Corporate Governance And Firm Performance In Pharmaceutical Industry Of Pakistan

3362 words - 13 pages

AbstractThere has been much discussion recently about whether corporate governance makes a difference in improving company performanceThis study is initiated on "corporate governance and firm performance" with the samples of 8 pharmaceutical companies using the data from their annual reports, representing the periods of 2008 - 2012. Board committee, board meeting and board size including executive directors and non-executive directors were used as the determinants of corporate governance whereas return on assets (ROA) and return on equity (ROE) were used as the measures of firm performance. The study found that determinants of corporate governance are not correlated to the performance measures of the organization. Regression model showed that corporate governance don't affect companies' return on assets (ROA) and return on equity (ROE).Further recommendations are also put forwarded in the research.Key words: Corporate governance, firm performance, board size, board committee, board meeting.IntroductionA growing number of empirical researches have examined the effectiveness and structure of corporate governance towards company performance and there has been much discussion recently about whether corporate governance makes a difference to the bottom line that is, does good corporate governance improve company performance?In Pakistan, the first Code of Corporate Governance was finalized and issued by SECP in March 2002. Then it was subsequently incorporated in all the listed companies of three stock exchanges in Pakistan. In 2004, SECP took the first step to establish the Pakistan Institute of Corporate Governance in public private partnership.Corporate governance is the set of policies, customs, processes, laws and institutions affecting the way a corporation or company is administered, directed or controlled. Corporate governance on one hand is about setting up a system of entrusting the managers and directors with responsibilities in relation to running corporate affairs and on the other hand it is concerned with the accountability of those managers and directors.Good corporate governance helps in economic development. Last 20 years have seen an increasing intensity of research on the subject of corporate governance. According to Chuanrommanee and Swierczek (2007), corporate governance practices in financial corporation of the ASEAN countries are consistent with the international practices. Firms having weaker governance structures face more agency problems and managers of those firm's get more private benefits, due to weak governance structures (Core et al., 1999).Corporate governance provides the mechanism by which the problems of corporation stakeholders, which include the management, creditors, employees, consumers, public at large and shareholders are framed and resolved. Corporate governance also includes the relationships among the many stakeholders involving internal stakeholders and external stakeholders. Proper corporate governance is...

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