South Asian Journal of Management

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

Corporate Governance and Financial Performance in an Emerging Economy Context: Evidence from Pakistan’s Food, Personal Care and Cement Sectors


Affiliations
1 Institute of Business Administration (IBA), Main Campus, University Road, Karachi, Pakistan
     

   Subscribe/Renew Journal


This paper analyzes the relevant literature with regard to the relationship between corporate governance and firm’s performance. Corporate governance has recently developed as one of the most sought after topics for research. This research study was carried out in Pakistan, an emerging economy, on the selected sectors of cement and food and personal care products. The results obtained provide valuable information for stakeholders’ decision-making. This exploratory study discloses that there is a significant negative relationship between firm’s performance and share ownership by directors. If the directors’ ownership increases the performance of the companies goes down. Similarly, there is a significant negative relationship found between the firm’s performance and independent directors, which may be due to the inability of the independent directors to perform efficiently, effectively and independently in the existing local and cultural context of Pakistan. However, there is an insignificant relationship between performance and percentage held by five largest shareholders, and so it seems that the concentration of the share ownership by the five largest shareholders does not seem to show any impact on the firm’s performance.

Keywords

Corporate Governance, Emerging Economy, Firm Performance, Ownership Structure, Pakistan.
User
Subscription Login to verify subscription
Notifications
Font Size

  • Adams, R. B., & Mehran, H. (2003). Board structure, banking firm performance and the bank holding company organizational form. In Proceedings No. 866. Chicago, IL: Federal Reserve Bank of Chicago.

  • Anderson, R. C., & Reeb, D. M. (2003). Foundingfamily ownership and firm performance: evidence from the S&P 500. The Journal of Finance, 58(3), 1301-1328.

  • Bae, K. H., Kang, J. K., & Kim, J. M. (2002). Tunneling or value added? Evidence from mergers by Korean business groups. The Journal of Finance, 57(6), 2695-2740.

  • Bebchuk, L., Cohen, A., & Ferrell, A. (2008). What matters in corporate governance? The Review of Financial Studies, 22(2), 783-827.

  • Berthelot, S., Morris, T., & Morrill, C. (2010). Corporate governance rating and financial performance: A Canadian study. Corporate Governance: The International Journal of Business in Society, 10(5), 635-646.

  • Cadbury, A. (1992). Report of the committee on the financial aspects of corporate Governance: The code of best practice (Vol. 1). London, UK: Gee Publishing.

  • Claessens, S., & Djankov, S. (1999). Ownership concentration and corporate performance in the Czech Republic. Journal of comparative economics, 27(3), 498-513.

  • Chen, Z., Cheung, Y. L., Stouraitis, A., & Wong, A. W. (2005). Ownership concentration, firm performance, and dividend policy in Hong Kong. Pacific-Basin Finance Journal, 13(4), 431-449.

  • David, P., Hitt, M. A., & Liang, T. W. (2007). The benefits and costs of large block ownership before and during the East-Asian crisis (Working Paper).

  • Demsetz, H., and Villalonga, B., (2001), Ownership structure and corporate performance. Journal of Corporate Finance, 7(3), 209-233.

  • Denis, D. K., & McConnell, J. J. (2003). International corporate governance. Journal of financial and quantitative analysis, 38(1), 1-36.

  • Djankov, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2008). The law and economics of self-dealing. Journal of Financial Economics, 88(3), 430-465.

  • Farinha, J. (2003). Dividend policy, corporate governance and the managerial entrenchment hypothesis: An empirical analysis. Journal of Business Finance & Accounting, 30(910), 1173-1209.

  • Fernandes, N., (2008). EC: Board compensation and firm performance: The Role of “independent” Board Members, Journal of Multinational Financial Management, 18(1), 30-44.

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

  • Faccio, M., & Lasfer, M. A. (1999). Managerial ownership. board structure and firm value: The UK Evidence (Cass Business School Research Paper). Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=179008

  • Friedman, E., Johnson, S., & Mitton, T. 2003. Propping and tunneling. Journal of Comparative Economics, 31: 732–750.

  • George, R.P. (2007). Diversification and firm performance: The moderating influence of ownership structure and business group-affiliation. South Asian Journal of Management (SAJM), 14(3).

  • Ghosh, A. (2006). Determination of Executive Compensation in an Emerging Economy. Evidence from India. Emerging Markets Finance and Trade, 42(3).

  • Gul, S., Sajid, M., Razzaq, N., & Afzal, F. (2012). Agency cost, corporate governance and ownership structure (the case of Pakistan). International Journal of Business and Social Science, 3(9).

  • Holderness, C. G., Kroszner, R. S., & Sheehan, D. P. (1999). Were the good old days that good? Changes in managerial stock ownership since the great depression. The Journal of Finance, 54(2), 435-469.

  • Higgs, D. (2003). Review of the Role and Effectiveness of Non-Executive Directors. (http://www.ecgi.org/codes/documents/higgsreport.pdf).

  • Himmelberg, C. P., Hubbard, R. G., & Palia, D. (1999). Understanding the determinants of managerial ownership and the link between ownership and performance. Journal of financial economics, 53(3), 353-384.

  • Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency Costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.

  • Johnson, S., La Porta, R., López-de-Silanes, F., & Shleifer, A. (2000). Tunneling. The American Economic Review, 90, 22-27.

  • Khanna, T., & Palepu, K. (1997). Why focused strategies may be wrong for emerging markets. Harvard Business Review, 75, 41-51.

  • Kole, S. (1996). Managerial ownership and firm performance: Incentives or rewards? Advances in Financial Economics (Vol. 2). Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=7698

  • Lilienfeld-Toal, U., & Ruenzi, S. (2007). Why managers hold shares of their firm: An empirical analysis. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1017833

  • Lemmon, M. L., & Lins, K.V. (2003). Ownership structure, corporate governance, and firm value: Evidence from the East Asian financial crisis. The Journal of Finance, 58(4), 1445-1468.

  • LilienfeldToal, U. V., & Ruenzi, S. (2014). CEO ownership, stock market performance, and managerial discretion. The Journal of Finance, 69(3), 1013-1050.

  • Morck, R., Shleifer, A., Vishny, R. (1988), Management ownership and market valuation. Journal of Financial Economics, 20, 293-315.

  • Murphy, K. J. (1999). Executive compensation. Handbook of labor economics, 3, 2485-2563.

  • Mir, S. R., & Nishat, M. (2004, May). Corporate governance Structure and firm performance in Pakistan: An empirical study. Paper presented at the Second Annual Conference in Corporate Governance. Lahore, Pakistan: Lahore University of Management Sciences (LUMS).

  • Ramsay, I. (2001). Independence of Australian company auditors: Review of current Australian requirements and proposals for reform. Parkes, Australia: Department of the Treasury. Retrieved from http://law.unimelb.edu.au/__data/assets/pdf_file/0020/1710083/114-full-report1.pdf

  • Rosenstein, S., & Wyatt, J. G. (1990). Outside directors, board independence, and shareholder wealth. Journal of Financial Economics, 26(2), 175-191.

  • Shah, S. Z. A., Butt, S. A., & Saeed, M. M. (2011). Ownership structure and performance of firms: Empirical evidence from an emerging market. African Journal of Business Management, 5(2), 515-523.

  • Sarbanes, P. & Oxley, M. G. (2002, July). Sarbanes-Oxley act of 2002. In The Public Company Accounting Reform and Investor Protection Act. Washington DC: US Congress.

  • Sanders, W. M. G., & Carpenter, M. A. (1998). Internationalization and firm governance: The roles of CEO compensation, top team composition, and board structure. Academy of Management Journal, 41(2), 158-178.

  • Sridhar, I., & Kumar, K. K. (2015). A panel data analysis of determinants of executive compensation: Evidence from India. International Research Journal of Finance and Economics, 139, 112-125.

  • Shah, S. (2011). Corporate governance in a family-owned corporate organization in India: A case study of TVS Motor Company Ltd. South Asian Journal of Management, 18(3), 150-172.

  • Turnbull Committee. (1999). Internal control: Guidance for directors on the combined code. London, UK: The Institute of Chartered Accountants in England & Wales.


Abstract Views: 210

PDF Views: 0




  • Corporate Governance and Financial Performance in an Emerging Economy Context: Evidence from Pakistan’s Food, Personal Care and Cement Sectors

Abstract Views: 210  |  PDF Views: 0

Authors

Mohsin Ali Patel
Institute of Business Administration (IBA), Main Campus, University Road, Karachi, Pakistan

Abstract


This paper analyzes the relevant literature with regard to the relationship between corporate governance and firm’s performance. Corporate governance has recently developed as one of the most sought after topics for research. This research study was carried out in Pakistan, an emerging economy, on the selected sectors of cement and food and personal care products. The results obtained provide valuable information for stakeholders’ decision-making. This exploratory study discloses that there is a significant negative relationship between firm’s performance and share ownership by directors. If the directors’ ownership increases the performance of the companies goes down. Similarly, there is a significant negative relationship found between the firm’s performance and independent directors, which may be due to the inability of the independent directors to perform efficiently, effectively and independently in the existing local and cultural context of Pakistan. However, there is an insignificant relationship between performance and percentage held by five largest shareholders, and so it seems that the concentration of the share ownership by the five largest shareholders does not seem to show any impact on the firm’s performance.

Keywords


Corporate Governance, Emerging Economy, Firm Performance, Ownership Structure, Pakistan.

References