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Corporate Governance A framework providing guidelines to the management
about governing responsibly
It is about commitment to values, about ethical business
conductIt covers:
Adequate disclosures and effective decision making to achievecorporate objectives;
Transparency in business transactions;
Statutory and legal compliances;
Protection of shareholder interests;
Commitment to values and ethical conduct of business
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Objectives of the Study Is there any relationship between the size and the firm
value in top performing companies
Is there any relationship between the independence ofthe Board and the firm value in top performing
companies
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Hypothesis of the study H1: There is a significant relationship between
firm performance and Board Size in top performing
companies
H2: There is a significant relationship between
firm performance and Board Independence in top
performing companies
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Research Methodology
Sample period: 2010 2013, i.e. 4 years. Sample: Each company from 10 industries constituting
BSE SENSEX. Banking sector is ignored and one
another company is ignored for non availability of data.
Hence, 8 companies with 4-year data are taken forstudy
Source of data: Secondary data from the annual reports
of the selected companies for the four year sample
period 2010-13.
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Variables Used Dependent Variables:
Firm Value:Measured by a proxy for Tobins Q ratio andReturn on Equity.
Tobins Qis defined as the ratio of market value of equity and
market value of debt to the replacement cost of assets.
Tobin Q =Mk V f +Bk V f
Bk V f
Return on Equity =Pf f
Shh f+
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Independent Variables:
Board Size- Number of Directors in the Board
Board independence Ratio - f Ip Dc f Dc
Control Variables:
Firm size Natural log of sales of the companies for the
given sample period
Age of firm Difference between 2010 and year of
incorporation
Financial LeverageLong term debt
Total laibilities Equity Retained earnings
Asset TangibilityNet Fixed assets
Total Assets
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Tools used:
Correlation
Hierarchical Multiple regression to study the effect ofcontrol variables and the independent variables on
firm value. Results are calculated with SPSS package.
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Results and Discussions Correlation:
There is a negative correlation between Tobin Q and
Board size.
All other correlations are significant among the
variables, but the coefficient of correlation does not
exceed 0.6 mostly (exception: 0.77 between ROE and
Age, 0.66 between No. of Board of Directors and asset
Tangibility).
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Regression:
Board Independence:
90% significance with Tobin Q
Significant relationship between financial leverage and Asset
Tangibility.
Insignificant impact on ROE
Board Size:
Significant impact on ROE, but positive relationship is
exhibited contrary to previous studies
Insignificant with Tobin Q
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Possible explanation Small sample size of companies from different sectors
bouncing back with their best and efficient performanceafter the blow of recession, and the sample period chosen
as the period immediately after crisis - a possible reason forinsignificant relationship exhibited
Significant relationships shown between financial leverage,asset tangibility ratio and the age and dependent variables,indicating financial soundness and experience
Factors other than Board size and its independence haveassumed greater significance in determining the firm value,especially given that the period of study immediate afterthe financial crisis
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CONCLUSION Board size and composition did not have any significant
impact on the firm value for the selected sample of 8
companies and the period of 4 yrs from 2010 to 2013
To conclude, maintaining that corporate governance
practices are in vogue in the sample companies, certainother factors have had dominant role in determining
firm value.
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