Corporate Governance and Firms Performance: Evidences from Non- Financial Sector of Pakistan

Abstract

This research thesis is basically about the Sharia and Non-Sharia Firms operating m Pakistan. The Sharia Compliant eligibility criteria for companies was introduced in Pakistan as one of the first steps taken by the Government towards establishing a financial system in coherence with the injunctions of Islam. The main purpose of this research is to investigate the relationship between corporate governance on Sharia and Non-Sharia firms in terms of firm performance. Corporate governance system consists of two perspectives, the internal and the external mechanism, both perspectives make the firm accountable in front of its stakeholders. The aim of present study is to evaluate the effect of corporate governance on firm’s performance as the corporate governance become more crucial since rapid fluctuations in terms of financial and technological system in product as well as in service industry. This study investigated the effect of corporate governance on firm’s performance taking non financial firms of Pakistan. The study has taken data set of 06 years from 2010 to 2015 of the non-financial firm 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 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.