Corporate Governance and Firm Value – An Empirical Study of Financial Services Firms in India

Authors

  •   Gautam Negi Lal Bahadur Shastri Institute of Management, Plot No.11/7, Sector 11, Dwarka, New Delhi - 110 075
  •   Arpit Jain Lal Bahadur Shastri Institute of Management, Plot No.11/7, Sector 11, Dwarka, New Delhi - 110 075

DOI:

https://doi.org/10.17010/ijf/2022/v16i9/172159

Keywords:

Corporate Governance

, Corporate Valuation, Financial Services, Generalized Method of Moments.

JEL Classification Codes

, G20, G30, G32

Paper Submission Date

, July 25, 2021, Paper sent back for Revision, May 23, 2022, Paper Acceptance Date, June 15, Paper Published Online, September 15, 2022

Abstract

Empirical evidence on the association between firm value and corporate governance has mixed results depending on the chosen attributes for governance and firm value. The study investigated this relationship for financial services firms in India. Based on the literature review, four attributes of corporate governance were chosen: ownership concentration, institutional ownership, board independence, and CEO duality. Tobin’s Q value was taken as a proxy for firm value. The dataset consisted of 20 companies formin part of the National Stock Exchange financial services index. An additional two control variables are included in the model: the firm’s size and leverage ratio. All data were sourced from the annual reports of the companies, and the period of study is from 2016 – 2020. The panel data were analyzed using the generalized method of moments. The empirical findings revealed a positive and significant impact of ownership concentration, institutional ownership, and board independence on firm value, while the CEO duality role had no impact on firm value. The study contributed to the corporate governance literature of financial services firms in India.

Downloads

Download data is not yet available.

Downloads

Published

2022-09-01

How to Cite

Negi, G., & Jain, A. (2022). Corporate Governance and Firm Value – An Empirical Study of Financial Services Firms in India. Indian Journal of Finance, 16(9), 42–53. https://doi.org/10.17010/ijf/2022/v16i9/172159

Issue

Volume 16, Issue 9, September 2022

Section

Articles
Crossref
Scopus
Google Scholar
Europe PMC

References

Abdelzaher, A., & Abdelzaher, D. (2019). Women on boards and firm performance in Egypt: Post the Arab Spring. The Journal of Developing Areas, 53(1). https://doi.org/10.1353/jda.2019.0013

Adjaoud, F., Zeghal, D., & Andaleeb, S. (2007). The effect of board's quality on performance: A study of Canadian firms. Corporate Governance: An International Review, 15(4), 623–635. https://doi.org/10.1111/j.1467-8683.2007.00592.x

Aggarwal, R., Erel, I., Stulz, R. M., & Williamson, R. (2007). Do U.S. firms have the best corporate governance? A cross-country examination of the relation between corporate governance and shareholder wealth. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.954169

Ammann, M., Oesch, D., & Schmid, M. (2010). Corporate governance and firm value: International evidence. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1692222

Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277–297. https://doi.org/10.2307/2297968

Arora, A., & Sharma, C. (2016). Corporate governance and firm performance in developing countries: Evidence from India. Corporate Governance, 16(2), 420–436. https://doi.org/10.1108/cg-01-2016-0018

Baltagi, B. H. (2007). Forecasting with panel data. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1815319

Becht, M., Bolton, P., & Röell, A. (2002). Corporate governance and control. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.343461

Bhagat, S., & Black, B. S. (1998). The non-correlation between board independence and long-term firm performance. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.133808

Brown, L. D., & Caylor, M. L. (2006). Corporate governance and firm valuation. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.754484

Craswell, A. T., Taylor, S. L., & Saywell, R. A. (1997). Ownership structure and corporate performance: Australian evidence. Pacific-Basin Finance Journal, 5(3), 301–323. https://doi.org/10.1016/s0927-538x(96)00028-5

Dávila-Velásquez, J. P., & Lagos-Cortés, D. (2020). CEO duality and firm value: Evidence from Mexico. Entramado, 16(2), 12–23. https://doi.org/10.18041/1900-3803/entramado.2.6435

De Oliveira, R. M., Camara Leal, R. P., & Almeida, V. D. (2012). Large pension funds and the corporate governance practices of Brazilian companies. Corporate Ownership & Control, 9(2), 76–84. https://doi.org/10.22495/cocv9i2art6

Denis, D. K., & McConnell, J. J. (2003). International corporate governance. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.320121

Donaldson, L., & Davis, J. H. (1994). Boards and company performance - Research challenges the conventional wisdom. Corporate Governance: An International Review, 2(3), 151–160. https://doi.org/10.1111/j.1467-8683.1994.tb00071.x

Elsayed, K. (2007). Does CEO duality really affect corporate performance? Corporate Governance: An International Review, 15(6), 1203–1214. https://doi.org/10.1111/j.1467-8683.2007.00641.x

Gillies, J., & Dickinson, M. (1999). The governance of transnational firms: Some preliminary hypotheses. Corporate Governance: An International Review, 7(3), 237–247. https://doi.org/10.1111/1467-8683.00155

Glickman, M. (1996). Modigliani - Miller on capital structure: A post-Keynesian critique. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.46904

Goel, U., Bansal, N., & Sharma, A. K. (2015). Impact of corporate governance practices on working capital management efficiency: A structural equation modelling approach. Indian Journal of Finance, 9(1), 38 – 48. https://doi.org/10.17010//2015/v9i1/71534

Gompers, P., Ishii, J., & Metrick, A. (2003). Corporate governance and equity prices. The Quarterly Journal of Economics, 118(1), 107–156. https://doi.org/10.1162/00335530360535162

Gondrige, E. D., Clemente, A., & Espej, M. M. (2012). Composition of the board and firm value of Brazilian public companies. Brazilian Business Review, 9(3), 71–93. https://doi.org/10.15728/bbr.2012.9.3.4

Gupta, P. P., Kennedy, D. B., & Weaver, S. C. (2009). Corporate governance and firm value: Evidence from Canadian capital markets. Corporate Ownership & Control, 6(3–2), 293–307. https://doi.org/10.22495/cocv6i3c2p4

Hermalin, B. E., & Weisbach, M. S. (1991). The effects of board composition and direct incentives on firm performance. Financial Management, 20(4), 101–112. https://www.jstor.org/stable/3665716

Holderness, C. G., & Sheehan, D. P. (1988). The role of majority shareholders in publicly held corporations: An exploratory analysis. Journal of Financial Economics, 20, 317–346. https://doi.org/10.1016/0304-405x(88)90049-9

Jackling, B., & Johl, S. (2009). Board structure and firm performance: Evidence from India's top companies. Corporate Governance: An International Review, 17(4), 492–509. https://doi.org/10.1111/j.1467-8683.2009.00760.x

Javed, A. Y., Iqbal, R., & Hasan, L. (2006). Corporate governance and firm performance: Evidence from Karachi Stock Exchange. The Pakistan Development Review, 45(4), 947–964. http://www.jstor.org/stable/41260661

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405x(76)90026-x

John, K., De Masi, S., & Paci, A. (2016). Corporate governance in banks. Corporate Governance: An International Review, 24(3), 303–321. https://doi.org/10.1111/corg.12161

Koerniadi, H., Krishnamurti, C., & Tourani-Rad, A. (2014). Corporate governance and the variability of stock returns. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1535082

Kolias, G., Arnis, N., & Kypriotelis, E. (2019). CEO duality and firm distress. Open Journal of Accounting, 8(2), 19–34. https://doi.org/10.4236/ojacct.2019.82002

Kumar, P., & Zattoni, A. (2015). Ownership structure, corporate governance and firm performance. Corporate Governance: An International Review, 23(6), 469–471. https://doi.org/10.1111/corg.12146

Kumar, S., & Prusty, T. (2017). Empirical evidence of corporate governance disclosure and board size modular with financial performance in select IT companies in India. NMIMS Journal of Economics and Public Policy, 2(1), 36–46.

Kumari, P., & Pattanayak, J. K. (2015). Earnings management and corporate governance issues in the banking and finance sector: A review of literature. Prabandhan: Indian Journal of Management, 7(12), 22–32. https://doi.org/10.17010/pijom/2014/v7i12/59287

Liu, R. (2019). CEO duality and firm performance under endogeneity. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3409469

McConnell, J. J., & Servaes, H. (1990). Additional evidence on equity ownership and corporate value. Journal of Financial Economics, 27(2), 595–612. https://doi.org/10.1016/0304-405x(90)90069-c

Means, G. C. (1991). The modern corporation and private property (2nd edition). Routledge. https://doi.org/10.4324/9781315133188

Minton, B. A., Taillard, J., & Williamson, R. (2012). Financial expertise of the board, risk taking, and performance: Evidence from bank holding companies. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1455997

Mishra, S., & Mohanty, P. (2014). Corporate governance as a value driver for firm performance: Evidence from India. Corporate Governance, 14(2), 265–280. https://doi.org/10.1108/cg-12-2012-0089

Mitton, T. (2000). A cross-firm analysis of the impact of corporate governance on the East Asian financial crisis. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.246030

Mohapatra, P. (2016). Board independence and firm performance in India. International Journal of Management Practice, 9(3), 317–332. https://doi.org/10.1504/ijmp.2016.077834

Navissi, F., & Naiker, V. (2006). Institutional ownership and corporate value. Managerial Finance, 32(3), 247–256. https://doi.org/10.1108/03074350610646753

Noronha, M. R., & Mehta, P. U. (2012). Corporate governance and investment decisions. Prabandhan: Indian Journal of Management, 5(5), 41–46. https://doi.org/10.17010/pijom/2012/v5i5/60202

Nursetya, R. P., & Nur Hidayati, L. (2021). How does firm size and capital structure affect firm value? Journal of Management and Entrepreneurship Research, 1(2), 67–76. https://doi.org/10.34001/jmer.2020.12.01.2-7

Rajpurohit, P. D., & Rijwani, P. R. (2020). Financial reporting practices and internal corporate governance mechanisms in emerging markets. Prabandhan: Indian Journal of Management, 13(8–9), 8–27. https://doi.org/10.17010/pijom/2020/v13i8-9/155230

Saibaba, M., & Ansari, V. A. (2012). Impact of board size: An empirical study of companies listed in BSE 100 index. Indian Journal of Corporate Governance, 5(2), 108–119. https://doi.org/10.1177/0974686220120202

Sandhya, S., & Parashar, N. (2020). An index to study corporate governance in banks in India. Corporate Governance and Sustainability Review, 4(2), 40–49. http://doi.org/10.22495/cgsrv4i2p4

Shleifer, A., & Vishny, R. W. (1986). Large shareholders and corporate control. Journal of Political Economy, 94(3), 461–488. https://doi.org/10.1086/261385

Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. The Journal of Finance, 52(2), 737–783. https://doi.org/10.1111/j.1540-6261.1997.tb04820.x

Souther, M. E. (2021). Does board independence increase firm value? Evidence from closed-end funds. Journal of Financial and Quantitative Analysis, 56(1), 313–336. https://doi.org/10.1017/s0022109019000929

Stiles, P., & Taylor, B. (1996). The strategic role of the board. Corporate Governance: An International Review, 4(1), 3–10. https://doi.org/10.1111/j.1467-8683.1996.tb00125.x

Strier, F. (2005). Conflicts of interest in corporate governance. Journal of Corporate Citizenship, 19, 79–89.

Suresh Kumar, M. V., & Lakshmana Rao, C. H. (2021). Legal protection of minority shareholders under corporate governance process. International Journal of Current Science Research and Review, 4(4), 308–316. https://doi.org/10.47191/ijcsrr/v4-i4-09

Thenmozhi, M., & Sasidharan, A. (2020). Does board independence enhance firm value of state-owned enterprises? Evidence from India and China. European Business Review, 32(5), 785–800. https://doi.org/10.1108/ebr-09-2019-0224

Uppal, N. (2020). CEO narcissism, CEO duality, TMT agreeableness and firm performance: An empirical investigation in auto industry in India. European Business Review, 32(4), 573–590. https://doi.org/10.1108/ebr-06-2019-0121

Venkatraman, K., & Selvam, M. (2014). Impact of corporate governance practices and firm performance: An empirical study. Indian Journal of Finance, 8(12), 34–45. https://doi.org/10.17010/ijf/2014/v8i12/71691

Yang, T., & Zhao, S. (2014). CEO duality and firm performance: Evidence from an exogenous shock to the competitive environment. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2177403

Zhu, F. (2014). Corporate governance and the cost of capital: An international study. International Review of Finance, 14(3), 393–429. https://doi.org/10.1111/irfi.12034