1. Home
  2. Volume 7 - Number 1
  3. Firm performance, vertical agency crisis and corporate governance of Indian listed companies
New submission
Issues
Journal Information
Aims and ScopeEditorial BoardEditorial Advisory BoardJournal Policies
Resources
For Readers
For Authors
For Editors
For Reviewers
Publication EthicsCall for Special Issue
ISSN
ISSN 2615-9821
ISSN(Previous) 2588-1396

Volume 7 - Number 1 | March

Firm performance, vertical agency crisis and corporate governance of Indian listed companies

Premananda Sethi, Tarak Nath Sahu, and Sudarshan Maity

28/03/2023 41 0 0
Like Buy now 20.000 đ
Corporate governance Firm performance Vertical agency crisis

Abstract:

Purpose
This study aims to examine the influence of corporate governance variables on firm performance and also to find out whether the corporate governance mechanism is capable of mitigating the vertical agency crisis. Here the researcher uses corporate governance mechanisms such as board meeting frequency, board independence, percentage of non-executive directors, percentage of woman directors on board and the board size to measure the firm performance and, at the same time, tries to mitigate the agency crisis, which is measured through return on asset and asset turnover ratio.

Design/methodology/approach
The present study considers period from 2009 to 2020 with data corresponding to a panel of 271 non-financial firms listed in 500 NSE index, India. The study introduces a panel regression model to analyze the data collected from the sample firms.

Findings
The study detects a positive as well as a statistically significant relationship between board size and vertical agency cost. The study also observes a negative relationship between board independence and agency cost. Further, the study finds a positive relationship between corporate governance variables and firm performance, though it is non-significant.

Originality/value
As the study progresses, the study detects a negative relationship between non-executive directors and agency costs. This study tries to give policy prescription to the corporate policymaker regarding various measures to be taken by the firm for the improvement of firm performance and reduction of owner and manager conflict inside the company. The study fills the literature gap by revealing a significant relationship between corporate governance, vertical agency crisis and firm performance.

References:

  1. Agarwal, S. and Singh, A. (2020), “Board structure and agency cost”, International Journal of Trade and Commerce-IIARTC, Vol. 9 No. 1, pp. 174-183.
  2. Ain, Q.U., Yuan, X., Javaid, H.M., Usman, M. and Haris, M. (2020), “Female directors and agency costs: evidence from Chinese listed firms”, International Journal of Emerging Markets, Vol. 16 No. 8, pp. 1604-1633.
  3. Al-Daoud, K.I., Saidin, S.Z. and Abidin, S. (2016), “Board meeting and firm performance: evidence from the Amman stock exchange”, Corporate Board: Role, Duties and Composition, Vol. 12 No. 2, pp. 6-11.
  4. Alhaji, I.A., Baba, M.I. and Yusoff, W.F.W. (2013), “The relationship between independent non-executive directors' and audit committee on firm performance among Malaysian Listed Companies”, Proceeding Book of ICEFMO, pp. 107-113.
  5. Baral, R. and Patnaik, D. (2021), “Banking governance parameters differentiated by size: impact on agency cost”, Indian Journal of Corporate Governance, Vol. 14 No. 1, pp. 86-109.
  6. Breusch, T.S. and Pagan, A.R. (1980), “The Lagrange multiplier test and its applications to model specification in econometrics”, The Review of Economic Studies, Vol. 47 No. 1, pp. 239-253.
  7. Bublykova, P. (2014), “The impact of board size on firm performance: evidence from Hungary”, Partial Fulfillment of the Requirements for the Degree of Master of Arts in Economics, Central European University, Department of Economics, Budapest.
  8. Buchdadi, A.D. (2019), “Board of director meeting and firm performance”, Academy of Accounting and Financial Studies Journal, Vol. 23 No. 2, pp. 1-7.
  9. Calopa, M.K., Kokotec, I.Ð. and Kokot, K. (2020), “Impact of board size and ownership concentration on agency costs: evidence for Croatian companies”, Zbornik Radova Ekonomski Fakultet u Rijeka, Vol. 38 No. 2, pp. 521-535.
  10. Chapple, L. and Humphrey, J.E. (2014), “Does board gender diversity have a financial impact? Evidence using stock portfolio performance”, Journal of Business Ethics, Vol. 122 No. 4, pp. 709-723.
  11. Chaudhary, P. (2021), “Agency costs, board structure and institutional investors: case of India”, Asian Journal of Accounting Research, Vol. 7 No. 1, pp. 44-58.
  12. Chou, H.I., Chung, H. and Yin, X. (2013), “Attendance of board meetings and company performance: evidence from Taiwan”, Journal of Banking and Finance, Vol. 37 No. 11, pp. 4157-4171.
  13. Eluyela, D.F., Akintimehin, O.O., Okere, W., Ozordi, E., Osuma, G.O., Ilogho, S.O. and Oladipo, O.A. (2018), “Board meeting frequency and firm performance: examining the nexus in Nigerian deposit money banks”, Heliyon, Vol. 4 No. 10, e00850.
  14. Hausman, J.A. (1978), “Specification tests in econometrics”, Econometrica, Vol. 46, pp. 1251-1272.
  15. Henderson, J.P. (1986), “Agency or alienation? Smith, mill, and Marx on the joint-stock company”, History of Political Economy, Vol. 18 No. 1, pp. 111-131.
  16. Imelda, E. and Dewi, A.P. (2019), “Capital structure, corporate governance and agency costs”, Proceedings of the 7th International Conference on Entrepreneurship and Business Management, pp. 203-207.
  17. Jaidi, J., Wenhao, M. and Mohidin, R. (2021), “Board independence, corporate social responsibility and firm performance: evidence from China”, International Journal of Banking and Finance, Vol. 17 No. 2, pp. 109-130.
  18. Jeet, D. (2020), “The relationship between women directors on board and firm performance: Indian scenario”, IUP Journal of Corporate Governance, Vol. 19 No. 3, pp. 23-38.
  19. Jyothi, P. and Mangalagiri, J. (2019), “Would firm performance be better with women directors? Evidence from India”, Vision, Vol. 23 No. 2, pp. 180-188.
  20. Katti, S. and Raithatha, M. (2018), “Governance practices and agency cost in emerging market: evidence from India”, Managerial and Decision Economics, Vol. 39 No. 6, pp. 712-732.
  21. Kweh, Q.L., Ahmad, N., Ting, I.W.K., Zhang, C. and Hassan, H. (2019), “Board gender diversity, board independence and firm performance in Malaysia”, Institutions and Economies, Vol. 11 No. 2, pp. 1-20.
  22. Li, S., Gao, D. and Hui, X. (2021), “Corporate governance, agency costs, and corporate sustainable development: a mediating effect analysis”, Discrete Dynamics in Nature and Society.
  23. Maity, S., Sen, N. and Sahu, T.N. (2020), “COVID-19: triggers fear psychosis among private sector employees”, Journal of Labor and Society, Vol. 23 No. 4, pp. 503-513.
  24. Mangena, M., Tauringana, V. and Chamisa, E. (2012), “Corporate boards, ownership structure and firm performance in an environment of severe political and economic crisis”, British Journal of Management, Vol. 23, pp. S23-S41.
  25. Manna, A., Sahu, T.N. and Pandey, K.D. (2020), “Board size, multiple directorship and performance of Indian listed firms”, International Journal of Economics and Business Research, Vol. 19 No. 2, pp. 111-129.
  26. Nepal, M. and Deb, R. (2021), “Board characteristics and firm performance: Indian textiles sector panorama”, Management and Labour Studies, 0258042X211026148.
  27. Owusu, A. and Weir, C. (2018), “Agency costs, ownership structure and corporate governance mechanisms in Ghana”, International Journal of Accounting, Auditing and Performance Evaluation, Vol. 14 No. 1, pp. 63-84.
  28. Pandey, K.D. and Sahu, T.N. (2021), “Ownership concentration and agency crises in Indian manufacturing firms”, Business Perspectives and Research, Vol. 9 No. 1, pp. 128-143.
  29. Pareek, R., Pandey, K.D. and Sahu, T.N. (2019), “Corporate governance, firms' characteristics and environmental performance disclosure practices of Indian companies”, Indian Journal of Corporate Governance, Vol. 12 No. 2, pp. 142-155.
  30. Rashid, A. (2015), “Revisiting agency theory: evidence of board independence and agency cost from Bangladesh”, Journal of Business Ethics, Vol. 130 No. 1, pp. 181-198.
  31. Rose-Ackerman, S. (1973), “Effluent charges: a critique”, Canadian Journal of Economics, Vol. 6 No. 4, pp. 512-528.
  32. Sajid, G., Muhammad, S., Nasir, R. and Farman, A. (2012), “Agency cost, corporate governance and ownership structure: the case of Pakistan”, International Journal of Business and Social Science, Vol. 3 No. 9, pp. 268-277.
  33. Sanjaya, I. and Christianti, I. (2012), “Corporate governance and agency cost: case in Indonesia”, 2nd International Conference on Business, Economics, Management and Behavioral Sciences (BEMBS'2012), Bali, Oct. 13-14, 2012.
  34. Sarpal, S. and Singh, F. (2013), “Board size and corporate performance: an empirical investigation”, International Journal of Business Ethics in Developing Economies, Vol. 2 No. 1, pp. 1-8.
  35. Setia-Atmaja, L., Haman, J. and Tanewski, G. (2011), “The role of board independence in mitigating agency problem II in Australian family firms”, The British Accounting Review, Vol. 43 No. 3, pp. 230-246.
  36. Shunu, A.H. (2017), “Effect of board composition on financial performance of listed firms in Nairobi securities exchange”, Doctoral dissertation, Garissa University, Garissa.
  37. Simionescu, L.N., Gherghina, Ş.C., Tawil, H. and Sheikha, Z. (2021), “Does board gender diversity affect firm performance? Empirical evidence from Standard and Poor's 500 Information Technology Sector”, Financial Innovation, Vol. 7 No. 1, pp. 1-45.
  38. Venugopalan, T. and Shaifali (2018), “Agency problems and corporate governance mechanisms in Indian companies”, JK International Journal of Management and Social Science, Vol. 1 No. 2, pp. 23-40.
  39. Wellalage, N.H. and Locke, S. (2013), “Women on board, firm financial performance and agency costs”, Asian Journal of Business Ethics, Vol. 2 No. 2, pp. 113-127.
  40. White, H. (1980), “A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity”, Econometrica: Journal of the Econometric Society, Vol. 48 No. 4, pp. 817-838.
  41. Yadav, S. and Yadav, M.P. (2021), “Female Director and Agency Cost: does board gender diversity at Indian corporate board reduce agency conflict?”, Transnational Marketing Journal, Vol. 9 No. 3, pp. 587-596.
  42. Yan, C.C., Hui, Y.Z. and Xin, L. (2021), “The relationship between board size and firm performance”, E3S Web of Conferences, Vol. 257, EDP Sciences, p. 02079.
  43. Yegon, C., Sang, J. and Kirui, J. (2014), “The impact of corporate governance on agency cost: empirical analysis of quoted services firms in Kenya”, Research Journal of Finance and Accounting, Vol. 5 No. 12, pp. 145-154.
  44. Zahra, S.A. and Pearce, J.A. (1989), “Boards of directors and corporate financial performance: a review and integrative model”, Journal of Management, Vol. 15 No. 2, pp. 291-334.

 

Related articles