CG Papaer Ppt

8/13/2019 CG Papaer Ppt

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Corporate Governance A framework providing guidelines to the management

about governing responsibly

It is about commitment to values, about ethical business

conductIt covers:

Adequate disclosures and effective decision making to achievecorporate objectives;

Transparency in business transactions;

Statutory and legal compliances;

Protection of shareholder interests;

Commitment to values and ethical conduct of business


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Objectives of the Study Is there any relationship between the size and the firm

value in top performing companies

Is there any relationship between the independence ofthe Board and the firm value in top performing

companies


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Hypothesis of the study H1: There is a significant relationship between

firm performance and Board Size in top performing

companies

H2: There is a significant relationship between

firm performance and Board Independence in top

performing companies


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Research Methodology

Sample period: 2010 2013, i.e. 4 years. Sample: Each company from 10 industries constituting

BSE SENSEX. Banking sector is ignored and one

another company is ignored for non availability of data.

Hence, 8 companies with 4-year data are taken forstudy

Source of data: Secondary data from the annual reports

of the selected companies for the four year sample

period 2010-13.


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Variables Used Dependent Variables:

Firm Value:Measured by a proxy for Tobins Q ratio andReturn on Equity.

Tobins Qis defined as the ratio of market value of equity and

market value of debt to the replacement cost of assets.

Tobin Q =Mk V f +Bk V f

Bk V f

Return on Equity =Pf f

Shh f+


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Independent Variables:

Board Size- Number of Directors in the Board

Board independence Ratio - f Ip Dc f Dc

Control Variables:

Firm size Natural log of sales of the companies for the

given sample period

Age of firm Difference between 2010 and year of

incorporation

Financial LeverageLong term debt

Total laibilities Equity Retained earnings

Asset TangibilityNet Fixed assets

Total Assets


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Tools used:

Correlation

Hierarchical Multiple regression to study the effect ofcontrol variables and the independent variables on

firm value. Results are calculated with SPSS package.


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Results and Discussions Correlation:

There is a negative correlation between Tobin Q and

Board size.

All other correlations are significant among the

variables, but the coefficient of correlation does not

exceed 0.6 mostly (exception: 0.77 between ROE and

Age, 0.66 between No. of Board of Directors and asset

Tangibility).


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Regression:

Board Independence:

90% significance with Tobin Q

Significant relationship between financial leverage and Asset

Tangibility.

Insignificant impact on ROE

Board Size:

Significant impact on ROE, but positive relationship is

exhibited contrary to previous studies

Insignificant with Tobin Q


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Possible explanation Small sample size of companies from different sectors

bouncing back with their best and efficient performanceafter the blow of recession, and the sample period chosen

as the period immediately after crisis - a possible reason forinsignificant relationship exhibited

Significant relationships shown between financial leverage,asset tangibility ratio and the age and dependent variables,indicating financial soundness and experience

Factors other than Board size and its independence haveassumed greater significance in determining the firm value,especially given that the period of study immediate afterthe financial crisis


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CONCLUSION Board size and composition did not have any significant

impact on the firm value for the selected sample of 8

companies and the period of 4 yrs from 2010 to 2013

To conclude, maintaining that corporate governance

practices are in vogue in the sample companies, certainother factors have had dominant role in determining

firm value.


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