The effect of corporate governance on firm performance: perspectives from an emerging market

Abstract

The aim of this research is to inspect whether Corporate Governance (CG) attributes such as Audit Meeting Frequency, Ownership Concentration, Board Meeting Frequency, Foreign Ownership, Institutional Ownership, Board Gender Diversity, Audit Committee Size, Board Size, Audit Reputation and CEO Compensation affect firms’ performance in Pakistan. This research employed the pooled least square method to estimate the association among attributed of CG and firm performance measures (Return on Asset and Tobin’s Q) by selecting the Cement Sector and Energy sector companies listed in Pakistan Stock Exchange (PSX) during 2009–2022. A substantial result is that the energy sector’s CG system does not differ from the cement sector. Tobin’s Q is lesser than ROA, suggesting the same condition as companies in the cement sector. On average, firms in the energy sector are older than the firms in the cement sector. It contradicts the result of profitability proxies of the energy sector. Being older firms, the profitability proxies show lower returns as compared to cement sector firms. Pakistan needs a uniform CG code and the need for good CG practices for specific approaches of firms. This study enhances the literature in CG domain by investigating the impact of CG processes in Pakistani firm’s performance. In Pakistan, there are studies available on the topic but the comparison between the selected two industries with such a large data set are the unique elements of the current research. In prior studies, the time interval was also short, only five years. Further, the firm performance was measured by an accounting-based tool and did not include a market-based tool for performance, as well as variables for CG were also limited.

Keywords:

• Corporate governance
• firm performance
• ROA
• Tobin’s Q
• emerging economy

JEL CLASSIFICATION:

• D22; G3; L25; M2; C3

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

Data is openly available in a public repository that does not issue DOIs.