The Impact of Ownership and Board Composition on Financial Performance of the Firm (Management Project)

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The subject of corporate governance and its role to define and guard the rights and duties of all the participants of corporate culture is so important in the financial and economic system of the business world that all the financial growth models prepared in the history of the economics are based on the assumption of efficient, just and effective corporate governance structures of the business units and the society, it has been and will be a subject under scrutiny for further discussion because of its importance in various dimensions of human economic actions.

This paper tends to explore the impact of board composition and ownership concentration on the financial performance of the company particularly in Pakistani capital market, this impact has been analysed by various researchers in different parts of the world for the research purposes.

They found positive, negative and mixed results. Very limited research work has been done for Pakistani capital market so it is the need of time to do more in-depth study for this capital, particularly after the world-wide financial crises of 2008.

For our research study, we reviewed not only the previous researches and literatures from world-wide capital markets but also examined the local researches on the impact of the ownership and board composition on the firm performance in the listed companies of Pakistani stock market. The sample for this research paper is consisting of two hundred (200) listed companies in Pakistan.

A positivist, deductive and quantitative approach has been adopted to analyse the impact  of ownership and board composition on the financial performance of the companies. We have used Tobin’s Q and ROA as measures of financial performance of the sample companies, and analysed the variation of these variables with respect to the ownership and board composition variables of the sample companies.

On the basis of our correlation results; it is reported that for the board composition factors, we find significant correlation between board size and the firm’s financial performance, where as we could not find any significant correlation of the female percentage in the board and independent directors percentage in audit committee with the financial performance of the company.

For ownership composition we found the significant relation between the associated  companies’ ownership percent age and the financial performance of the company. Where as we could not find any significant relation of ownership held by financial institutions, and ownership concentration on the financial performance of the company in Pakistan.

Finally after considering all the results driven from the sample under analysis, this paper concludes with the understanding  that there is significant relation between the board size and associated companies ownership on the financial performance of the company. However this topic requires further exploration because there is so much diversity of perspectives in this circumstance.
Source: Umeå University
Authors: Bajwa, Amir | Bashir, Amina

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