IDEAS home Printed from https://ideas.repec.org/a/bla/ecopol/v36y2024i3p1633-1663.html
   My bibliography  Save this article

Corporate governance and firm performance: Evidence from political instability, political ideology, and corporate governance reforms in Pakistan

Author

Listed:
  • Irfan Haider Shakri
  • Jaime Yong
  • Erwei Xiang

Abstract

We examine impact of corporate governance on firm performance following the implementation of the changes to the Code of Corporate Governance of Pakistan in 2012. Our sample period from 2008 to 2022 include periods of political instability and shifts in Pakistan's political landscape, providing an opportunity to examine the effectiveness of corporate governance mechanisms in enhancing accounting‐ and market‐based firm performance measures. We find significant improvements attributed to reforms in the regulatory framework surrounding corporate governance practices particularly from expanded scope and composition of boards and audit committees. This led to broader capabilities and effective controls, thus improving firm performance and investor confidence more so during periods of political instability and changes in political ideology.

Suggested Citation

  • Irfan Haider Shakri & Jaime Yong & Erwei Xiang, 2024. "Corporate governance and firm performance: Evidence from political instability, political ideology, and corporate governance reforms in Pakistan," Economics and Politics, Wiley Blackwell, vol. 36(3), pages 1633-1663, November.
    • Handle: RePEc:bla:ecopol:v:36:y:2024:i:3:p:1633-1663
    DOI: 10.1111/ecpo.12303
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/ecpo.12303
    Download Restriction: no
    File URL: https://libkey.io/10.1111/ecpo.12303?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Rashid Zaman & Nader Atawnah & Muhammad Nadeem & Stephen Bahadar & Irfan Haider Shakri, 2022. "Do liquid assets lure managers? Evidence from corporate misconduct," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(7-8), pages 1425-1453, July.
    2. Anderson, Ronald C. & Mansi, Sattar A. & Reeb, David M., 2004. "Board characteristics, accounting report integrity, and the cost of debt," Journal of Accounting and Economics, Elsevier, vol. 37(3), pages 315-342, September.
    3. Muniandy, Balachandran & Hillier, John, 2015. "Board independence, investment opportunity set and performance of South African firms," Pacific-Basin Finance Journal, Elsevier, vol. 35(PA), pages 108-124.
    4. Attiya Y. Javid & Robina Iqbal, 2010. "Corporate Governance in Pakistan : Corporate Valuation, Ownership and Financing," Governance Working Papers 22830, East Asian Bureau of Economic Research.
    5. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    6. Husam Aldamen & Keith Duncan & Simone Kelly & Ray McNamara & Stephan Nagel, 2012. "Audit committee characteristics and firm performance during the global financial crisis," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 52(4), pages 971-1000, December.
    7. Gulati, Rachita & Kattumuri, Ruth & Kumar, Sunil, 2020. "A non-parametric index of corporate governance in the banking industry: An application to Indian data," Socio-Economic Planning Sciences, Elsevier, vol. 70(C).
    8. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 407-443.
    9. Sulehri, Fiaz Ahmad & Ali, Amjad, 2020. "Impact of Political Uncertainty on Pakistan Stock Exchange (1990-1999): An Event Study Approach," MPRA Paper 104623, University Library of Munich, Germany.
    10. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58, January.
    11. Gadong Toma Dalyop, 2019. "Political instability and economic growth in Africa," International Journal of Economic Policy Studies, Springer, vol. 13(1), pages 217-257, January.
    12. Nguyen, Tuan & Locke, Stuart & Reddy, Krishna, 2014. "A dynamic estimation of governance structures and financial performance for Singaporean companies," Economic Modelling, Elsevier, vol. 40(C), pages 1-11.
    13. Shakri, Irfan Haider & Yong, Jaime & Xiang, Erwei, 2022. "Does compliance with corporate governance increase profitability? Evidence from an emerging economy: Pakistan," Global Finance Journal, Elsevier, vol. 53(C).
    14. Dahya, Jay & McConnell, John J., 2007. "Board Composition, Corporate Performance, and the Cadbury Committee Recommendation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(3), pages 535-564, September.
    15. Agrawal, Anup & Knoeber, Charles R. & Tsoulouhas, Theofanis, 2006. "Are outsiders handicapped in CEO successions?," Journal of Corporate Finance, Elsevier, vol. 12(3), pages 619-644, June.
    16. Anthony Kyereboah‐coleman & Nicholas Biekpe, 2006. "Corporate Governance And Financing Choices Of Firms: A Panel Data Analysis," South African Journal of Economics, Economic Society of South Africa, vol. 74(4), pages 670-681, December.
    17. Amarjit Gill & Neil Mathur, 2011. "The Impact of Board Size, CEO Duality, and Corporate Liquidity on the Profitability of Canadian Service Firms," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 1(3), pages 1-6.
    18. Lu, Yun & Ntim, Collins G. & Zhang, Qingjing & Li, Pingli, 2022. "Board of directors’ attributes and corporate outcomes: A systematic literature review and future research agenda," International Review of Financial Analysis, Elsevier, vol. 84(C).
    19. Abhinav Gupta & Forrest Briscoe & Donald C. Hambrick, 2017. "Red, blue, and purple firms: Organizational political ideology and corporate social responsibility," Strategic Management Journal, Wiley Blackwell, vol. 38(5), pages 1018-1040, May.
    20. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    21. Roszaini Haniffa & Mohammad Hudaib, 2006. "Corporate Governance Structure and Performance of Malaysian Listed Companies," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(7‐8), pages 1034-1062, September.
    22. Ting Li & Nataliya Zaiats, 2018. "Corporate governance and firm value at dual class firms," Review of Financial Economics, John Wiley & Sons, vol. 36(1), pages 47-71, January.
    23. Nikos Vafeas, 2003. "Length of Board Tenure and Outside Director Independence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(7‐8), pages 1043-1064, September.
    24. Cao, Zhiyan & Fernando, Guy D. & Tripathy, Arindam & Upadhyay, Arun, 2018. "The economics of corporate lobbying," Journal of Corporate Finance, Elsevier, vol. 49(C), pages 54-80.
    25. Zeitun Rami, 2014. "Corporate Governance, Capital Structure and Corporate Performance: Evidence from GCC Countries," Review of Middle East Economics and Finance, De Gruyter, vol. 10(1), pages 75-96, April.
    26. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    27. Mike W. Peng & Shujun Zhang & Xinchun Li, 2007. "CEO Duality and Firm Performance during China's Institutional Transitions," Management and Organization Review, The International Association for Chinese Management Research, vol. 3(2), pages 205-225, July.
    28. Antonetti, Paolo & Anesa, Mattia, 2017. "Consumer reactions to corporate tax strategies: The role of political ideology," Journal of Business Research, Elsevier, vol. 74(C), pages 1-10.
    29. Mohammed A. Alhossini & Collins G. Ntim & Alaa Mansour Zalata, 2021. "Corporate Board Committees and Corporate Outcomes: An International Systematic Literature Review and Agenda for Future Research," The International Journal of Accounting (TIJA), World Scientific Publishing Co. Pte. Ltd., vol. 56(01), pages 1-73, March.
    30. Waseem Akhter & Arshad Hassan, 2024. "Does corporate social responsibility mediate the relationship between corporate governance and firm performance? Empirical evidence from BRICS countries," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(1), pages 566-578, January.
    31. Samer Matta & Michael Bleaney & Simon Appleton, 2022. "The economic impact of political instability and mass civil protest," Economics and Politics, Wiley Blackwell, vol. 34(1), pages 253-270, March.
    32. Ali, Amjad & Ur Rehman, Hafeez, 2015. "Macroeconomic Instability and Its Impact on Gross Domestic Product: An Empirical Analysis of Pakistan," MPRA Paper 82496, University Library of Munich, Germany, revised 2015.
    33. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February.
    34. Hadani, Michael & Dahan, Nicolas M. & Doh, Jonathan P., 2015. "The CEO as chief political officer: Managerial discretion and corporate political activity," Journal of Business Research, Elsevier, vol. 68(11), pages 2330-2337.
    35. Jacqueline Christensen & Pamela Kent & Jenny Stewart, 2010. "Corporate Governance and Company Performance in Australia," Australian Accounting Review, CPA Australia, vol. 20(4), pages 372-386, December.
    36. Nikos Vafeas, 2003. "Length of Board Tenure and Outside Director Independence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30, pages 1043-1064.
    37. Bhagat, Sanjai & Bolton, Brian, 2019. "Corporate governance and firm performance: The sequel," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 142-168.
    38. Kim, Incheol & Pantzalis, Christos & Park, Jung Chul, 2013. "Corporate boards' political ideology diversity and firm performance," Journal of Empirical Finance, Elsevier, vol. 21(C), pages 223-240.
    39. Maury, Benjamin, 2006. "Family ownership and firm performance: Empirical evidence from Western European corporations," Journal of Corporate Finance, Elsevier, vol. 12(2), pages 321-341, January.
    40. Chau, Frankie & Deesomsak, Rataporn & Wang, Jun, 2014. "Political uncertainty and stock market volatility in the Middle East and North African (MENA) countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 28(C), pages 1-19.
    41. Umar Nawaz Kayani & Tracy-Anne De Silva & Christopher Gan, 2019. "Working capital management and corporate governance: a new pathway for assessing firm performance," Applied Economics Letters, Taylor & Francis Journals, vol. 26(11), pages 938-942, June.
    42. Mak, Y.T. & Kusnadi, Yuanto, 2005. "Size really matters: Further evidence on the negative relationship between board size and firm value," Pacific-Basin Finance Journal, Elsevier, vol. 13(3), pages 301-318, June.
    43. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-1177, December.
    44. Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2008. "Boards: Does one size fit all," Journal of Financial Economics, Elsevier, vol. 87(2), pages 329-356, February.
    45. Dimitrios Asteriou & Costas Siriopoulos, 2000. "The Role of Political Instability in Stock Market Development and Economic Growth: The Case of Greece," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 29(3), pages 355-374, November.
    46. Meini Han & Han Lin & Jiangyan Wang & Yunzhen Wang & Wan Jiang, 2019. "Turning corporate environmental ethics into firm performance: The role of green marketing programs," Business Strategy and the Environment, Wiley Blackwell, vol. 28(6), pages 929-938, September.
    47. Ahmed A. Sarhan & Collins G. Ntim & Basil Al‐Najjar, 2019. "Board diversity, corporate governance, corporate performance, and executive pay," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(2), pages 761-786, April.
    48. John M. Griffith, 1999. "CEO ownership and firm value," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 20(1), pages 1-8.
    49. Chen, Carl R & Steiner, Thomas L, 1999. "Managerial Ownership and Agency Conflicts: A Nonlinear Simultaneous Equation Analysis of Managerial Ownership, Risk Taking, Debt Policy, and Dividend Policy," The Financial Review, Eastern Finance Association, vol. 34(1), pages 119-136, February.
    50. Muhammad Azeem Naz & Rizwan Ali & Ramiz Ur Rehman & Collins G. Ntim, 2022. "Corporate governance, working capital management, and firm performance: Some new insights from agency theory," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1448-1461, July.
    51. Mahbub Zaman & Mohammed Hudaib & Roszaini Haniffa, 2011. "Corporate Governance Quality, Audit Fees and Non-Audit Services Fees," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 38(1-2), pages 165-197, January.
    52. Ciftci, Ilhan & Tatoglu, Ekrem & Wood, Geoffrey & Demirbag, Mehmet & Zaim, Selim, 2019. "Corporate governance and firm performance in emerging markets: Evidence from Turkey," International Business Review, Elsevier, vol. 28(1), pages 90-103.
    53. Prowse, Stephen D, 1992. "The Structure of Corporate Ownership in Japan," Journal of Finance, American Finance Association, vol. 47(3), pages 1121-1140, July.
    54. Xi Wang & David Manry & Gina Rosa, 2019. "Ownership structure, economic fluctuation, and capital structure: Evidence from China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(2), pages 841-854, April.
    55. Roszaini Haniffa & Mohammad Hudaib, 2006. "Corporate Governance Structure and Performance of Malaysian Listed Companies," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(7-8), pages 1034-1062.
    56. Peng, Mike W. & Zhang, Shujun & Li, Xinchun, 2007. "CEO Duality and Firm Performance during China's Institutional Transitions," Management and Organization Review, Cambridge University Press, vol. 3(2), pages 205-225, July.
    57. Gibson, Michael S., 2003. "Is Corporate Governance Ineffective in Emerging Markets?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(1), pages 231-250, March.
    58. Wintoki, M. Babajide & Linck, James S. & Netter, Jeffry M., 2012. "Endogeneity and the dynamics of internal corporate governance," Journal of Financial Economics, Elsevier, vol. 105(3), pages 581-606.
    59. Ararat, Melsa & Black, Bernard S. & Yurtoglu, B. Burcin, 2017. "The effect of corporate governance on firm value and profitability: Time-series evidence from Turkey," Emerging Markets Review, Elsevier, vol. 30(C), pages 113-132.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Naeem Tabassum & Satwinder Singh, 2020. "Corporate Governance and Organisational Performance," Springer Books, Springer, number 978-3-030-48527-6, October.
    2. Hussein Abedi Shamsabadi & Byung-Seong Min & Richard Chung, 2016. "Corporate governance and dividend strategy: lessons from Australia," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 12(5), pages 583-610, October.
    3. Ahmad Yuosef Alodat & Zalailah Salleh & Hafiza Aishah Hashim & Farizah Sulong, 2021. "Corporate governance and firm performance: empirical evidence from Jordan," Journal of Financial Reporting and Accounting, Emerald Group Publishing Limited, vol. 20(5), pages 866-896, August.
    4. Aziz Jaafar & Lynn Hodgkinson & Mao-Feng Kao, 2019. "Ownership Structure, Board of Directors and Firm Performance: Evidence from Taiwan," Working Papers 19011, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    5. Franco Ernesto Rubino & Paolo Tenuta & Domenico Rocco Cambrea, 2017. "Board characteristics effects on performance in family and non-family business: a multi-theoretical approach," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 21(3), pages 623-658, September.
    6. Detthamrong, Umawadee & Chancharat, Nongnit & Vithessonthi, Chaiporn, 2017. "Corporate governance, capital structure and firm performance: Evidence from Thailand," Research in International Business and Finance, Elsevier, vol. 42(C), pages 689-709.
    7. Chaur-Shiuh Young & Liu-Ching Tsai & Pei-Gin Hsieh, 2008. "Voluntary Appointment of Independent Directors in Taiwan: Motives and Consequences," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(9-10), pages 1103-1137.
    8. Nguyen, Tuan & Locke, Stuart & Reddy, Krishna, 2014. "A dynamic estimation of governance structures and financial performance for Singaporean companies," Economic Modelling, Elsevier, vol. 40(C), pages 1-11.
    9. Shakri, Irfan Haider & Yong, Jaime & Xiang, Erwei, 2022. "Does compliance with corporate governance increase profitability? Evidence from an emerging economy: Pakistan," Global Finance Journal, Elsevier, vol. 53(C).
    10. Nguyen, Tuan & Locke, Stuart & Reddy, Krishna, 2015. "Ownership concentration and corporate performance from a dynamic perspective: Does national governance quality matter?," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 148-161.
    11. Pillai, Rekha & Al-Malkawi, Husam-Aldin Nizar, 2018. "On the relationship between corporate governance and firm performance: Evidence from GCC countries," Research in International Business and Finance, Elsevier, vol. 44(C), pages 394-410.
    12. Fidanoski, Filip & Mateska, Vesna & Simeonovski, Kiril, 2013. "Corporate Governance and Bank Performance: Evidence from Macedonia," MPRA Paper 46773, University Library of Munich, Germany, revised Mar 2013.
    13. Ines Kateb & Ines Belgacem, 2024. "Navigating governance and accounting reforms in Saudi Arabia's emerging market: impact of audit quality, board characteristics, and IFRS adoption on financial performance," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 21(2), pages 290-312, June.
    14. Martin Kyere & Marcel Ausloos, 2021. "Corporate governance and firms financial performance in the United Kingdom," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 1871-1885, April.
    15. Bill B. Francis & Iftekhar Hasan & Qiang Wu, 2012. "Do corporate boards matter during the current financial crisis?," Review of Financial Economics, John Wiley & Sons, vol. 21(2), pages 39-52, April.
    16. Ahmad, Sardar & Ullah, Subhan & Akbar, Saeed & Kodwani, Devendra & Brahma, Sanjukta, 2024. "The impact of compliance, board committees and insider CEOs on firm survival during crisis," International Review of Financial Analysis, Elsevier, vol. 91(C).
    17. Nebert Mandala & E. Kaijage & J. Aduda & C. Iraya, 2018. "The Effect of Board Structure and CEO Tenure on Performance of Financial Institutions in Kenya," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 7(1), pages 1-4.
    18. Nebert Mandala & E. Kaijage & J. Aduda & C. Iraya, 2018. "An Empirical Investigation of the Relationship between Board Structure and Performance of Financial Institutions in Kenya," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 7(1), pages 1-3.
    19. Mamdouh Abdulaziz Saleh Al-Faryan, 2021. "The effect of board composition and managerial pay on Saudi firm performance," Review of Quantitative Finance and Accounting, Springer, vol. 57(2), pages 693-758, August.
    20. Maureen Muller-Kahle, 2015. "The impact of dominant ownership: the case of Anglo-American firms," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(1), pages 71-89, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecopol:v:36:y:2024:i:3:p:1633-1663. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0954-1985 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.