Impact of Corporate Governance, Political Instability on Firm Performance; Evidences from Banking Sector of Pakistan

Abstract

The purpose of this study is to evaluate the impact of corporate governance (CG) characteristics and political instability on firm performance. Proxy variables for CG characteristics are board size, board independence, CEO duality, gender diversity and audit committee, however firm performance is measured by market-based indicators (EPS) and accounting based indicators (ROA). Regression model finalized on the basis of Hausman test. The population of this sample comprises all banks controlled by the State Bank of Pakistan. There are 45 banks that are supervised by the SBP. This involve public sector banks, commercial banks, Islamic banks, international banks and micro-finance institutions / banks. The analysis study consists of Commercial banks as a sample, which are controlled by the State Bank of Pakistan. On the basis of Random Effect Model, empirical results explicitly show that there is positive and significant impact of corporate governance on firm performance. Similarly, political instability also depicted negative significant relationship with firm performance. For future studies, it is recommended to extend the framework by incorporating new variables. The future study may include financial performance-based indictors like, net interest margin ratio, return on capital employed (ROCE), return on revenue (ROR) etc. as well as market-based indicators like., longrun marginal expected shortfall (LRMES), market-based capital ratio (MBCR). In future studies, comparative analysis of different Commercial banks from different countries can serve as worthwhile contribution in literature. Commercial banks of other countries should be taken in the sample. In case of Pakistan, at least 20 years’ data must be analyzed in upcomi0ng research work for more reliable results