Corporate Governance and Financial Performance: An Emerging Economy Perspective

Haque, F. & Arun, T.G. (2016). Corporate governance and financial performance: an emerging economy perspective. Investment Management and Financial Innovations, Vol. 13, Issue 3 (cont.-1), pp. 228-236.

25 Pages Posted: 19 Oct 2014 Last revised: 18 Sep 2017

See all articles by Faizul Haque

Faizul Haque

University of Southampton; University of Southampton

Thankom Arun

University of Essex - Essex Business School

Date Written: August 30, 2016

Abstract

This paper investigates the influence of firm-level corporate governance on financial performance of the listed firms in Bangladesh. Agency theory suggests that better corporate governance reduces expropriation costs, which in turn enhances investors’ confidence in the firm’s future cash flow and growth prospects, leading to higher firm valuation. Likewise, a decrease in private benefits is likely to cause an improved operating performance. This paper uses a questionnaire survey-based corporate governance index (CGI), comprising of the three dimensions - shareholder rights, independence and responsibilities of the board and management, and financial reporting and disclosures. The study results partly confirm the prediction of the agency theory, with a statistically significant positive relationship between a firm’s corporate governance quality and its valuation, even though the relationship between firm level corporate governance and operating performance seems inconclusive.

Keywords: corporate governance index, agency theory, financial performance, Bangladesh

JEL Classification: G32, G34, G38, O16

Suggested Citation

Haque, Faizul and Arun, Thankom, Corporate Governance and Financial Performance: An Emerging Economy Perspective (August 30, 2016). Haque, F. & Arun, T.G. (2016). Corporate governance and financial performance: an emerging economy perspective. Investment Management and Financial Innovations, Vol. 13, Issue 3 (cont.-1), pp. 228-236., Available at SSRN: https://ssrn.com/abstract=2511561 or http://dx.doi.org/10.2139/ssrn.2511561

Faizul Haque (Contact Author)

University of Southampton ( email )

Highfield
University Road
Southampton, SO17 1BJ
United Kingdom

HOME PAGE: http://https://www.southampton.ac.uk/business-school/about/staff/fh1r21.page

University of Southampton ( email )

Highfield
University Road
Southampton, SO17 1BJ
United Kingdom

HOME PAGE: http://https://www.southampton.ac.uk/business-school/about/staff/fh1r21.page

Thankom Arun

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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