Apu Manna (Balurghat College, India)
Tarak Nath Sahu (Vidyasagar University, India)
Arindam Gupta (Vidyasagar University, India)

Governance-Led Corporate Performance: Theory and Practice

ISBN: 978-1-78973-848-3, eISBN: 978-1-78973-847-6

Publication date: 21 August 2019


Manna, A., Sahu, T.N. and Gupta, A. (2019), "Prelims", Governance-Led Corporate Performance: Theory and Practice, Emerald Publishing Limited, Leeds, pp. i-xvi.



Emerald Publishing Limited

Copyright © 2019 Emerald Publishing Limited

Governance-Led Corporate Performance

Governance-Led Corporate Performance: Theory and Practice

Apu Manna

Balurghat College, India

Tarak Nath Sahu

Vidyasagar University, India

Arindam Gupta

Vidyasagar University, India

United Kingdom – North America – Japan India – Malaysia – China

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ISBN: 978-1-78973-848-3 (Print)

ISBN: 978-1-78973-847-6 (Online)

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List of Tables ix
List of Abbreviations xi
About the Authors xiii
Preface xv
1. Conceptual Approach of Corporate Governance 1
1.1. Introduction 1
1.2. Corporate Governance and Its Various Dimensions 2
1.3. Corporate Governance Mechanisms 3
 1.3.1. Ownership Structure 4
 1.3.2. Board of Directors 5
 1.3.3. CEO Characteristics 6
1.4. Theories of Corporate Governance 6
 1.4.1. Agency Theory 6
 1.4.2. Stewardship Theory 7
 1.4.3. Resource Dependence Theory 8
 1.4.4. Stakeholder Theory 9
 1.4.5. Signalling Theory 9
 1.4.6. Managerial Hegemony Theory 9
 1.4.7. Political Theory 10
1.5. Motivation of the Study 10
1.6. Chapter Plan of the Book 11
2. Corporate Governance in India 13
2.1. Introduction 13
2.2. Three Historical Models and their Development Impact in India 14
 2.2.1. The Managing Agency Model (1850–1956) 14
 2.2.2. The Business House Model (1956–1991) 15
 2.2.3. The Anglo-American Model (1992 to Date) 16
2.3. Features of Corporate Governance in India 17
2.4. Corporate Governance Codes in India 18
 2.4.1. CII Code on Corporate Governance (1998) 19
 2.4.2. Kumar Mangalam Birla Committee on Corporate 
Governance (1999) 20
 2.4.3. Naresh Chandra Committee on Corporate Audit and 
Governance (2002) 21
 2.4.4. Narayana Murthy Committee Report on Corporate 
Governance (2003) 22
 2.4.5. Dr J. J. Irani Committee Report on Company Law (2005) 24
2.5. Corporate Governance and Legislations in India 25
 2.5.1. Amendments to the Companies Act 1956 25 The Companies (Amendment) Act 2000 25 The Companies (Amendment) Act 2001 26 The Companies (Amendment) Bill (2003) 26 The Companies (Amendment) Bill (2008) 27
 2.5.2. The Companies Act 2013 28
 2.5.3. SEBI: Regulation of Capital Market 29
2.6. Good Governance Indicators 30
2.7. Summary 32
3. Literature Review 33
3.1. Introduction 33
3.2. An International Approach 34
3.3. A National Approach 48
3.4. Research Gap 51
3.5. Objectives of the Study 52
3.6. Research Hypotheses 53
4. Data and Methodology 55
4.1. Data 55
 4.1.1. Data Source 55
 4.1.2. Sample Selection Procedure 55
 4.1.3. Study Period 56
 4.1.4. Selection of Variables 56 Dependent Variables 56 Cash Earnings Per Share 56 Return on Capital Employed 57 Tobin’s Q 57 Market Value Added 58 Independent Variables 58 Promoters’ Shareholding 58 Institutional Investors’ Shareholding 59 Board Size 59 Proportion of Executive Directors 59 Proportion of Independent Directors 
in Board 59 Multiplicity of Directorship 59 CEO Duality 60 CEO Tenure 60 Control Variables 60 Executive Remuneration 60 Size of the Firm 60 Growth in Profit After Tax 61 Debt Equity Ratio 61 Assets Turnover Ratio 61
4.2. Research Methodology 61
 4.2.1. Statistical Methods Used 61 Descriptive Statistics 62 Bi-variate Data Analysis 62 Test for Multicollinearity 62 Detection of Multicollinearity Property 63 Test for Heteroskedasticity 63 Test for Autocorrelation 63 Panel Data Model 64 Advantages of Panel Data Model 64 Techniques of Panel Data Model 64 Constant Coefficient Method or 
Pooled OLS Method 64 FEM or Least Square Dummy 
Variable Regression Model 65 REM or Error Component Model 65
 4.2.2. Scheme of Investigation 67
5. Analysis and Findings 69
5.1. Descriptive Statistics 69
5.2. Analysis of Bi-variate Correlation 71
5.3. Detection of Multicollinearity Property 72
5.4. Detection of Heteroskedasticity 72
5.5. Analysis of Multiple Regressions: Panel Data Model 74
5.6. Key Findings and Its Interpretations 82
 5.6.1. Ownership Structure and Corporate Performance 82 Promoters Shareholding and Firm Performance 82 IINV and Firm Performance 84
 5.6.2. BS, Composition and Corporate Performance 84 BS and Corporate Performance 84 EDs and Firm Performance 85 IDs and Firm Performance 85 MD and Firm Performance 86 CEO Characteristics and Performance 86
 5.6.3. Control Variables and Corporate Performance 86
6. Summary and Conclusion 89
6.1. Summary 89
6.2. Conclusion 90
6.3. Contribution of the Study 91
6.4. Policy Recommendation 92
6.5. Limitations and Scope for Further Research 92
Bibliography 95
Index 103

List of Tables

Table 1. Descriptive Statistics of Dependent, Independent and 
Control Variables 70
Table 2. Bi-variate Analysis: Correlation Analysis 72
Table 3. Correlation Matrix and VIF Values of Independent and 
Control Variables 73
Table 4. Tests of Heteroskedasticity 74
Table 5. Regression Results: Dependent Variable – ROCE 75
Table 6. Selection of an Appropriate Model of Regression Analysis 76
Table 7. Regression Results: Dependent Variable – CEPS 77
Table 8. Selection of an Appropriate Model of Regression Analysis 78
Table 9. Regression Results: Dependent Variable – TQ 79
Table 10. Selection of an Appropriate Model of Regression Analysis 80
Table 11. Regression Results: Dependent Variable – MVA 81
Table 12. Selection of an Appropriate Model of Regression Analysis 82
Table 13. Summarized Regression Results 83

List of Abbreviations

ATR Assets Turnover Ratio
BSE Bombay Stock Exchange
BS Board Size
BSC Balanced Scorecard
CEO Chief Executive Officer
CEPS Cash Earnings Per Share
CG Corporate Governance
CVA Cash Value Added
D/E Debt and Equity Ratio
DPS Dividend Per Share
DP Dividend Payout
EPS Earnings Per Share
ED Executive Director
ER Executives’ Remuneration
EVA Economic Value Added
FEM Fixed Effect Model
ID Independent Director
IINV Institutional Investors’ Shareholding
M-Cap Market Capitalisation
MD Multiplicity of Directorship
MVA Market Value Added
PAT Profit After Tax
P/E Ratio Price Earnings Ratio
PS Promoters’ Shareholding
REM Random Effect Model
RI Residual Income
ROA Return on Assets
ROCE Return on Capital Employed
ROI Return on Investment
SIZE Size of the Firm
SEBI Security Exchange Board of India
SR Shareholder Return
SROI Social Return on Investment
SVA Shareholder Value Added
TBR Total Business Return
TSR Total Shareholder Return
TQ Tobin’s Q
VIF Variance Inflation Factor
WAI Wealth Added Index

About the Authors

Dr Apu Manna is presently an Assistant Professor in the Department of Commerce, Balurghat College, Balurghat, West Bengal, India. He has over four years of undergraduate teaching and research experience. Dr Manna passed M.Com. in Accounting and Finance with silver medal. He has attended several workshops and faculty development programmes and presented a number of research articles in several national and international doctoral colloquium, seminars, symposiums and conferences. He has a number of published research works to his credit in the field of Commerce, Economics and Management in different avenues of publication like national and international journals and edited volumes. He is the life member of Indian Accounting Association.

Dr Tarak Nath Sahu is presently an Assistant Professor in the Department of Commerce, Vidyasagar University, Midnapore, West Bengal, India. He has over 12 years of postgraduate teaching and research experience. His specialisation is in finance and financial markets and his research publications are in the area of corporate finance, corporate governance, financial market, investment behaviour, etc. Dr Sahu, a gold medalist at both graduate and post-graduate levels, has authored two books published by Palgrave Macmillan, New York, and Emerald Publishing Limited, UK, and co-edited four books. Dr Sahu has published more than 40 research articles in reputed national and international journals.

Dr Arindam Gupta is presently a Professor in the Department of Commerce, Vidyasagar University, Midnapore, West Bengal, India. He has over 24 years of postgraduate teaching and research experience. His specialisation is in finance and public policy. Dr Gupta is gold medalist at post-graduate level, has a post graduate diploma in financial management and professional qualification of cost and management accountancy. He has completed four research projects sponsored by University Grants Commission and also post-doctoral assignment at Indian Institute of Management Calcutta. Dr Gupta has published more than 100 articles in reputed national and international journals, authored/edited 4 books, and has presented papers in more than 200 occasions in international and national level conferences or lecture programmes.


The economic growth of any nation largely depends on the vitality of its industry and capital market at large. The responsibility of maintaining the health of the industry as well as capital market mostly depends on the efficiency and effectiveness of the controlling agencies of government and their implemented policies, practices, rules, regulations, etc. A major part in the subject of corporate governance deals with these issues and ensures their apt implementation in the business corporations. The industrial growth in India along with the development of corporate culture started after independence in 1947 but the expression ‘corporate governance’ remained in vogue until 1990. The concept of corporate governance and its problems are as old as the concept of a business corporation and especially the joint stock companies. It started gaining importance after experiencing a number of corporate scandals come out mainly after economic liberalisation. In India, the crucial need for corporate governance was first realised with the occurrence of Harshad Mehta’s scam that was exposed in April 1992. During the last two decades along with many developed and developing economies, India also witnessed a number of serious cases of corporate misgovernance in a handful of joint stock companies. It was clearly indicating the nature and extent of corporate misgovernance that exists in those Indian companies.

In this context, the impact of corporate governance on corporate performance is gradually becoming a key area in research. Although a number of notable studies have been conducted to establish the relationship most of them typically focussed on developed economies and the effect of these corporate governance issues on the firm performance in emerging economies like India has got little attention. The results of earlier studies also provide contradictory findings. By considering the stewardship theory, some studies have suggested that larger board size is better for the firm, whereas by considering the agency theory some studies support small boards and less outsiders. Believing the resources dependency theory some studies have stated that large numbers of outsiders in the board help the organisation to get key resources for the organisation conveniently.

These contradictory findings of the earlier studies became the principal drive behind conducting this research work. This extensive research regarding the effect of corporate governance variables on firm performance in India addresses basic questions for specific areas viz., corporate board, ownership structure and chief executive officer characteristics. Findings of this study provide a comprehensive understanding of the dynamic relationship between corporate governance variables and corporate performance in Indian companies. It discusses the theoretical hypotheses of this relationship and compares with empirical evidence as available from earlier research works. The present study is expected to add several primary contributions to the extant literature. Besides investors, findings of the study help an organisation to determine their policies regarding ownership structure and board composition. Again this study may also provide support to the corporate governance policy-making agencies of the country to provide recommendations regarding board size, independence of the board, multiplicity of directorship, etc.

Thus, such a study is worth undertaking in emerging economies like India, in view of the fact that the study contributes to managerial science by providing scientific elements through identification and validation of the effects of corporate governance variables on corporate performance.