Corporate Governance and its impact on Financial Performance of the Firms

Abstract

Recent years become critical for leaders as well as for regulatory bodies due to collapse of corporate across the world. As a result of failure of multiple organization corporate governance become focal point. Corporate governance determines the way by which organizations and family owned businesses are direct and control. Corporate governance code guides the organization to behave in such a way that will beneficial for society as well as for organization itself. Corporate governance depict the relationship between the individuals and groups such as creditors, sub-contractors, suppliers, shareholders and employees that supply the fund to enhance the performance of organization. Many researchers argue that adopting CG code reduces the risk of firm and enhances the value of shareholders. The purpose of this study was to determine the impact of corporate governance on financial performance of banks. The precise goal of this research was to determine the relationship between board size and financial performance, relationship between leadership and financial performance, relationship between audit committee and financial performance, relationship between transparency and financial performance. The study was descriptive in nature and focus on the banks that were operational from 2008 to 2009. Financial statements were used to analyze the financial performance of the firms with the help of statistical software known as SPSS. Profitability ratios used in this research to measure the financial performance of the banks are Return on Equity and Return on Assets. This study confirms the significant relationship between corporate governance variables and financial performance of the banks. This research recommends that board of directors have to develop road map for transparency of CG practices in banking industry of Pakistan.Further organization has to invest in CG practices and corporate social responsibility to improve the image of the banks in the perception of customers. Leaders must articulate vision properly so management have understanding what organization do and what types of goals needed to pursued for the prosperity of organization.