Corporate Governance in Pakistan : Corporate Valuation, Ownership and Financing

In this study the relationship between corporate governance and corporate valuation, ownership structure and need of external financing for the Karachi Stock Market is examined for the period 2003 to 2008. To measure the firm- level governance a rating system is used to evaluate the stringency of a set of governance practices and cover various governance categories : such as board composition, ownership and shareholdings and transparency, disclosure and auditing. The sample consists of 60 non-financial firms listed on Karachi Stock Exchange and comprises more than 80 percent of market capitalization at Karachi Stock Market in 2007. The results confirms the theoretical notion that firms with better investment opportunities and larger in size adopt better corporate governance practice. The proposition that ownership concentration is a response to poor legal protection is also validated by the results. The more investment opportunities lead to more concentration of ownership and the ownership concentration is significantly diluted as the firm size expands. The findings are consistent with theoretical argument claiming that family owners, foreign owners and bring better governance and monitoring practices which is consistent with agency theory. The results suggest that firms which need more equity financing practice good governance. The results show that firms with high growth and large in size are in more need of external finance. The relationship between external financing and ownership concentration is negative. The results reveal that the firms which practice good governance, with concentrated ownership, need more external finance which have more profitable investment opportunities and are larger in size are valued higher. The interaction term of any variable with law enforcement term are not significant in any model suggesting that firm performance is not affected by rule of law in countries where legal environment is weak. These results adds an important link to the explanation of the consequences weak legal environment for external financing, corporate valuation and corporate governance. The results show that Corporate Governance Code 2002 potentially improves the governance and decision making process of firms listed at KSE.Ownership Concentration, Corporate governance, firm performance, External Financing, panel data

The Relationship between Corporate Governance Indicators and Firm Value: A Case Study of Karachi Stock Exchange

We investigated whether differences in quality of firm-level corporate governance can explain the firm-level performance in a cross-section of companies listed at Karachi Stock Exchange. Therefore, we analysed the relationship between firm-level value as measured by Tobin’s Q and total Corporate Governance Index (CGI) and three sub-indices: Board, Shareholdings and Ownership, and Disclosures and Transparency for a sample of 50 firms. The results indicate that corporate governance does matter in Pakistan. However, not all elements of governance are important. The board composition and ownership and shareholdings enhance firm performance, whereas disclosure and transparency has no significant effect on firm performance. We point out that those adequate firm-level governance standards can not replace the solidity of the firm. The low production and bad management practicesCorporate Governance, Firm Performance, Tobin’s Q, Agency Problem, Board Size, Shareholdings, Disclosures, Leverage, Code of Corporate Governance

Ownership Concentration, Corporate Governance and Firm Performance: Evidence from Pakistan

The study investigates the determinants of ownership concentration, the effect of ownership concentration on the firm’s performance with the sample of sixty representativ e firms from different manufacturing sectors of the Pakistan’s economy during 2003 to 2008. The results suggest that firms where ownership is concentrated they do not adopt better governance practices and disclose less, however board composition has posit ive and significant role. The firm specific factors affect the concentration of ownership more, the more investment opportunities provides greater incentives for ownership concentration, however, size has opposite effect and leads to diverse ownership to get wider access to funds and share ownership. The results reveal that in Pakistan corporations have more concentration of ownership which is the response of weak legal environment. The concentration of ownership by top five block-holders seems to have positive effect on firms’ profitability and performance measures. The family, foreign and director ownership also has positive affect on firm performance, however firm performance is not effected by financial institutions’ ownership. The broad implication that emerges from this study is that ownership concentration is an endogenous response of poor legal protection of the investors and seems to have significant effect on firm performance. It requires implementation of corporate governance reforms at most at par with real sector and financial sector reforms.Ownership Concentration, Corporate Governance, Firm Performance, Panel Data

Corporate Governance in Pakistan: Corporate Valuation, Ownership and Financing

In this study the relationship between corporate governance and corporate valuation, ownership structure and need of external financing for the Karachi Stock Market is examined for the period 2003 to 2008. To measure the firmlevel governance a rating system is used to evaluate the stringency of a set of governance practices and cover various governance categories: such as board composition, ownership and shareholdings and transparency, disclosure and auditing. The sample consists of 60 non-financial firms listed on Karachi Stock Exchange and comprises more than 80 percent of market capitalization at Karachi Stock Market in 2007. The results confirms the theoretical notion that firms with better investment opportunities and larger in size adopt better corporate governance practice. The proposition that ownership concentration is a response to poor legal protection is also validated by the results. The more investment opportunities lead to more concentration of ownership and the ownership concentration is significantly diluted as the firm size expands. The findings are consistent with theoretical argument claiming that family owners, foreign owners and bring better governance and monitoring practices which is consistent with agency theory. The results suggest that firms which need more equity financing practice good governance. The results show that firms with high growth and large in size are in more need of external finance. The relationship between external financing and ownership concentration is negative. The results reveal that the firms which practice good governance, with concentrated ownership, need more external finance which have more profitable investment opportunities and are larger in size are valued higher. The interaction term of any variable with law enforcement term are not significant in any model suggesting that firm performance is not affected by rule of law in countries where legal environment is weak. These results adds an important link to the explanation of the consequences weak legal environment for external financing, corporate valuation and corporate governance. The results show that Corporate Governance Code 2002 potentially improves the governance and decision making process of firms listed at KSE.Ownership Concentration, Corporate Governance, Firm Performance, External Financing, Panel Data

The Relationship between Corporate Governance Indicators and Firm Value : A Case Study of Karachi Stock Exchange

We investigated whether differences in quality of firm-level corporate governance can explain the firm-level performance in a cross-section of companies listed at Karachi Stock Exchange. Therefore, we analysed the relationship between firm-level value as measured by Tobins Q and total Corporate Governance Index (CGI) and three sub-indices : Board, Shareholdings and Ownership, and Disclosures and Transparency for a sample of 50 firms. The results indicate that corporate governance does matter in Pakistan. However, not all elements of governance are important. The board composition and ownership and shareholdings enhance firm performance, whereas disclosure and transparency has no significant effect on firm performance. We point out that those adequate firm-level governance standards can not replace the solidity of the firm. The low production and bad management practices can not be covered with transparent disclosures and transparency standards.Corporate governance, firm performance, Agency Problem, Board Size, Shareholdings, Disclosures, Leverage, Code of Corporate Governance

Relationship between Corporate Governance Indicators and Firm Value: A Case Study of Karachi Stock Exchange

We investigated whether differences in quality of firm-level corporate governance can explain the firm-level performance in a cross-section of companies listed at Karachi Stock Exchange. Therefore, we analysed the relationship between firm-level value as measured by Tobin’s Q and total Corporate Governance Index (CGI) and three sub-indices: Board, Shareholdings and Ownership, and Disclosures and Transparency for a sample of 50 firms. The results indicate that corporate governance does matter in Pakistan. However, not all elements of governance are important. The board composition and ownership and shareholdings enhance firm performance, whereas disclosure and transparency has no significant effect on firm performance. We point out that those adequate firm-level governance standards can not replace the solidity of the firm. The low production and bad management practices can not be covered with transparent disclosures and transparency standards.Corporate Governance; Firm Performance; Tobin’s Q; Agency Problem; Board Size; Shareholdings; Disclosures; Leverage Code of Corporate Governance

Ownership Concentration, Corporate Governance and Firm Performance: Evidence from Pakistan

The nature of relation between the ownership structure and corporate governance structure has been the core issue in the corporate governance literature. From a firms’ perspective, ownership structure determines the firms’ profitability, enjoyed by different stake-holders. In particular, ownership structure is an incentive device for reducing the agency costs associated with the separation of ownership and management, which can be used to protect property rights of the firm [Barbosa and Louri (2002)]. With the development of corporate governance, many corporations owned by disperse shareholders and are controlled by hire manager. As a results incorporated firms whose owners are dispersed and each of them owns a small fraction of total outstanding shares, tend to under-perform as indicated by Berle and Means (1932). Latter this theoretical relationship between a firm’s ownership structure and its performance is empirically examined by Jensen and Meckling (1976) and Shlefier and Vishny (1986). In most of developing markets including Pakistan, the closely held firms (family or state-controlled firms or firms held by corporations and by financial institutions) dominate the economic landscape. The main agency problem is not the managershareholder conflict but rather the risk of expropriation by the dominant or controlling shareholder at the expense of minority shareholders. The agency problem in these markets is that control is often obtained through complex pyramid structures,1 interlock directorship,2 cross shareholdings,3 voting pacts and/or dual class voting shares that allow the ultimate owner to maintain (voting) control while owning a small fraction of ownership (cash flow rights)

Corporate Governance and Firm Performance: Evidence from Karachi Stock Exchange

In the developed markets the subject of corporate governance is well explored as a significant focus of economics and finance research but there is also a growing interest across emerging markets in this area. In Pakistan, the publication of the SECP Corporate Governance Code 2002 for publicly listed companies has made it an important area of research of corporate sector. According to La Porta, et al. (2000) ‘Corporate governance is to a certain extent a set of mechanisms through which outside investors protect themselves against expropriation by the insiders’. They define the insider as both managers and controlling shareholders A corporate governance system is comprised of a wide range of practices and institutions, from accounting standards and laws concerning financial disclosure, to executive compensation, to size and composition of corporate boards. A corporate governance system defines who owns the firm, and dictates the rules by which economic returns are distributed among shareholders, employees, managers, and other stakeholders. As such, a county's corporate governance regime has deep implications for firm organisation, employment systems, trading relationships, and capital markets. Thus, changes in Pakistani system of corporate governance are likely to have important consequences for the structure and conduct of country business