The Role of Corporate Governance and Transparency in Improving the Financial Performance

Abstract

Purpose of this study - This research examines the impact of corporate governance variables (like CEO duality, independent directors, female directors, board size, ownership concentration, number of board and audit committee meetings , existence of human resource & remuneration, and nomination committees) on firm performance, which includes both measures of profitability and stability. The study uses accounting based measures (return on assets, return on equity) and a market based measure (Tobin’s Q) to gauge profitability. Stability is measured using Z-score, which is an accounting measure. Design/methodology/Approach - This research focuses on the non-financial sector only in Pakistan. Corporate governance data for 222 listed firms is extracted from the annual reports of the firms, for the years 2010 to 2019. Financial data for the same period is obtained from Compustat Global Annual File. Fixed effects are used to improve the basic OLS estimation, and control for unobservable differences across firms. Findings - CEO duality, existence of human resource & remuneration and nomination committees, and number of audit committee meetings are found to have a positive and significant impact on financial performance. This study also finds a negative impact of ownership concentration and presence of female directors on the board, on financial performance. Implications - The research will provide policy makers and business owners knowledge of various corporate governance indicators and the foot print they leave on the financial performance of firms. Originality/value – This study provides additional and updated evidence on the farreaching impact of corporate governance variables. Work in Pakistan has tended to focus on profitability only, however, stability is also considered as an important metric of performance simultaneously for a comprehensive picture.