Corporate Governance and Firm Performance: Empirical Evidence from Pakistan Banking Sector

Abstract

Corporate governance is important in developing a culture of integrity in an organization that enhances the performance of business resulting in sustainability in the business of the organization. The purpose of this study is to investigate the impact of corporate governance factors on bank performance in Pakistan. The data was collected from 15 banks from the period of 2010 to 2020. The data was collected from the financial reports of the banks. The dependent variable was returning on assets as a proxy of firm performance and the independent variables were corporate governance factors (namely, the board size, firm size, independent directors, CEO duality, and leverage). The technique was applied for this research included the Co-integration test, the Hausman test to determine Random or Fixed Effect, and the Panel Least Square Regression to check the relationship between variables The result found that board size has a significant effect on return on assets indicated that optimum board size in an organization increases the ROA. The results found board independence has a significant effect on return on assets indicating the independency of directors is involved in creating greater value for shareholders. The results found that CEO/Chairman duality has an insignificant impact on return on assets. The results found leverage has a significant impact on return on assets indicating that having high leverage earns more profit. The results found a positive impact of firm size on return on assets. Results can be concluded that improvement in corporate practices increases the firm performance shows the positive revenue generates by the company and the company used its assets through business. Good CG practices make firm-healthy