Impact of Corporate Governance Index and Corporate Governance Multiple on Firm Financial Performance of Non Financial Sector

Abstract

Corporate frameworks if governed in a better way benefit the firms by providing greater access to financing, lower cost of capital, promising treatment of shareholders and hence overall better performance. This study reviews the impact of impact of corporate governance index and corporate governance multiple on financial performance of non financial sector firms using samples taken from 50 listed non- financial business firms. The effect of Corporate Governance index was evaluated by indicators such as Accountability, Transparency, Independence, Control environment and Fairness whereas to assess the influence of Corporate Governance Multiple, Board structure variable was selected. The business performance of internal and external non-financial firm was measured by Return on equity, Return on Assets and Market to book Ratio. The result of correlation demonstrated that CGI & CGM which includes the accountability, transparency, control environment, fairness, and board structure were positively correlated with ROA whereas the independence was negatively correlated with ROA. However the relationship of ROE with accountability, transparency, control environment and board structure was positive while the independence; fairness has negative correlation with ROE. Moreover Accountability, Transparency, Independence, control environment had positive correlation with MTBR and correlation of fairness and board structure was negative with MTBR. In regression analysis among three models, ROA and ROE were statistically significant at 5 % of significance level and MTBR was least significant at 5% significance level. In ROA model independence, control environment and board structure were significantly associated with Firm financial performance whereas the Accountability, transparency, fairness were shows insignificant relationship with financial performance of firm. In MTBR model only fairness and board structure shows positive significant relationship with firm financial performance whereas the accountability, transparency, independence and control environment demonstrated insignificant association with firm performance.