The Impact of Corporate Governance on Financial Performance: A Comparative Study on Sharia and Non-Sharia Firms in Pakistan

Abstract

This research thesis is basically about the financial performance of Sharia and Non- Sharia firms in Pakistan. The main purpose of this study is to investigate the relationship between corporate governance and financial performance of Sharia and Non-Sharia firms in Pakistan. The study has been obtained the data set of 05 years from 2015 to 2019 and data collected from annual reports of the selected firms in Pakistan and from the balance sheet analysis of non-financial sector conducted by the State Bank of Pakistan. In order to check the impact of corporate governance variable including CEO duality, Board size, Board composition, Audit committees on firm performance which is measured by ROE. The present study has applied multiple linear regression technique further Panel least square method employed. As there is certain assumption for employing this technique they have also observed while carrying out the estimations for results. The empirical results of this study exposed that CEO duality have negative and significant effect on firm performance (ROE) in both Sharia Compliant firms and Non-Sharia Compliant firms, whereas Board size has positive effect on firm performance in both Sharia Compliant and Non-Sharia Compliant firms, its mean that larger board size have negative impact on firm performance and smaller board size is better for high financial performance. Board composition has positive impact on firm performance in terms of non-Islamic firm whereas insignificant effect in terms of Sharia Compliant firms, its mean that if board of director consist of more independent directors it would have positive impact on firm performance Last core independent variable is Audit committees which have negative and significant impact on firm performance in both Sharia Compliant and Non-Sharia Compliant firms. Additionally greater the firm better will be the firm performance in term of ROE/ROA.