Abstract
Corporate Governance refers to the mechanism which ensures that while a firm is achieving its goal of shareholder’s wealth maximization, this achievement should not be at the cost of other stakeholders. This study attempts to find an empirical evidence for impact of corporate governance on firm’s financial performance. A sample of 50 non financial firms (listed on any one of three stock exchanges) was randomly selected. The study period covers from 2003 to 2005, thus analyzing 150 firm years. To measure the quality of Corporate Governance practices in the sample firms, a Corporate Governance Index (CGI) consisted of 30 indicators/parameters was developed which measure the strength/quality of Corporate Governance practices. Then these CG index scores for each firm were compared with the financial performance indicators i.e. ROA, ROE, Price to Book ratio and P/E of the sample firms to find out any relationship between them. The results show that CGI scores are positively associate with ROA, ROE and Price to Book (P/B) ratio and statistically significant. P/E is also positively correlated with CGI scores but the impact is insignificant.
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