Corporate Governance Index and firm performance
Abstract
The paper studies the impact of compliance with non-mandatory disclosures in corporate governance on the performance of Indian firms in the context of guidelines given by the market regulator, Securities and Exchange Board of India (SEBI). A sample is drawn from BSE100, an index of large firms listed on the Bombay Stock Exchange. The authors develop a self-constructed Corporate Governance Index (CGI), which represents the disclosure score. Ordinary Least Squares regression is then used to test whether CGI has a significant impact on two measures of firm performance – 1) Price-to-book value, a market based measure and 2) Return on Capital Employed (ROCE), an accounting based measure. The paper finds evidence of a weak, yet significant relationship between the corporate governance index and the market value of firms. However, the index has no impact on the accounting performance of firms.References
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