Corporate governance as a value driver for firm performance: evidence from India
Abstract
Purpose
The study aims to examine corporate governance issues in India and establish the relationship between corporate governance and financial performance.
Design/methodology/approach
The sample comprises 141 companies belonging to the “A” group stocks listed in the Mumbai Stock Exchange of India. Considering the institutional uniqueness in India, a composite measure of corporate governance is developed comprising three indicators – legal, board and proactive indicators. Data on the three indicators and financial performance were procured from secondary sources. In the step-wise multiple regression analysis, the influence of these three indicators and the composite measure of corporate governance was examined on firm performance after controlling the confounding effects of firm size.
Findings
The board and the proactive indicators influence the firm performance significantly whereas legal compliance indicator does not do so. The composite corporate governance measure is a good predictor of firm performance.
Originality/value
This study has two contributions: one, it proposes a composite measure of corporate governance considering the unique institutional characteristics of the Indian economy. Two, the study establishes the predictability of the new measure of corporate governance on firm performance as a tool to boost investors' confidence and financial health of firms.
Keywords
Acknowledgements
Received 5 December 2012 Revised 11 April 2013 Accepted 26 April 2013
Citation
Mishra, S. and Mohanty, P. (2014), "Corporate governance as a value driver for firm performance: evidence from India", Corporate Governance, Vol. 14 No. 2, pp. 265-280. https://doi.org/10.1108/CG-12-2012-0089
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited