Impact of Corporate Governance on Financial Returns of Indian Listed Companies

Sanjeeb Kumar Dey,Debabrata Sharma

doi:10.33215/sjom.v4i4.717

Abstract

Purpose- In this paper, we have evaluated the relationship of corporate governance with companies’ financial returns using return on assets (ROA) and return on capital employed (ROCE) as proxies. For this purpose, companies listed in Nifty-50 are considered as a sample. Design/Methodology- The present study is conducted on the NIFTY-50 Index with a final sample of 35 companies after excluding banking companies, financial services companies, and companies that did not have the required data in the sample period. Data has been collected for ten years from 2009-10 to 2018-19, and they are analyzed with the help of software packages such as SPSS and Stata. Findings- The results showed that firms’ financial return measures (ROA and ROCE) were significantly affected by governance measures, board committees, and CEO duality. Board size, board meetings, and board independence did show positive relation, but it was not significant. Our analysis observed that corporate governance significantly affected the financial return of Indian listed companies. Practical Implications- Our research work indicated the importance of corporate governance in generating financial returns for Indian listed companies. CEO duality is found to be increasing the ROCE of listed companies in India, and therefore investors should choose such companies where the CEO plays a dual role in the board. Also, policymakers should take into consideration the dual role of CEOs while making changes in company regulations.

Highlights

The focus has been shifted from management to corporate governance (CG) during the last century
In studying how the financial returns of Indian listed companies are affected by corporate governance, we used correlation and regression models to arrive at suitable conclusions
The present study examined a hypothesized relationship between two important aspects of financial performance with selected corporate governance variables for the Indian companies listed in the Nifty-50 Index of the National Stock Exchange

Summary

Introduction

The focus has been shifted from management to corporate governance (CG) during the last century. Organizations are giving more attention to their governance aspect as they are witnessing its dual role. A positive impact happens when the governance system is well structured and has a negative effect in case of its failure. The word governance is ancient, but the phrase corporate governance is young. After the 1991 economic reforms, the significance of corporate governance has increased mainly because of the entry of private companies. Globalization, access to global markets, and being listed on overseas exchanges have made the Indian corporates keen-eyed towards safeguarding investors’ interests and promoting transparency. Recession and corporate governance reforms have a cyclical relationship. Economies try to make reforms, but governance still fails, and the cycle continues, and it continues till

Methods

Results

Discussion

Conclusion