Corporate Governance and Corporate Performance: Does Former Explains Latter in Corporate India?

Abstract

This paper discusses the effects of Corporate Governance (CG) on corporate performance. This study investigates the nature and intensity of influence CG exercises on the firm performance. The main goal is to prove that CG is a determinant for firm performance. Main attention was paid to ANOVA based inferential statistics, coefficient of correlation and Ordinary Least Squares (OLS) based regression analysis to investigate the objective. This topic was chosen to examine whether the positive correlations between CG and firm performance in western studies are applicable in Indian context. OLS based econometric modelling identifies Equity Multiplier Ratio (EMR) and Times Interest Earned (TIE) as leading indicators of Economic Value Added (EVA) that needs CG attention. The major findings of the paper are, there are no statistically significant differences among the means of EVA on comparing across CGPI categories. However, there exist a positive correlations in all CGPI categories with EVA. The above findings suggest that by a financial value chain, CGPI activism on the leading indicators of EVA will culminate in the improvement of EVA itself.

Keywords: Corporate Governance Performance Index, Firm Performance, Economic Value Added

JEL Classification: G34, G30