Corporate governance and firm performance: A pragmatic investigation from insurance industry of Pakistan

Abstract

The study aims to explore the impact of corporate governance on financial performance of insurance industry of Pakistan. The study employs return on assets and return on equity as accounting measures of financial performance which explain the degree to which assets and equity are put in use efficiently while market to book ratio and price earnings ratio as marketing measures of financial performance explain insurance companies’ overall performance in the market. Board composition and ownership structure, the two constructs have been employed to measure corporate governance of which board composition comprises board size, chairman/CEO duality, and independent directors on the board; while ownership structure encompasses institutional shareholding. Findings of the study suggest that institutional shareholding ratio, board size, independent directors’ ratio, and leverage affect return on assets and return on equity positively whereas, CEO duality and firm size affect the same inversely. There is diverse nature of association between the marketing measures of performance and board size, firm size and institutional shareholding. In future, the study may be extended to more corporate governance dimensions like audit quality and more variables in corporate board structures like diversity in members, qualification and experience of the executive directors, frequency of board meetings etc. and added variables in corporate ownership like block-holding, family ownership, shareholding period etc. and increased sample size for more generalized results.

Keywords: Corporate governance, firm performance, insurance, Pakistan.