Role of Corporate Governance in Shareholders Value Creation

Muhammad Atif Khan, Muhammad Asif Khan and Idrees Liaqat
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Muhammad Atif Khan: Department of Commerce, University of Kotli, Azad Jammu and Kashmir, Kotli, Pakistan
Muhammad Asif Khan: School of Economics, Huazhong University of Science and Technology (HUST), Wuhan, China & Department of Commerce, University of Kotli, Azad Jammu and Kashmir, Kotli, Pakistan
Idrees Liaqat: Riphah International University, Rawalpindi, Pakistan

International Journal of Strategic Decision Sciences (IJSDS), 2017, vol. 8, issue 2, 70-82

Abstract: The mechanism of governing corporate affairs in line with strategic goal of shareholders' value creation (SVC) has been pivotal debate among academic and institutional scholars over last few decades. Most of the studies in developing countries including Pakistan, have considered more conventional measures, like firm financial performance to examine the impact of corporate governance (CG). Theoretically, firm financial performance optimization has little role in maximizing SVC, that rarely streams to shareholders' exchequer. Therefore, the study is unique in its nature that identifies market capitalization, the most appropriate measure of value creation for shareholders over long run. The authors gathered panel and longitudinal data pertaining to PSX-100 listed firm over the period of 10 years ranging from 2006-15, which is analyzed using multivariate regression. Hausman and Likelihood tests guide the process of appropriate econometrics model selection. Empirical findings reveal that CG dimensions such as audit committee independence (ACI), managerial ownership (MO) and ownership concentration (OC) have positive impact on SVC, except board size (BS) and board independence (BI). The study offers valuable policy recommendations to make CG practices more effective, however, application of the model proposition at macro and micro level can be a substantial extension to literature incorporating some controlling dimensions.

Date: 2017
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