hierarchical control and optimal firm size. Journal of Political Economy, 123-135.

  • Wu, X., & Li, H. (2015). Board independence and the quality of board monitoring: Evidence from China. International Journal of Managerial Finance, 11(3), 308-328.

  • Yermack, D. (1996). Higher valuation of companies with a small board of directors. Journal of Financial Economics, 40, 185-212.

  • Zahra, S. A., & Pearce, J. A. (1989). Boards of directors and corporate financial performance: A review and integrative model. Journal of Management, 15, 291-334.


Abstract Views: 166

PDF Views: 0




  • Firm Characteristics and Corporate Performance: Evidence from India

Abstract Views: 166  |  PDF Views: 0

Authors

Shubhi Agarwal
Ph.D. Scholar, Department of Economics, Meerut College, Ch. Charan Singh University, Meerut, Uttar Pradesh, India
Archna Singh
Associate Professor, Department of Economics, Meerut College, Ch. Charan Singh University, Meerut, Uttar Pradesh, India

Abstract


The objective is to analyse the efficacy of firm structure as a corporate governance tool. For this purpose, we examine the effect of firm size, firm age, firm growth, board size, and independent directors on a board, on corporate performance. To test our hypothesis, we use a sample of 270 Indian IT companies, all of which are listed on the National Stock Exchange. Our main empirical result depicts the positive impact of firm size, firm age, and independent directors on corporate performance. The larger board size can reduce corporate performance, which can lead to a lack of coordination, flexibility, and communication. More members on a board can be the cause of conflict, either in terms of views or opinions, which ultimately leads to wastage of financial and time resources. The growth of the firm seems to have an insignificant impact on corporate performance as sales figures have a recessionary impact.

Keywords


Firm Age, Firm Growth, Firm Size, Corporate Performance, Board Size, Governance, Independent Directors

References