Corporate Governance and Financial Performance: An Emerging Economy Perspective
Haque, F. & Arun, T.G. (2016). Corporate governance and financial performance: an emerging economy perspective. Investment Management and Financial Innovations, Vol. 13, Issue 3 (cont.-1), pp. 228-236.
25 Pages Posted: 19 Oct 2014 Last revised: 18 Sep 2017
Date Written: August 30, 2016
This paper investigates the influence of firm-level corporate governance on financial performance of the listed firms in Bangladesh. Agency theory suggests that better corporate governance reduces expropriation costs, which in turn enhances investors’ confidence in the firm’s future cash flow and growth prospects, leading to higher firm valuation. Likewise, a decrease in private benefits is likely to cause an improved operating performance. This paper uses a questionnaire survey-based corporate governance index (CGI), comprising of the three dimensions - shareholder rights, independence and responsibilities of the board and management, and financial reporting and disclosures. The study results partly confirm the prediction of the agency theory, with a statistically significant positive relationship between a firm’s corporate governance quality and its valuation, even though the relationship between firm level corporate governance and operating performance seems inconclusive.
Keywords: corporate governance index, agency theory, financial performance, Bangladesh
JEL Classification: G32, G34, G38, O16
Suggested Citation: Suggested Citation