Corporate Governance Practices, Transparency and Performance of Indian Companies
The IUP Journal of Corporate Governance
Jyotsna Ghildiyal Bijalwan and Pankaj Madan
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The purpose of this paper is to examine the impact of corporate governance on firmís financial performance in the Indian context. The study is based on the 121 companies listed on the Bombay Stock Exchange (BSE), India, for the period 2010- 2011. It is based on a self-designed structured questionnaire. The study highlights the significance of transparency disclosure and good governance policies of the firm and the relative advantage thereof to the firm in the Indian context for the first time to the best of our knowledge. Distinct from previous empirical research, it develops its own index to measure the transparency and level of disclosure. Tamhane T2 post hoc test is also applied for the first time in the study related to corporate governance. The study finds a positive and significant relationship between the level of transparency and firmís financial performance. Similarly, corporate governance policies and practices of the firm are also found to be positively related to firm performance. The results also suggest that corporate governance policies and transparency and disclosure are positively and significantly correlated.
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
corporate governance framework should ensure that timely and accurate disclosure is made
of all material matters regarding the corporation, including the financial situation, performance,
ownership, and governance of the company (OECD, 2004).
The study primarily focuses on investigating the relationship between corporate governance
and the firm performance of 121 firms listed on Bombay Stock Exchange (BSE), India. The study
is an attempt to find answers to two basic questions; Firstly, do firms with greater transparency
and higher level of disclosure have better corporate governance? And do such firms perform
well financially? Secondly, do the firms with better corporate governance policies and practices
have good financial performance in the Indian context?
Corporate Governance Journal, Corporate Governance, Transparency, Performance, Indian Companies, Bombay Stock Exchange (BSE), Capital Employed (ROCE), Return on the Equity (ROE), Profit After Tax (PAT), Return on Assets (ROA).