Do corporate governance structure and capital structure matter for the performance of the firms? An empirical testing with the contemplation of outliers

Abstract

A superlative combination of the Board of Directors (BOD) with diverse members is considered a sign of a good governance structure. Meanwhile, the key decision taken by BOD to make organizations profitable is the capital structure with the optimal mix of debt and equity. Unfortunately, previous literature has reported this relationship with a mixed trend, which may be due to research gaps in the statistical analysis. Moreover, it also shows that the relationship between them has not yet been fully predicted and can still be completely understood. This study contains time-variant and time-invariant variables, and these variables usually have an outlier's problem. As we know that the OLS estimators are more sensitive to react adversely to this problem, yet we have not received enough evidence from similar researches that cares about it. Consistent with these arguments, this study focuses primarily on exploring the influence of corporate governance structure and the capital structure on firms' market-oriented and accounting-based performance, especially with the contemplation of outliers. Hypotheses have been evaluated using M-estimators and S-estimators of robust regression for 45 listed firms for the period from 2013 to 2017. The findings reveal that the governance structure of firms with BOD, independent director, institutional investors, audit committee and female directors accelerates its performance. Further, we find that the leverage ratio improves accounting performance, but it has a downward impact on the share prices of listed firms. Our study contributes to the prevailing literature by proving that the kind of governance structure that based on diverse expert members and a capital structure with a high volume of debt is of utmost importance to the performance of firms as a whole.

Revisiting the foreign direct investment-led and export-led growth hypotheses in ASEAN+3 countries

“…However, the R 2 of the random-effect model is only 6.54%. It is worth noting that the R 2 value is generally lower in panel models (PeiZhi & Ramzan, 2020).…”

“…Exports improve the economic growth through adding to gross production across the efficient utilization of resources and the creation of the resources based on foreign exchange. The reciprocal relationship between exports and growth is also connected with the exportled growth hypothesis (Petchko, 2018). Export-led growth theory assumes that international trade policies focus on exports driving economic growth (Richards, 2010;Yamada, 1998).…”

Is the Concept of Corporate Governance a Strategic Plan for Firms’ Optimum Capital Structure? Evidence from Manufacturing Companies

“…The CG system besides providing the framework for achieving corporate objectives covers every aspect of management also. CG is a system composed of a combination of board of directors (BoD) and its diverse composition for proper and profitable governance and management of an organization (Peizhi & Ramzan, 2020). It is considered as a great and useful tool in governance and management of corporate.…”

“…In any corporate house, it is the sole discretion of the BoD to decide upon the trade-off between the cost of financial distress and the interest tax shields which has to be carefully considered for an appropriate choice of CS (Kraus & Litzenberger, 1973; Peizhi & Ramzan, 2020). For better performance and growth of any organization, it is better to have a checked and relatively balanced CS or somewhat high equity financed, to avoid higher cost of debt and cash flows in terms of higher interest costs (Oyedokun et al, 2018).…”

“…The financial goals of any corporate administration can be achieved and secured through the only possible way of having a structured and well-governed BoD which is protected against the failures in terms of the management of its finance and capital. Also, the achievement of corporate financial goals is dependent on the optimum utilization of its available resources, and hence this enhances the importance of CG in the field (Haat et al, 2010; Peizhi & Ramzan, 2020).…”