Corporate Governance and Tobin's Q as a Measure of Organisational Performance

Abstract

This empirical study examines the relationship between corporate governance and organisational performance (OP), measured in Tobin’s Q in the context of an emerging economy for which, as yet, only a handful of studies have been conducted. We employ a System GMM approach controlling for endogeneity, and test it on a newly created dataset comprising 324 stock exchange-listed firms in Pakistan. We find that Board size, number of Board committees and Ownership concentration are positively linked with high TQ ratio, whilst Board independence and CEO duality display a negative relationship. In terms of moderating effects, we find that ownership concentration negatively moderates the relationship between Board independence and OP, as well as that of CEO duality and OP. The relationship between the number of Board committees and OP is positively moderated by ownership concentration. Our findings contribute towards better articulating and applying a more concrete measure of OP—that of TQ ratio—whilst, at the same time, testing the Board composition–performance relationship in the context of an upcoming and increasingly important emerging market. Wider applicability of results and policy implications are discussed.