STRATEGIC CORPORATE GOVERNANCE MECHANISMS AND FIRM PERFORMANCE: EVIDENCE FROM INSTITUTIONAL OWNERSHIP, BOARD DIVERSITY AND AUDIT COMMITTEE STRENGTH IN EMERGING MARKETS

Abstract

The research evaluates how corporate governance mechanisms influence firm performance and analyses the moderating effects of green innovation and firm size in an emerging market environment. Through a panel dataset of non-financial listed Pakistani firms, the analysis is based on the institutional ownership, board independence, board diversity, managerial ownership and audit committees to determine their role in accounting-based (ROA, ROE) and market-based (Tobin Q) performance. The panel regression was used where the fixed or random effects model was used on Hausman specifications and robust standard errors to overcome the internal effect of heteroskedasticity and firm heterogeneity. The results prove that the institutional ownership, diversity of the board and activity of the audit committee always contribute to the improved performance of the firm, which proves the significance of the appropriate monitoring of the external environment and the diversity of strategic views. Managerial ownership demonstrates negative impact, which favors the entrenchment hypothesis. The governance-performance relationship is greatly reinforced by green innovation, which is an important strategic capability that enhances value creation. The firm size also comes out as a positive moderator in that, bigger firms tend to be in a better position to utilize governance structure because of availability of resource and a robust internal system. The research presents in-depth evidence of the joint influence of governance effectiveness, sustainability orientation and organizational scale on the firm performance in emerging markets. These findings add to the existing body of work on governance and innovation and have implications to regulators, investors and corporate executives seeking to improve governance systems and enhance sustainable competitiveness.