Corporate Governance and Financial Performance: Evidence from Financial Firms Listed on Pakistan Stock Exchange

Abstract

This study investigates the connection between corporate governance (CG) and the financial performance of financial firms using three performance metrics: return on assets (ROA), return on equity (ROE), and Tobin's Q (TQ). The analysis employs the pooled ordinary least squares panel econometric technique, using data from 70 financial firms listed on the Pakistan Stock Exchange (PSX) between 2007 and 2017. The results show that board composition, board ownership, institutional ownership, foreign ownership, CEO duality, CEO compensation, auditor remuneration, and executive compensation positively and significantly influence financial performance. In contrast, board independence and audit type are negatively associated with performance. The control variables, firm size and leverage, are also negatively related to all financial performance measures. Among the performance metrics, ROE has the strongest association with most CG indicators, while ROA and TQ show weaker relationships. Additionally, the findings confirm that firms adhering to corporate governance codes outperform those that do not.

Keywords: Corporate Governance, Agency theory, Auditor remuneration, CEO compensation, Executive compensation, financial performance