Board Characteristics, Audit Committee and Ownership Structure Influence on Firm Performance of Manufacturing Firms in India

Abstract

Abstract:The study investigates the relationship and impact of corporate governance measures such as board characteristics, audit committee and Ownership Structure on the financial performance of the selected manufacturing firms listed in Bombay Stock Exchange (BSE). The study empirical in nature and applies panel data regression analysis to a sample of 357 manufacturing firms listed in BSE during the period 2006-2015. The study found that board size is positively and significantly linked to both the financial performance measures, i.e. Return on assets (ROA) and Return on Equity (ROE) but the negative and insignificant impact in case of Tobin's Q. Audit committee independence is significant and negatively affected by ROE. The same promoters' shareholding is negatively and significantly related to all the financial measures and there is an insignificant negative relationship between institutional shareholding and both financial performance measures (Tobin's Q and ROA). The study implies that to improve the performance and accordingly the value of firms, the percentage of promoters' ownership should be decreased as it has positive linkages with the financial performance. The board members have potential knowledge and expertise in the field should be increased as it has aligned with accounting based financial performance. Further, it will help the investors to pay special attention to the corporate governance, audit committee and type of ownership of firms while making the investments.

Impact of Audit Committee Adoption and its Characteristics on Financial Performance: Evidence from 100 French Companies

“…According to table 5, the size of the audit committee, the financial expertise and the number of meetings have no impact on the performance as measured by the ROE. These results are aligned with the studies of Al Matrooshi, Al-Sartawi, Sanad (2016), Gurusamy (2017) and Rao and Palaniappan (2017).…”

“…The table indicates that the variable "Independence of the members of the Audit Committee" is significantly negative at a level of 1%. This result invalidates the hypothesis H2 and confirms the results of Brown and Caylor (2006) and Gurusamy, (2017). It's explained by high professional fees asked from independent members of board which has a negative impact on the performance.…”

“…In addition, the "Company size" variable has a positive coefficient of 0.609 which shows that large companies are the most performing (Sridharan and Marsinko, 1997;Gurusamy, 2017).…”

“…In addition, the variable "Size of the company" has a positif coefficient and is statistically significant at the 1% level which proves that increasing the size of French companies positively impacts their performance (and Schiehll Bellavance, 2009, Gurusamy, 2017. However, the variable "Audit Quality" has no effect on the financial performance of the company (Noubbigh, 2008).…”

“…The second strand of literature has been interested on the impact of the characteristics of the audit committee on the financial performance such as the independence of the committee (Nuryanah and Islam, 2011;Chen and Li, 2013;Hamdan and al., 2013;Saibaba and Ansari, 2013;Al-Mamun and al., 2014;Guo and Yeh, 2014;Dinu and Nedelcu, 2015;Gurusamy, 2017), the size of the committee (Chong, 2005;Mak and Kusnadi, 2005;;Aldamen and al., 2012) expertise in finance and in accounting of the committee members (Abernathy and al, 2014;Singhvi and al., 2013;Guo and Yeh, 2014) and the number of committee meetings (Bedard and Gendron, 2010;Saibaba and Ansari, 2013;Nedelcu Dinu, 2015).…”