Corporate governance, configurational approach and financial performance: some evidence from Indian listed SMEs
Benchmarking: An International Journal
ISSN: 1463-5771
Article publication date: 25 April 2023
Issue publication date: 2 May 2024
Abstract
Purpose
Public listing of small and medium enterprises (SMEs) stimulates unremitting transformations into their corporate governance (CG) practices. These transformations in CG are likely to impact the financial performance (FP). The current study examines how individual corporate CG mechanisms and their mutual interactions (configurational approach) stimulate the FP of listed SMEs. The study selects promoters’ ownership (PO), the board (B-INX) and information disclosures (DISC) as individual CG mechanisms. In addition, market competition (COMP) is considered a form of external governance/regulation.
Design/methodology/approach
The study uses five years of panel data (2018–2022) of 80 SMEs listed on the Bombay Stock Exchange’s (BSE) SME listing platform in India. Panel data fixed effects and cluster robust standard errors estimated. In addition to the impact of individual CG mechanisms, their mutual interactions (configurational approach) are tested using moderated hierarchical regression and confirmed by slope tests.
Findings
The results signify the ineffectiveness of individual CG mechanisms when acting in silos. However, their mutual interactions drive the FP. A hierarchy of results is obtained. PO is the dominant form of internal CG, negatively influencing the relevance of B-INX and DISC. B-INX tends to adhere to good governance by positively moderating the impact of DISC on FP. Lastly, COMP acts as external governance that dominates the ownership effects. Findings reveal that the interactions among individual CG mechanisms are essential to the FP of listed SMEs. Such interactions adjust the agency theory dynamics of CG in these firms.
Research limitations/implications
The study takes a holistic approach to investigate the agency theory dynamics via the mutual interactions among multiple CG forms. It highlights how the presence of a dominant form of CG can adjust the financial effect of others, thereby adjusting agency theory dynamics.
Practical implications
These results hold practical significance for SMEs in multiple ways. SMEs should embrace configurational approach to comprehend their agency dynamics. The configurational approach of CG mechanisms is the way forward for SMEs, which are known to be financially constrained. In other words, the fact that the resiliency of SMEs is very often questioned calls for the configurational approach, where different CG mechanisms coexist to drive FP.
Originality/value
The study is by far the first of its kind to investigate the CG of listed SMEs against the backdrop of the configurational approach. The findings will benefit industry practitioners, academics and regulatory bodies to visualize the governance practices through the lenses of configurational approach.
Keywords
Acknowledgements
The authors acknowledge the entire journal team, its respected editors and editorial team, and the peer-reviewers for the guidance they have provided in the journey of this article. The authors also thank the publishing team for their efforts in this manuscript and extend special thanks to Mr. Kulvinder Singh for his support in some part of data collection.
Citation
Singh, K. and Rastogi, S. (2024), "Corporate governance, configurational approach and financial performance: some evidence from Indian listed SMEs", Benchmarking: An International Journal, Vol. 31 No. 4, pp. 1115-1141. https://doi.org/10.1108/BIJ-10-2022-0658
Publisher
:Emerald Publishing Limited
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