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

e said that the board size affects the firm’s performance. In India larger boards are less effective than
smaller boards, except in the case of PSUs (Dey & Chouhan, 2007). Thirdly one size does not fit to all,
standard board size vary from country to country and also depends on the nature of industry. In India
smaller board are more successful particularly in private sector because of ease in decision making and
less conflicts.
These findings that there is a relationship between board size and firm performance are in congruence
with the past studies carried out by (Dalton et al., 1998; Hermalin and Weisbach, 2003; U. M. Uadiale,
2007; Balasubramanian, 2008 and Larmou & Vafeas, 2009) which have identified the effects of board
size on the firm’s performance, and found them to be correlated.
Fourthly the study results found that relationship of significant nature exist between board
composition and firm performance. Hence, in simple words we can say that these factors are correlated
and do have an impact on each other as well but the strength of relationship is not very strong. It can
be further said that the board composition affects the firm’s performance. Fifthly in India larger boards
are less effective than smaller boards, except in the case of PSUs. Smaller board with non compliance
and larger boards with compliance to standard corporate governance practices show higher levels of
ROCE, ROA, and ROE the only change is in the case of PAT where the larger boards with the
compliance and non compliance both are showing the higher degree of PAT. It can be possible
because the firms with firms with the larger capital will show higher profits.
The results can be backed by the previous research outcomes, many researchers have found the
positive and significant relationship between board composition and firms performance such as (Kim
and Lee, 2003; Tvevor W. Chamberlain, 2007; Ameer et.al., 2009) and many other researchers
propounds the same. The number of independent directors on the board plays a very important role.
The ratio of executive to non executive directors ensures the fair decision making. Sixthly both the
number and proportion of outside directors are positively and significantly correlated to the firm
performance. In the India majority of private sector firms are owned by the individuals, or families.
The promoters are the dominant shareholders and ownership is spread amongst the family members
and group of friends. Therefore it becomes very significant to have more number of independent
directors on the board so that the interest of minority shareholders can be protected.
Seventhly in the case of ownership structure and firm performance, it was found that
relationship of insignificant nature exist between the dependent and independent variables. Hence, it
can be said that these two variables are not correlated. It can be further said that the ownership
structure does not affects the firm’s performance.
In the nutshell we can say that there is a difference between the corporate governance system in
UK, USA and INDIA. The corporate governance of the countries like UK and USA is based on the
Anglo American model in which the ownership and management are separate, whereas in the India
majority of the cases management and ownership is same. In India in case of majority of firms
specially belonging to private sector ownership belongs to an individual or family or group of closely
related corporate. In the case of state owned enterprises the ownership is with the government in both
the cases the ownership pattern is either concentrated or is in bloc holding by government, corporate,
and group of institutions. Capital market in India is not developed enough to encourage the diversified
ownership structure. Therefore the study results suggest no relationship between the ownership
structure and firm performance in India. The results can be backed by the previous research outcomes
,for instance in a study based on 137 listed firms of Tehran Stock Exchange for the period of 2001-
2006 , (Alireza Fazlzadeh; Ali Tahbaz Hendi and Kazem Mahboubi, 2011) found that the ownership
concentration did not have any significant effect on the firm’s performance. There are many other
studies in the western countries who find the positive relationship between the ownership structure and
firm performance. The reason for that outcome could be the difference in the political governance,
legal and regulatory framework and the governance system. As mentioned before in the countries like
UK and USA the ownership and management are separate from each other, where as in India in
majority of the cases the ownership and the management is the same and the firms where both are
separate suffers from the holding and agency problem.
www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 96