Impact of Corporate Governance on Financial Performance

Abstract

The purpose of the study is to determine the structural relationship between corporate governance and financial performance. The study develops a model linking corporate governance and financial performance then verifies it through structural equation modeling based on partial least square. The study is based on random sample of all Karachi Stock Exchange listed companies. Data related to corporate governance and financial performance was collected through annual reports of listed companies. The study reveals and determines the existence of critical structural relationship between corporate governance and financial performance through data analysis using PLS Graph software. The study concludes that corporate governance does not improve financial performance consistently. Rather it proposes that corporate governors can enhance it significantly through exploiting intangible resources. The study can be considered as one of the most comprehensive studies in Pakistan measuring the impact of corporate governance on financial performance using structural equation modeling and covering all Karachi Stock Exchange companies.

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