Corporate governance and firm performance: Evidence from karachi stock exchange

Abstract

We investigate whether differences in quality of firm-level corporate governance can explain the firm level performance in a cross-section of companies listed at Karachi Stock Exchange. We analyse the relationship between the firm-level value as measured by Tobin's Q and the total Corporate Governance Index (CGI), and three sub-indices: Board, Shareholdings and Ownership, and Disclosures and Transparency for a sample of 50 firms. The results indicate that corporate governance does matter in Pakistan. However, not all elements of governance are important. The board composition and ownership and shareholdings enhance firm performance, whereas disclosure and transparency has no significant effect on firm performance. We point out that those adequate firm-level governance standards can not replace the solidity of the firm. The low production and bad management practices can not be covered with transparent disclosures and transparency standards.