Analyzing the Relationship Between Corporate Governance Mechanisms and Financial Performance in Indian-Listed Companies

Abstract

Background: Corporate governance (CG) is crucial for ensuring transparency and accountability in firms. This study explores the relationship between CG mechanisms and financial performance (FP) in Indian listed companies. CG focuses on Inside Directors (ID), Outside Directors (OD), Audit Committee (AC), CEO Duality (CEO), and Frequency of Board Meetings (FBM)

Objectives: The study aims to evaluate how these governance mechanisms influence FP, measured through Return on Assets (ROA), Return on Equity (ROE), Net Profit Ratio (NPR), Equity Multiplier (EQM), and Total Asset Turnover Ratio (TATR)

Methodology: A quantitative approach was employed, analyzing data from Indian listed companies for the period 2014-2020. Statistical techniques such as Descriptive statistics, Correlation analysis, and Regression analysis were used to assess the impact of ID, OD, AC, CEO, and FBM on the FP of the listed companies.

Findings: The study finds that in Indian-listed companies, CEO characteristics significantly influence FP, particularly asset turnover, while other governance factors show mixed or insignificant effects. FP metrics like ROA and ROE exhibit strong correlations, but leverage negatively impacts profitability. Governance's impact varies across industries, emphasizing its complex role.

Implications: The study implies that enhancing CG mechanisms, particularly board composition and oversight, can significantly improve FP in Indian-listed companies. Effective governance structures are crucial for optimizing asset utilization and profitability, thus contributing to overall financial health.