DOES CORPORATE GOVERNANCE STIMULATE FIRM PERFORMANCE? ASSESSING CORPORATE GOVERNANCE PRACTICES TOWARDS SOCIAL WELFARE
Keywords:
Corporate Governance, Firm’s Profitability, Multinational Companies, Asian Countries, Social Welfare
Abstract
The objective of this research is to determine the relationship between corporate governance practices and firm performance for the World’s largest multinational companies in Asian countries for the period of 2008 to 2017 based on Agency Theory. The results demonstrate that the variables of board independence, audit committee independence, ownership concentration, CEO duality and return on assets have positive and significant relationship with firm’s profitability, whereas, the variable of firm size has negative and significant correlation with profitability. Moreover, the endogeneity of the board structure variable was investigated by applying the Two Stage Least Squares (2SLS) regression model. The results of the 2SLS regression model depicts that variables of board independence, audit committee independence, ownership concentration, return on assets and volatility of stock prices have positive and significant association, whereas, the variable of firm size has negative and significant correlation with firm’s profitability. These results are consistent with recommendations of Agency theory. Better governance practices consider interests of all stakeholders including efforts for improving lives and welfare of labor/workers/employees which ultimately leads towards social welfare of the society as a whole.References
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GSE Research.
Bozec, Y., & Bozec, R. (2011). Corporate governance quality and the cost
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Bradley, M., & Chen, D. (2014). Does board independence reduce the cost
of debt? Financial Management, 44(1), 15-47.
Buallay, A., Hamdan, A., & Zureigat, Q. (2017). Corporate governance
and firm performance: evidence from Saudi Arabia. Australasian
Accounting, Business and Finance Journal, 11(1), 78-98.
Burkart, M. (1995). Initial shareholdings and overbidding in takeover
contests. The Journal of Finance, 50(5), 1491-1515.
Chahine, S. (2004). Corporate governance and firm value for small and
medium sized IPOs. Financial Markets and Portfolio
Management, 18(2), 143-159.
Ciftci, I., Tatoglu, E., Wood, G., Demirbag, M., & Zaim, S. (2019).
Corporate governance and firm performance in emerging
markets: Evidence from Turkey. International Business Review,
28(1), 90-103.
Coskun, M., & Sayilir, Ö. (2012). Relationship between corporate governance
and financial performance of Turkish companies. International
Journal of Business and Social Science, 3(14), 59-64.
De Hoyos, R. E., & Sarafidis, V. (2006). Testing for cross-sectional
dependence in panel-data models. Stata Journal, 6(4), 482.
Dogan, M., Elitas, B. L., Agca, V., & Ögel, S. (2013). The impact of CEO
duality on firm performance: evidence from turkey. International
Journal of Business and Social Science, 4(2), 149-155.
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estimation with spatially dependent panel data. Review of
economics and statistics, 80(4), 549-560.
Ducassy, I., & Guyot, A. (2017). Complex ownership structures, corporate
governance and firm performance: The French context. Research
in International Business and Finance, 39, 291-306.
Ergin, E. (2012). Corporate Governance ratings and market-based
financial performance: evidence from Turkey. International
Journal of Economics and Finance, 4(9), 61-68.
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Governance Mechanisms, and the Financial Performance of
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and New Trends, XXIV, 29-58.
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Hamdan, A. M., Sarea, A. M., & Reyad, S. M. R. (2013). The impact of
audit committee characteristics on the performance: Evidence
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performance and financial distress: The experience of UAE
national banks. Journal of Financial Regulation and Compliance,
20(2), 169-181.
Ivashkovskaya, I., & Stepanova, A. (2011). Does strategic corporate
performance depend on corporate financial architecture?
Empirical study of European, Russian and other emerging
market’s firms. Journal of Management & Governance, 15(4),
603-616.
Jönsson, K. (2005). Cross-sectional Dependency and Size Distortion in a
Small-sample Homogeneous Panel Data Unit Root Test. Oxford
Bulletin of Economics and Statistics, 67(3), 369-392.
Klapper, F. L., & Love, I. (2002). Corporate governance, investor
protection, and performance in emerging markets. Journal of
Corporate Finance, 10(5), 703-728.
Kweh, Q. L., Kuo, K. C., Wang, W. K., & Liu, H. M. (2015). Board
independence, family control, and performance in Taiwanese
listed semiconductor companies. Hitotsubashi Journal of
Economics, 56(1), 93-115.
Lee, S. (2015). Corporate governance and firm performance: evidence
from institutional investors and proxy voting in Korea.
Hitotsubashi Journal of Economics, 56(1), 35-53.
Martani, D., & Saputra, Y. E. (2009). The impact of corporate governance
to the economic value added listed company in BEI 2003-2004.
China-USA Business Review, 8(3), 26-40.
Mohan, A., & Chandramohan, S. (2018). Impact of Corporate Governance
on Firm Performance: Empirical Evidence from India.
International Journal of Research in Humanities, Arts and
Literature, 6(2), 209-218.
Nuryanah, S., & Islam, S. (2011). Corporate Governance and Performance:
Evidence from an Emerging Market. Malaysian Accounting
Review, 10(1), 17-42.
Parks, R. W. (1967). Efficient estimation of a system of regression
equations when disturbances are both serially and
contemporaneously correlated. Journal of the American
Statistical Association, 62(318), 500-509.
Pham, P. K., Suchard, J. O., & Zein, J. (2016). Corporate Governance,
Cost of Capital and Performance: Evidence from Australian
Firms. Journal of Applied Corporate Finance, 24(3), 84-93.
Pillai, R., & Al-Malkawi, H.-A. N. (2018). On the relationship between
corporate governance and firm performance: Evidence from GCC
countries. Research in International Business and Finance, 44,
394-410.
Shleifer, A., & Vishny, R. W. (1986). Large shareholders and corporate
control. Journal of political economy, 94(3, Part 1), 461-488.
Stanwick, P. A., & Stanwick, S. D. (2010). The relationship between
corporate governance and financial performance: An empirical
study of Canadian firms. The Business Review, Cambridge,
16(2), 35-41.
Tornyeva, K., & Wereko, T. (2012). Corporate governance and firm
performance: Evidence from the insurance sector of Ghana.
European Journal of Business and Management, 4(13), 95–112.
Vintila, G., & Gherghina, S. C. (2012). An empirical investigation of the
relationship between corporate governance mechanisms, CEO
characteristics and listed companies’ performance. International
Business Research, 5(10), 175-191.
the cost of equity: empirical evidence from Pakistani listed
companies. The Lahore Journal of Economics, 14(1), 139-171.
Anum Mohd Ghazali, N. (2010). Ownership structure, corporate
governance and corporate performance in Malaysia. International
Journal of Commerce and Management, 20(2), 109-119.
Ararat, M., Black, B. S., & Yurtoglu, B. B. (2017). The effect of corporate
governance on firm value and profitability: Time-series evidence
from Turkey. Emerging Markets Review, 30, 113-132.
Ashbaugh, H., Collins, D. W., & LaFond, R. (2004). Corporate governance
and the cost of equity capital. Emory, University of Iowa.
Retrieved on January, 26, 2006.
Beck, N., & Katz, J. N. (1995). What to do (and not to do) with time-series
cross-section data. American political science review, 89(3), 634-647.
Blom, J., & Schauten, M. B. (2008). Corporate governance and the cost
of debt New developments in financial modelling (Vol. 116, pp.
116-145): Cambridge Scholars Publishing in association with
GSE Research.
Bozec, Y., & Bozec, R. (2011). Corporate governance quality and the cost
of capital. International Journal of Corporate Governance, 2(3-
4), 217-236.
Bradley, M., & Chen, D. (2014). Does board independence reduce the cost
of debt? Financial Management, 44(1), 15-47.
Buallay, A., Hamdan, A., & Zureigat, Q. (2017). Corporate governance
and firm performance: evidence from Saudi Arabia. Australasian
Accounting, Business and Finance Journal, 11(1), 78-98.
Burkart, M. (1995). Initial shareholdings and overbidding in takeover
contests. The Journal of Finance, 50(5), 1491-1515.
Chahine, S. (2004). Corporate governance and firm value for small and
medium sized IPOs. Financial Markets and Portfolio
Management, 18(2), 143-159.
Ciftci, I., Tatoglu, E., Wood, G., Demirbag, M., & Zaim, S. (2019).
Corporate governance and firm performance in emerging
markets: Evidence from Turkey. International Business Review,
28(1), 90-103.
Coskun, M., & Sayilir, Ö. (2012). Relationship between corporate governance
and financial performance of Turkish companies. International
Journal of Business and Social Science, 3(14), 59-64.
De Hoyos, R. E., & Sarafidis, V. (2006). Testing for cross-sectional
dependence in panel-data models. Stata Journal, 6(4), 482.
Dogan, M., Elitas, B. L., Agca, V., & Ögel, S. (2013). The impact of CEO
duality on firm performance: evidence from turkey. International
Journal of Business and Social Science, 4(2), 149-155.
Driscoll, J. C., & Kraay, A. C. (1998). Consistent covariance matrix
estimation with spatially dependent panel data. Review of
economics and statistics, 80(4), 549-560.
Ducassy, I., & Guyot, A. (2017). Complex ownership structures, corporate
governance and firm performance: The French context. Research
in International Business and Finance, 39, 291-306.
Ergin, E. (2012). Corporate Governance ratings and market-based
financial performance: evidence from Turkey. International
Journal of Economics and Finance, 4(9), 61-68.
Firth, M.A. & Rui, O.M. (2012). Does One Size Fit All: A Study of
Simultaneous Relations Among Ownership, Corporate
Governance Mechanisms, and the Financial Performance of
Firms in China. Corporate Governance: Recent Developments
and New Trends, XXIV, 29-58.
Gill, A., & Obradovich, J. (2013). The impact of corporate governance and
financial leverage on the value of American firms. International
Research Journal of Finance & Economics, 91, 45-56.
Hamdan, A. M., Sarea, A. M., & Reyad, S. M. R. (2013). The impact of
audit committee characteristics on the performance: Evidence
from Jordan. International Management Review, 9(1), 32-42.
Hassan Al-Tamimi, H. A. (2012). The effects of corporate governance on
performance and financial distress: The experience of UAE
national banks. Journal of Financial Regulation and Compliance,
20(2), 169-181.
Ivashkovskaya, I., & Stepanova, A. (2011). Does strategic corporate
performance depend on corporate financial architecture?
Empirical study of European, Russian and other emerging
market’s firms. Journal of Management & Governance, 15(4),
603-616.
Jönsson, K. (2005). Cross-sectional Dependency and Size Distortion in a
Small-sample Homogeneous Panel Data Unit Root Test. Oxford
Bulletin of Economics and Statistics, 67(3), 369-392.
Klapper, F. L., & Love, I. (2002). Corporate governance, investor
protection, and performance in emerging markets. Journal of
Corporate Finance, 10(5), 703-728.
Kweh, Q. L., Kuo, K. C., Wang, W. K., & Liu, H. M. (2015). Board
independence, family control, and performance in Taiwanese
listed semiconductor companies. Hitotsubashi Journal of
Economics, 56(1), 93-115.
Lee, S. (2015). Corporate governance and firm performance: evidence
from institutional investors and proxy voting in Korea.
Hitotsubashi Journal of Economics, 56(1), 35-53.
Martani, D., & Saputra, Y. E. (2009). The impact of corporate governance
to the economic value added listed company in BEI 2003-2004.
China-USA Business Review, 8(3), 26-40.
Mohan, A., & Chandramohan, S. (2018). Impact of Corporate Governance
on Firm Performance: Empirical Evidence from India.
International Journal of Research in Humanities, Arts and
Literature, 6(2), 209-218.
Nuryanah, S., & Islam, S. (2011). Corporate Governance and Performance:
Evidence from an Emerging Market. Malaysian Accounting
Review, 10(1), 17-42.
Parks, R. W. (1967). Efficient estimation of a system of regression
equations when disturbances are both serially and
contemporaneously correlated. Journal of the American
Statistical Association, 62(318), 500-509.
Pham, P. K., Suchard, J. O., & Zein, J. (2016). Corporate Governance,
Cost of Capital and Performance: Evidence from Australian
Firms. Journal of Applied Corporate Finance, 24(3), 84-93.
Pillai, R., & Al-Malkawi, H.-A. N. (2018). On the relationship between
corporate governance and firm performance: Evidence from GCC
countries. Research in International Business and Finance, 44,
394-410.
Shleifer, A., & Vishny, R. W. (1986). Large shareholders and corporate
control. Journal of political economy, 94(3, Part 1), 461-488.
Stanwick, P. A., & Stanwick, S. D. (2010). The relationship between
corporate governance and financial performance: An empirical
study of Canadian firms. The Business Review, Cambridge,
16(2), 35-41.
Tornyeva, K., & Wereko, T. (2012). Corporate governance and firm
performance: Evidence from the insurance sector of Ghana.
European Journal of Business and Management, 4(13), 95–112.
Vintila, G., & Gherghina, S. C. (2012). An empirical investigation of the
relationship between corporate governance mechanisms, CEO
characteristics and listed companies’ performance. International
Business Research, 5(10), 175-191.
Published
2019-01-13
Section
Articles
