Corporate governance and firm performance: evidence from india

Abstract

The study presented here examines the relationship between corporate governance indicators and firm performance. Academia has explored the said topic in depth at the global as well as Indian levels. Our research complements the present literature. Additionally, we put forward an argument that one rule doesn't fit all companies. To investigate such a hypothesis, we aimed at achieving two objectives. Firstly, we explore the evolution of corporate governance in India in light of various scams. Secondly, we incorporated several statistical models on empirical data collected from BSE 500 non-financial companies from 2013 to 2022. The corporate governance indicators like board meetings attended, CEO duality, types of directors and promoter ownership have been used as independent variables. Whereas, the firm performance in the form of return on assets is implemented as the dependent variable. The sample of 295 companies is further divided based on their market capitalization i.e. into small, mid and large-cap. As the sample consisted of both time-series and cross-section data, fixed effect panel data was sought to be a suitable approach. The board meetings and CEO duality entailed a positive relation to ROA for all three caps at different significance levels. Executive and independent directors have a negative relationship with ROA. Gender diversity and promoter ownership have differing results for all three categories of companies. Henceforth, the results affirm our argument that corporate governance indicators do not have a similar impact on firms with varying market capitalization. The results advocate a stricter requirement for corporate governance laws for Indian companies. Moreover, a necessity for tailored practices for different companies based on their market size has also emerged as a practical implication.