Are Internal Governance Mechanisms Efficient? Case of a Developing Economy
IIMB Management Review, 2021,https://doi.org/10.1016/j.iimb.2021.08.004.
Posted: 15 Oct 2018 Last revised: 21 Aug 2021
Date Written: August 19, 2021
The study examines the relationship between internal corporate governance mechanisms and corporate financial performance considering the endogeneity between corporate governance and firm characteristics utilising a sample of large listed Indian firms. We construct and validate a "Corporate Governance Index" based on six internal governance mechanisms affecting the governance of Indian firms. The study estimates the model using the simultaneous equation method. The results suggest that corporate governance has a positive association with corporate financial performance. Thus, the firms will gain by improving their corporate governance as it leads to better corporate financial performance, which is in the interest of all stakeholders.
Keywords: Corporate Governance Index, Construct Validity, Corporate Financial Performance, Endogeneity, Simultaneous Equation Method, India
JEL Classification: C23, C36, C38, C43, G18, G34, L25, M41, M42
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