An empirical study on impact of corporate governance disclosure practices on financial performance of select financial banks

In the past, so many organizations in India have been involved in unethical practices, which put the credibility of their corporate image in doubt. Many researchers into the subject have brought to light the poor governance of so many companies with indebted accounts in the Indian economy. The poor governance has led to the collapse of so many companies in India. Hence, there is a need to study Corporate Governance practices and its impact on the financial performance of the companies. Corporate governance impact on the financial performance of the firms’ is a very vital and important issue in India. The main idea of this research paper is to examine whether or not there is an impact of Corporate Governance disclosures on the firm performance. Keyword: empirical study, corporate governance, financial performance, financial banks Introduction Thus the main aim of this research paper is to find out whether the Corporate Governance disclosure practices of the firms lead to better financial performance. This study also seeks to investigate whether there is any relationship between the corporate disclosures and financial performance of the companies taking into account various financial variables measuring the financial performance of the companies in the financial services sector on NSE. This study is based only on the companies listed in the financial services sector on NSE and the number of variables used for measuring the financial performance is limited to seven variables namely return on equity, return on assets, return on capital, book price per share, market price per share, dividend per share and earnings per share. Literature Review Chugh L. (2009) [5] has analyzed Board structure and financial performance of major 41 companies on the NSE for the year 2009. Regression Analysis and Correlation Matrix has been used to analyze the relationship between the variables under study. The study concluded that a governance structure incorporating larger board size creates better opportunities and more resources, thus enhancing financial performance. Subramanyam M. (2014) [6] studied the corporate governance and disclosure practices of IT companies in India. It was evident from the study that there are some factors which influence board related matters. It was also observed that the companies gradually improves their disclosure practices in their annual reports with respect to quality, transparency, full disclosure and in-depth reporting for ensuring good corporate governance practices towards the shareholders. Saravanan (2012) [9] has examined the impact of corporate governance in the determination of firm value in the manufacturing firms listed on BSE. An attempt was also made to test the differentiation in the corporate governance practices between the manufacturing and non-manufacturing firms. Results of the regression revealed that the firm value is found to be significantly affected by the corporate governance factors and that there is a significant difference in the average shareholding between manufacturing and non-manufacturing firms. Kaur D. (2009) [3] has analyzed the difference in the corporate governance disclosure practices of private and public sector banks in India. A disclosure index of 8 broad parameters has been prepared according to the clause 49 of the SEBI using content analysis. The results for each of the 8 parameters were different across the banks. Each parameter under the study had a different impact on Audit Committee, Role of Audit committee, Finance committee etc. Aggarwal P. (2013) [1] examined the relationship between corporate governance and corporate profitability using a sample of 20 listed companies on S&P CNX Nifty 50 Index. Various tests like regression, correlation, F test and T test have been performed using secondary data over a period of two years. The results of the study reveal that corporate governance ratings have had a significant impact on the financial performance of the companies to a greater extent. Objectives of the study 1. To assess corporate governance ranks of the companies in the financial services sector on NSE. 2. To assess the financial performance of the companies on the basis of seven financial performance measurement variables. 3. To know the impact of Corporate Governance Disclosure Scores on the financial performance measurement variables. Research Methodology The study is based on secondary data. The yearly data on various financial measures such as Return on Equity (ROE), Return on Assets (ROA), and Return on Capital (ROC), Book price per share (BPS), Market price per share (MPS), Dividend per share (DPS), and Earnings per share (EPS) was collected International Journal of Commerce and Management Research 21 from the annual reports of the company. Further, the corporate governance disclosure scores are obtained from the Bloomberg database. A period of 10 years i.e. from 2006 to 2015 has been chosen for the purpose of the study. A sample of 14 companies having a background of different financial services from the financial services sector is used for the study. The sample chosen is selected from the financial services sector listed on NSE. The financial services sector was chosen because it is the sector having the highest market capitalization on Nifty. Statistical Tools and Techniques Used Descriptive statistic shave been generated using Gretl to identify the mean and standard deviation. Augmented Dickey-Fuller test has been applied to identify whether the data collected for the study is stationary or not using Eviews. Correlation Matrix is used to find out the interrelationship between the Corporate Governance Disclosure Scores and Financial Variables such as ROE, ROA, ROC, BPS, MPS, DPS, and EPS Perfect positive correlation having a correlation coefficient of +1 implies that as one variable moves up or down, the other variable will also move in the same direction. Alternatively, perfect negative correlation means that if one variable moves in either direction the variable that is perfectly negatively correlated will move in the opposite direction. If the correlation is 0, the movements of the variables are said to have no correlation. Simple Regression Analysis has been performed using Gretl to identify the relationship between the disclosure scores and financial performance indicators such as Return on Equity (ROE), Return on Assets (ROA), Return on Capital (ROC), Book Price per share (BPS), Market Price per share (MPS), Dividend per share (DPS) and Earnings per share (EPS), Ordinary Least Square (OLS) regression is a generalized linear modeling technique used to model a single response variable which has been recorded on an interval scale. The interpretation is done on the basis of the “p value” obtained at 95% confidence interval using Gretl. Financial Performance Measurement Variables Return on Equity = Net Income