Value Boosters or Dampers? Insights of Corporate Governance Practices From Pakistan

Abstract

Rampant corporate failures have placed corporate governance in the limelight again however not all governance practices help firms in enhancing value. This empirical research examines impact of corporate governance practices on shareholders' value represented by earning per share of 243 listed firms on Pakistani Bourse. It ensued in the conclusion that overall corporate governance tends to have significant impact on earnings per share and reveals dichotomy of corporate governance practices based on direction of their association with share holders' value and terms them as value boosters and value dampers. It has also been found that pro-entrenchment practices tend to lower earnings per share in the listed firms either due to complacency or vested interests while rest of the practices help in enhancing value earned on each share thus endorsing the theoretical perspectives emanating out of agency and shareholder activism theories. This study emphasizes the significance of Board Attendance, Board Independence, Non-duality of CEOChairman Role for listed firms' value. It also shows that entrenchment acts like larger boards, directors' ownership, large block holders and disclosure of such ownership can adversely impact the firms' value and thus play a significant role in scaring away the potential investors who primarily look at earnings per share for buying of stocks of a particular company. It entails policy implications that implementation of counter-entrenchment regulations needs strengthening as the existing seem to have cosmetic effect. Identification and implementation of good governance practices can be best ensured when propagated in the perspective of value enhancement.