Corporate Governance Index and Firm Performance: Empirical Study from India

Abstract

In this paper, a Corporate Governance Index in Indian context with comprehensive variables has been developed. The paper has used previously unused dataset of 168 FMCG companies listed on BSE over the period from 2011 to 2013 to investigate the results. Based on a set of 53 individual governance attributes after review of extant literature and changes in corporate governance rules in Indian landscape, a corporate governance index has been developed. It was observed that for all the three years the correlations between Corporate Governance Index and performance measure were statistically significant showing compliance with the norms has positive relationship with the performance of companies. Further, OLS estimates for all the three years taking Tobins Q and ROA as performance measures provide empirical evidence that compliance with the norms has a positive relationship with both market-based (Q) and accounting-based measure (ROA). A further investigation regarding the impact of corporate governance on firm performance showed that for all the three years it was found that there is statistically significant difference between high compliance and low compliance firms in performance using Independent sample t-test. The mean difference for both the performance measures (Q and ROA) were significant for all the three years indicating that better corporate governance leads to better market performance.

Keywords: Corporate Governance, Firm Value, India, Q, ROA

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