Research Journal of Economics & Business Studies - RJEBS - The ...

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Board Composition, Ownership Structure and Firm Performance Jyotsna Ghildiyal Bijalwan (Department of Management Studies,) Uttarakhand Technical University, India. Email-jyotsnaghildiyal@yahoo.com Dr. Pankaj Madan Associate Professor, Faculty of Management Studies, Gurukul kangri vishwavidyalaya, India. Email- pankaj_mad@yahoo.com Abstract The study primarily focuses on investigating the relationship between corporate governance and the firm performance. Board composition and Ownership structure are primarily taken as the factors of corporate governance, where as financial performance of the firm is measured with the financial ratios viz. Return on Capital employed, Return on the equity, Profit after tax and Return on assets. For the detail study purpose we have divided the board composition into two components a) Board size b) board composition. The study is based on the 121 small cap, mid cap and large cap companies listed on the Bombay Stock Exchange (BSE) India, for the period of 2010 -2011.Our empirical analysis of the data is suggestive of the result of that a relationship of positive and significant nature exists between board size & board composition and firm’s financial performance in India. We also found that there is no relationship exists between ownership structure and firm performance. Key words: board size, board composition, ownership structure, corporate governance, financial performance, India. Introduction Corporate governance can be viewed as a mechanism that ensures external investors receive proper returns on their investments. Effective corporate governance provides an assurance on the safety of the invested funds and the returns on investment (Shleifer and Vishny ,1997). The study primarily focuses on investigating the relationship between corporate governance and the firm performance. Many researchers have been investigating the relationship between corporate governance and firm performance by using the empirical data. There is no unanimous consent on the results of the studies (Patterson, 2000). Similarly another study shows that the corporate governance has a strong impact on the firm performance during the 1997-98 East Asian financial crises. The study further propounds that independent directors have traditionally been hailed as a way of improving, monitoring management (Kim and Lee, 2003). In an empirical study based on the Indian firms by Dwivedi and Jain (2005) with the sample size of 340 large listed Indian firms for the period of 1997 -2001. They found a positive and significant relationship between corporate governance and performance of Indian firms, by using a simultaneous equation regression model, whereby they used Tobin Q as the measure of firm performance and board size and ownership as components of corporate governance. Gupta (2006) in his study traced the difference in the corporate governance practices of three automobile companies in India named Hero- Honda Ltd, Maruti Udhyog Ltd. and Escorts Ltd. The companies were randomly selected on the basis of their size and goodwill in the market. The study was focused on observing the compliance of the selected sample companies’ corporate governance practices with the Clause-49.The results of the study revealed that the Hero-Honda with 90%, Marurti with 80% and Escorts with 70% were in line with the Corporate governance norms as per Clause-49. A study by Lee (2008) based on Korean firms tries to study the relationship between corporate governance and firm’s financial performance. In this study, the effect on Korean firms is empirically tested. The study is based on the agency theory of corporate governance. Ownership concentration and Ownership identity are taken as two components of the corporate governance and net income to total assets ratio (NIA) and ordinary income to total assets www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 86
atio (OIA) are taken as performance variables. The study with the multivariable regression analysis reveals the significant linear lump-shaped relationship between ownership concentration and firm performance and insignificant relationship between ownership identity and firm performance. In nutshell the study shows a positive and significant relationship between corporate governance and firm’s financial performance. In another study based on Chinese firms tried to find the relationship between the corporate governance and corporate performance of 106 High –tech small and medium size enterprises in China. The study through empirical analysis finds the relationship between ownership concentration and corporate performance follows a positive correlation. It further states that the relationship between shareholding ratio of the 2 nd to 10 shareholders, number of board and share holders meetings and executive remuneration shows a positive and significant relationship with corporate performance (Zhenyi, Li and Ying, 2010). There are some other studies which deny any relationship between corporate governance and firm performance. And many other studies show weak or insignificant relationship between corporate governance and the firm’s performance. For an e.g. study in Miami University, USA shows no relationship between corporate governance and firm’s performance (Daily and Dalton, 1992). There is no correlation between board independence and long term firm performance (Bhagat & Black, 1998). Similarly in another study by Bauer et al. (2004) on European firms found a negative relationship between corporate governance standards and firm’s performance. Some of the studies show a positive and significant relationship between corporate governance and firm performance, some studies reveal a negative and insignificant relationship or some studies even show a mixed result of the link between corporate governance and the firm performance. The results may vary due to different institutional environment across the countries (Carlin & Mayer, 2000). There is no unanimous consent on the results of the studies. Some of the studies show a positive and significant relationship between corporate governance and firm performance, some studies reveal a negative and insignificant relationship or some studies even show a mixed result of the link between corporate governance and the firm performance. Board composition (BC) and Ownership structure(OS) are primarily taken as the factors of corporate governance, where as financial performance of the firm is measured with the financial ratios i.e. Return on Capital employed (ROCE), Return on the equity (ROE), Profit after tax(PAT), Return on assets (ROA). For the detail study purpose the Board composition (BC) is further divided into two components a) Board size b) board composition. The study is based on the 121 small cap , mid cap and large cap companies listed on the Bombay Stock Exchange (BSE) India, for the period of 2010 -2011. The data are collected through Prowess database, maintained by CMIE (Center for monitoring Indian economy). Hypothesis development Board composition (BC) and firm’s performance Generally research on corporate governance and performance are based on principal-agent theory. Since the Berle and Means (1932) first proposed the characteristics of the modern corporation is the ownership and control power separation , mostly corporate governance and performance is researched from internal control and supervisory mechanisms that constitute by the specific forms of corporate governance the shareholders ' meeting, the board of directors and the management of the company, the results of our research focuses on the board size ,board composition and its effect on the firm performance. It further investigates the relationship between ownership structure and firm performance. Our study is also formulated on the grounds of the agency theory of corporate governance, where the management or board acts as agent and owners i.e. equity share holders are principal. Board size (BZ) Board size refers to the total number of the directors on the board for a particular financial year. There are no specific guidelines on the number of directors a company can have and there is no ideal board www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 87
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Table of Contents Articles PERFORMA
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servicing, and the policies not mee
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The Self-Help Group members get inc
Page 8 and 9:
Are female workers more productive
Page 10 and 11:
For the purpose of including explan
Page 12 and 13:
several different, competing logist
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Fisher, R.T. (2001), “Role stress
Page 16 and 17:
A Comparative Study of NPA of State
Page 18 and 19:
processes. Instead of fixing target
Page 20 and 21:
Agriculture Crisis and Sustainable
Page 22 and 23:
Table 1. World Cereal production ,
Page 24 and 25:
Expanding biofuel production The ex
Page 26 and 27:
percent of the world’s population
Page 28 and 29: OECD (Organisation for Economic Co-
Page 30 and 31: It can provide the earnings needed
Page 32 and 33: The incubator will also work toward
Page 34 and 35: factor. This is not an easy proposi
Page 36 and 37: ROLE OF LOCAL SELF GOVERNMENT IN LE
Page 38 and 39: During the last season red onion fa
Page 40 and 41: Table Mch2 Coef. Std. Err Z P>/Z/ A
Page 42 and 43: lack of capital. The local farmer o
Page 44 and 45: It may be seen that alleviation of
Page 46 and 47: Table - 2 Progress under Bharat Nir
Page 48 and 49: References Chandrasekhar, B P., et
Page 50 and 51: existing cooperative legislation, r
Page 52 and 53: 1.3 THE RESEARCH QUESTIONS 1. What
Page 54 and 55: Table 2: Earnings and Cost Allocati
Page 56 and 57: have an adequate amount of capital
Page 58 and 59: programs and the union was doing on
Page 60 and 61: total assets to other key areas, it
Page 62 and 63: esponded by (7.6%) of the members.
Page 64 and 65: management; Gohe cooperatives savin
Page 66 and 67: Significance of asset quality of St
Page 68 and 69: iii) iv) Doubtful Assets:- a) Doubt
Page 70 and 71: atios and solvency ratios are taken
Page 72 and 73: Ratio of around 3% during 2007-08,
Page 74 and 75: sufficient to draw an inference in
Page 76 and 77: The observed R 2 and F statistics m
Page 80 and 81: size as well. During our study it w
Page 82 and 83: standards prevailing in the country
Page 84 and 85: The procedure produces two tests of
Page 86 and 87: hoc test for pair wise comparisons
Page 88 and 89: e said that the board size affects
Page 90 and 91: high-tech small and medium-sized en
Page 92 and 93: Table no.8 - Multiple Comparisons T
Page 94 and 95: Abstract Corporate Social Responsib
Page 96 and 97: the participation of various level
Page 98 and 99: Supplier Relations As stakeholders
Page 100 and 101: CSR initiatives of companies should
Page 102 and 103: Corporate Social Responsibility Pra
Page 104 and 105: 2011, this district received surplu
Page 106 and 107: In the case of marginal farmers and
Page 108 and 109: Findings From the above analysis it
Page 110 and 111: 2. Innovation: Meaning and Dimensio
Page 112 and 113: data appropriately. Inferences were
Page 114 and 115: The regression analyses as shown in
Page 116 and 117: Role of Self-help Group in Socio-ec
Page 118 and 119: 10% for women and men respectively
Page 120 and 121: MoRD has been constantly reviewing
Page 122 and 123: 76.6% units were found to be existi
Page 124 and 125: 10.Timely release of adequate loans
Page 126 and 127: Standard of living of Rural Fisher
Page 128 and 129:
Table 1 denotes the infrastructure
Page 130 and 131:
FISHING METHODS USED BY DIFFERENT A
Page 132 and 133:
CONCLUSION Most of the fisher folk
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Objectives: The following objective
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Policies of the Government will hav
Page 138 and 139:
Wastage Schedule (Onion) Sl.No. Pri
Page 140 and 141:
At the end of 2008 the entire world
Page 142:
Conclusion: 9. The inflation can be
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