Are internal governance mechanisms efficient? The case of a developing economy. Issue 3 (September 2021)

• Record Type: Journal Article
• Authors: Raithatha, Mehul; Haldar, Arunima
• Is Part Of: IIMB management review. Volume 33:Issue 3(2021)
• Page Start: 191
• Page End: 204
• Publication Date: 2021-09
• Subjects: Corporate governance index -- Construct validity -- Corporate financial performance -- Endogeneity -- Simultaneous equation method -- India; Management -- Periodicals; Industrial management -- Periodicals; Industrial management; Management; India; Periodicals; 658
• DOI: 10.1016/j.iimb.2021.08.004
• Languages: English
• ISSNs: 0970-3896

Abstract

Abstract: This study examines the relationship between internal corporate governance mechanisms and corporate financial performance. We examine this relationship considering the endogeneity between corporate governance and firm characteristics utilising a sample of large listed Indian firms. We construct and validate a "Corporate Governance Index (CGI)" based on six internal governance mechanisms affecting the governance of Indian firms. The study estimates the model using the simultaneous equation method. The results obtained suggest that corporate governance has a positive association with corporate financial performance. Thus, firms will gain by improving their corporate governance as it leads to better corporate financial performance, which is in the interest of all stakeholders.