The Effect of Board Characteristics as Corporate Governance Attribute on Firm Performance in Pakistan
Keywords:Return on assets, board size, CEO duality, board activity
Purpose: Most of the prior studies followed board characteristics as corporate
governance attribute, the study to follow on the basis of literature support to use
board characteristics as one of the corporate governance attributes. The objective of
this research study is to investigate the effect of the board of director's characteristics
on firm performance of the Pakistani oil and gas firms listed on Pakistan Stock
Methodology/Design: Data was collected from the annual reports of oil and gas
firms listed on (PSX). The study applies pooled OLS regression on all oil and gas
firms listed on PSX for the period from 2008-2015. Return on assets (ROA) is used
as a proxy for measuring firm performance which is the dependent variable. Whereas
the independent variables used in the study are board size, board independence, CEO
duality, board activity.
Findings: The board size and board independence are found significant factors of
firm’s performance in Pakistan. Whereas, CEO duality and board activity are
insignificant in determining the performance of firms in Pakistani oil and gas firms.
Implications: The outcomes and findings of the present study are significant for,
regulators, legislators and investors, in order to determine which governance
mechanism is important in improving firm performance in Pakistan.
Agrawal, A., & Chadha, S. (2005). Corporate Governance and Accounting Scandals. Journal of
Law and Economics, 48(2), 371-406.
Agrawal, A., & Knoeber, C. R. (1996). Firm Performance and Mechanisms to Control Agency
Problems between Managers and Shareholders. Journal of Financial and Quantitative
Analysis, 31(3), 377-397.
Al-Matari, Y. A., Al-Swidi, A. K., Fadzil, F. H. B., Fadzil, H., & Al-Matari, E. M. (2012). Board
of Directors, Audit Committee Characteristics and the Performance of Saudi Arabia
Listed Companies. International Review of Management and Marketing, 2(4), 241-251.
Apadore, K., & Zainol, S. S. B. (2014). Determinants of Corporate Governance and Corporate
Performance among Consumer Product Industry in Malaysia: A Theoretical Model.
International Journal of Academic Research in Accounting, Finance and Management
Sciences, 4(2), 159-165.
Bhagat, S., & Black, B. S. (2002). The Non-Correlation between Board Independence and Long-
Term Firm Performance. Journal of Corporation Law, 27(2), 231-273.
Bickman, L., & Rog, D. J. (2008). The Sage Handbook of Applied Social Research Methods: Sage
Black, B. S., Jang, H., & Kim, W. (2006). Does Corporate Governance Predict Firms' Market
Values? Evidence from Korea. The Journal of Law, Economics, and Organization, 22(2),
Brennan, N. (2006). Boards of Directors and Firm Performance: Is there An Expectations GAP?
Corporate Governance: An International Review, 14(6), 577-593.
Carapeto, M., Lasfer, M., and Machera, K. (2005). Does Duality Destroy Value? Working paper,
Carcello, J. V., Hermanson, D. R., Neal, T. L., & Riley, A. R. (2002). Board Characteristics and
Audit Fees. Contemporary Accounting Research, 19(1), 365-384.
Chan, K. C., & Li, J. (2008). Audit Committee and Firm Value: Evidence on Outside Top
Executives as Expert‐ Independent Directors. Corporate Governance: An International
Review, 16(1), 16-31.
Coles, J. W., McWilliams, V. B., & Sen, N. (2001). An Examination of the Relationship of
Governance Mechanisms to Performance. Journal of Management, 27(1), 23-50.
Connelly, J. T., & Limpaphayom, P. (2006). Board Characteristics and Firm Performance:
Evidence from the Life Insurance Industry in Thailand. Journal of Economics, 16(2),
Cornett, M., Marcusb, A., & Tehranianb, H. (2008). Corporate Governance and Pay-for
Performance: The Impact of Earnings Management. Journal of Financial Economics,
Daily, C. M., & Dalton, D. R. (1993). Board of Directors Leadership and Structure: Control and
Performance Implications. Entrepreneurship Theory and Practice, 17(3), 65-81.
Dalton, D. R., Daily, C. M., Certo, S. T., & Roengpitya, R. (2003). Meta-analyses of financial
performance and equity: fusion or confusion?. Academy of Management Journal, 46(1),
Davidson, W. N., Jiraporn, P., Kim, Y. S., & Nemec, C. (2004). Earnings Management Following
Duality-Creating Successions: Ethnostatistics, Impression Management, and Agency
Theory. Academy of Management Journal, 47(2), 267-275.
De Andres, P., and Vallelado, E. (2008). Corporate Governance in Banking: The Role of the
Board of Directors. Journal of Banking and Finance, 32(12), 2570-2580.
De Andres, P., Azofra, V., and Lopez, F. (2005). Corporate Boards in OECD Countries: Size,
Composition, Functioning and Effectiveness. Corporate Governance: An International
Review, 13(2), 197-210.
Dehaene, A., De Vuyst, V., & Ooghe, H. (2001). Corporate Performance and Board Structure in
Belgian Companies. Long Range Planning, 34(3), 383-398.
Eisenberg, T., Sundgren, S., and Wells, M. T. (1998). Larger Board Size and Decreasing Firm
Value in Small Firms. Journal of Financial Economics, 48(1), 35-54.
Erickson, J., Park, Y. W., Reising, J., and Shin, H.-H. (2005). Board Composition and Firm Value
Under Concentrated Ownership: the Canadian Evidence. Pacific-Basin Finance Journal,
Evans, J., Evans, R., & Loh, S. (2002). Corporate Governance and Declining Firm Performance.
International Journal of Business Studies, 10(1), 1-18.
Fama, E. F., and Jensen, M. C. (1983). Separation of Ownership and Control. Journal of Law and
Economics, 26(2), 301-325.
Feng, Z., Ghosh, C., and Sirmans, C. (2005). How Important is the Board of Directors to REIT
Performance? Journal of Real Estate Portfolio Management, 11(3), 281-293.
Gujarati, D. N., & Porter, D. C. (2009). Basic Econometrics. (5th ed). New York: McGraw-Hill.
Gulzar, M. A., & Wang, Z. (2011). Corporate Governance Characteristics and Earnings
Management; Empirical Evidence from Chinese Listed Firms. International Journal of
Accounting and Financial Reporting, 1(1), 133-151.
Hair, J., Black, W., Babin, B., Anderson, R., & Tatham, R. (2006). Multivariate Data Analysis.
(6th Ed). New Jersey: Pearson Educational International.
Haniffa, R., & Hudaib, M. (2006). Corporate Governance Structure and Performance of Malaysian
Listed Companies. Journal of Business Finance and Accounting, 33(7‐ 8), 1034-1062.
Hashim, H. A., & Devi, S. S. (2008). Board Independence, CEO Duality and Accrual
Management: Malaysian Evidence. Asian Journal of Business and Accounting, 1(1), 27-
Heenetigala, K., and Armstrong, A. (2011). The Impact of Corporate Governance on Firm
Performance in An Unstable Economic and Political Environment: Evidence from Sri
Lanka. Available at SSRN: https://ssrn.com/abstract=1971927.
Hermalin, B. E., & Weisbach, M. S. (2003). Boards of Directors As An Endogenously Determined
Institution: A Survey of the Economic Literature. Federal Reserve Bank of New York
Economic Policy Review, 13(2), 7-26.
Iraya, C., Mwangi, M., & Munchoki, G. W. (2015). The Effect of Corporate Governance Practices
on Earnings Management of Companies Listed at the Nairobi Securities Exchange.
European Scientific Journal, 11(1), 169-178.
Jensen, M. (1993). Modern Industrial Revolution, Exit, and the Failure of Internal Control
Systems. Journal of Finance, 48(3), 831-880.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Cost
and Ownership Structure. Journal of Financial Economics, 3(4), 305-360.
Johl, S. K., Kaur, S., & Cooper, B. J. (2015). Board Characteristics and Firm Performance:
Evidence from Malaysian Public Listed Firms. Journal of Economics, Business and
Management, 3(2), 239-243.
Judge, W. Q., Naoumova, I., & Koutzevol, N. (2003). Corporate Governance and Firm
Performance in Russia: An Empirical Study. Journal of World Business, 38(4), 385-396.
Kamardin, H. (2009). The Impact of Corporate Governance and Board Performance on the
Performance of Public Listed Companies in Malaysia.PhD Thesis, Universiti Sains,
Kamran, K., & Shah, A. (2014). The Impact of Corporate Governance and Ownership Structure on
Earnings Management Practices: Evidence from Listed Companies in Pakistan. The
Lahore Journal of Economics, 19(2), 27-70.
Kent, P., Routledge, J., & Stewart, J. (2010). Innate and Discretionary Accruals Quality and
Corporate Governance. Accounting and Finance, 50(2), 171-195.
Klein, A. (2002). Economic Determinants of Audit Committee Independence. The Accounting
Review, 77(2), 435-452.
Krivogorsky, V. (2006). Ownership, Board Structure, and Performance in Continental Europe. The
International Journal of Accounting, 41(2), 176-197.
Lam, T.-Y., & Lee, S. K. (2012). Family Ownership, Board Committees and Firm Performance:
Evidence from Hong Kong. Corporate Governance: The international journal of
business in society, 12(3), 353-366.
Latif, A., & Abdullah, F. (2015). The Effectiveness of Corporate Governance in Constraining
Earnings Management in Pakistan. The Lahore Journal of Economics, 20(1), 135-155.
Lefort, F., and Urzúa, F. (2008). Board Independence, Firm Performance and Ownership
Concentration: Evidence from Chile. Journal of Business Research, 61(6), 615-622.
Lipton, M., and Lorsch, J. W. (1992). A Modest Proposal for Improved Corporate Governance.
The Business Lawyer, 48(1), 59-77.
Mak, Y. T., & Kusnadi, Y. (2005). Size Really Matters: Further Evidence on the Negative
Relationship between Board Size and Firm Value. Pacific-Basin Finance Journal, 13(3),
Masood, A., & Shah, A. (2014). Corporate Governance and Cash Holdings in Listed Non-
Financial Firms in Pakistan. Business Review, 9(2), 48-73.
Mokhtar, S. M., Sori, Z. M., Hamid, M. A., Abidin, Z. Z., Nasir, A. M., Yaacob, A., & Muhamad,
S. (2009). Corporate Governance Practices and Firms Performance: the Malaysian Case.
Journal of Money, Investment and Banking, 11(1), 45-59.
Nahar Abdullah, S. (2004). Board Composition, CEO Duality and Performance among Malaysian
Listed Companies. Corporate Governance: The International Journal of Business in
Society, 4(4), 47-61.
Nugroho, B. Y., and Eko, P. U. (2012). Board Characteristics and Earning Management. Bisnis
and Birokrasi Journal, 18(1), 1-10.
Ponnu, C. H. (2008). Corporate Governance Structures and The Performance of Malaysian Public
Listed Companies. International Review of Business Research Papers, 4(2), 217-230.
Punch, F. K. (1998). Introduction to Social Research: Quantitative and Qualitative Approaches.
(2nd ed.). Thousand Oaks: SAGE.
Rahman, R. A.., & Haniffa, R. M. (2005). The Effect of Role Duality on Corporate Performance
in Malaysia. Corporate Ownership and Control, 2(2), 40-47.
Rhoades, D. L., Rechner, P. L., & Sundaramurthy, C. (2000). Board Composition and Financial
Performance: A Meta-Analysis of The Influence of Outside Directors. Journal of
Managerial Issues, 12(1), 76-91.
Ronen, J., & Yaari, V. (2008). Earnings Management. US: Springer.
Saleh, A. (2015). Oil & Gas Sector of Pakistan and Sustainable Development. Germeny: Lambert
Sanda, A. U., Mikailu, A. S., & Garba, T. (2010). Corporate Governance Mechanisms and Firms'
Financial Performance in Nigeria. Afro-Asian Journal of Finance and Accounting, 2(1),
Schmid, M. M., & Zimmermann, H. (2008). Should Chairman and CEO be Separated? Leadership
Structure and Firm Performance in Switzerland. Schmalenbach Business Review, 60(2),
Shabbir, S. S. (2012). The Role of Institutional Shareholders Activism in the Corporate
Governance of Pakistan. Journal of Humanistics and Social Sciences, 1(2), 1-23.
Shah, S. Z. A., Butt, S. A., & Hasan, A. (2009). Corporate Governance and Earnings Management
an Empirical Evidence Form Pakistani Listed Companies. European Journal of Scientific
Research, 26(4), 624-638.
Shleifer, A., & Vishny, R. W. (1997). A Survey of Corporate Governance. The Journal of
Finance, 52(2), 737-783.
Shukeri, S. N., Shin, O. W., & Shaari, M. S. (2012). Does Board of Director’s Characteristics
Affect Firm Performance? Evidence from Malaysian Public Listed Companies.
International Business Research, 5(9), 120-127.
Tabassum, N., Kaleem, A., & Nazir, M. S. (2013). Impact of Real Earnings Management on
Subsequent Financial Performance. Middle-East Journal of Scientific Research, 17(4),
Tahir, S. H., Muhammad, H. M. S. A. A., & ul Haq, A. (2012). Two-Tier Corporate Governance
Model for Pakistan. European Journal of Business and Management, 4(6), 38-47.
Ujunwa, A. (2012). Board Characteristics and the Financial Performance of Nigerian Quoted
Firms. Corporate Governance: The International Journal of Business in Society, 12(5),
Uwuigbe, U., Peter, D. S., & Oyeniyi, A. (2014). The Effects of Corporate Governance
Mechanisms on Earnings Management of Listed Firms in Nigeria. Accounting and
Management Information Systems, 13(1), 159-174.
Vafeas , N. (1999). Board Meeting Frequency and Firm Performance. Journal of Financial
Economics, 53(1), 113-142.
Wan, D., & Ong, C. H. (2005). Board Structure, Process and Performance: Evidence from
Public‐ Listed Companies in Singapore. Corporate Governance: An International
Review, 13(2), 277-290.
Williamson, O. (1988). Corporate Finance and Corporate Governance. Journal of Finance, 43(3),
Yermack, D. (1996). Higher Market Valuation of Companies with a Small Board of Directors.
Journal of Financial Economics, 40(2), 185-211.