Corporate Governance and Firm Performance in Emerging Markets: Evidence from India

Abstract

This study attempts to explore the link between corporate governance system developed by firms like promoter ownership, institutional relationship (as percentage ownership in the firm), foreign institutional investors (FII) ownership, board size (log assets), family control which is a significant indicator for board independence. Further we have also taken CEO duality, number of board meetings and busyness of directors and linked it with firm performance. Market based firm performance measures and accounting based performance show different impact. Findings indicate that impact of corporate governance variables on market based performance measures (Tobin’s Q) is greater than the impact on accounting based performance measures (ROA and ROE). Ownership structure i.e. family capitalism impacts market based performance measures more whereas board structure impacts accounting based performance measure more. Among board variables, board size is found to impact performance positively and CEO duality is found to impact performance negatively. Board independence i.e. “monitoring board” is found to impact accounting based performance positively, whereas number of board meetings is found to impact market based performance measure positively. Directors’ internal busyness is not found to impact any of the performance measures. Directors’ external busyness is impacting accounting based measures negatively when the busyness is measured in terms of position of directors in other companies.