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

See all articles by Mehul Ashok Raithatha

Mehul Ashok Raithatha

Indian Institute of Management (IIM), Indore

Arunima Haldar

S.P. Jain Institute of Management and Research

Date Written: August 19, 2021

Abstract

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

Suggested Citation

Raithatha, Mehul Ashok and Haldar, Arunima, Are Internal Governance Mechanisms Efficient? Case of a Developing Economy (August 19, 2021). IIMB Management Review, 2021,https://doi.org/10.1016/j.iimb.2021.08.004., Available at SSRN: https://ssrn.com/abstract=3251671

Mehul Ashok Raithatha

Indian Institute of Management (IIM), Indore ( email )

Prabandh Sikhar
Rau-Pithampur Road
Indore, Madhya Pradesh 453331
India

Arunima Haldar (Contact Author)

S.P. Jain Institute of Management and Research ( email )

Munshi Nagar, Dadabhai Road
Andheri West
Mumbai, Maharashtra 119579
India

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