Corporate Governance and its Relation with the Performance of Firms Listed on Pakistan Stock Exchange

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Volume 7 - November 2018 (11)

Abstract

Corporate governance is an important concept known for the growth of firms; the purpose of this study is to understand the relationship between the performances and governance of corporations listed on Pakistan Stock Exchange (PSX). Corporate governance is judged through the size of the board, CEO and chairman duality, a number of NED’s and a number of NED’s out of total directors in audit committee while the performance of firms is calculated through ‘Return of Assets (ROA)’ and ‘Earnings gained per Share (EPS).’ For this purpose, secondary data is used and taken from 25 companies listed at PSX. The data collected for a period of 5 years from (2013-2017) and quantitative technique is used for data analysis. The results of the study revealed that there exists a significant relationship between the performance of firms (ROA &EPS) and corporate governance mechanisms except for CEO & chairman composition. On the other hand, the results of Johansen’s co-integration test concluded that there is long run integration between the firm’s performance and their governance. VECM disclosed that there exists recombination of co-integration between governance and firm performance after some disturbance, except Audit Committee NED’s proportion. Granger causality test concluded the significant cause of CEO/Chairman duality on firm’s performance rather other three corporate governance mechanisms. It is recommended that companies need to focus on CEO and chairman composition factor for enhancing performance.

Keywords

Board size, CEO/chairman composition, Non-Executive Directors, Audit Committee, VECM (Vector Error Correction Model)

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Cite this Article:

Syed Musawar Hussain, Corporate Governance and its Relation with the Performance of Firms Listed on Pakistan Stock Exchange, International Journal of Management Sciences and Business Research 11(2018):73-84 DOI: 10.5281/zenodo.3490073