External Governance, Corporate Governance, Firm Performance and Economic Growth in the UK and India

Abstract

This research investigates the connection between corporate governance and firm performance, corporate governance, and economic growth, the moderating effect of external governance on corporate governance and firm performance, and economic growth by using a sample of one hundred companies listed on the National Stock Exchange of India (NSEI), and one hundred companies listed on the London Stock Exchange (LSE) between 2011 and 2020. We construct three governance indices –the Internal Corporate Governance Index (ICGI) based on 100 elements of governance, and the External Governance index (X-GI) based on World Bank Institutional Quality measures. The study uses GMM Dynamic Panel Data to test the hypotheses. Results show that our newly constructed indexes (the ICGI and CCGI) have significant relationships with firm performance (ROE, Tobin’s Q,) and economic growth (growth in GDP) in both the UK and India. Findings also show that external governance negatively moderates the relationship between corporate governance and firm performance, and the relationship between corporate governance and economic growth for India. The case for the UK is different as external governance positively moderates the relationship between corporate governance and firm performance. However, no significant moderating effect is seen between corporate governance and economic growth.
 Keywords: Corporate governance, Institutional quality, Firm performance, Economic growth