Corporate Governance and Firm Performance – Evidence From Indian Listed Companies

Amitava Roy


The belief that better CG leads to superior firm performance is widespread. Extant literature, however, has not consistently identified a relationship between CG and performance. The aim of this paper is to provide an exploratory inquiry into the dimensions and measurement of CG and to understand how it influences firm performance using principal component analysis (PCA). Our data consist of 58 listed Indian firms over the five year period from 2007-08 to 2011-12. Our measurement analysis begins with a broad sample of 37 structural indicators of CG relating to the board of directors, boards committees, audit considerations, ownership and capital structure characteristics, and control variables. We regressed ROA and MTBV, as measures of firm performance, against the factor scores generated in PCA. Firm performance, measured by ROA, resulted in R-square of 43.7%, and was significantly influenced by the 7 factors. Firm performance, measured by MTBV, resulted in R-square of 34.5%, and was significantly influenced by the 8 factors. We conclude that firm performance and value is strongly influenced by the CG structure of the firm.





Corporate Governance; Firm Performance; Principal Component Analysis

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