Board Attributes and Financial Performance: The Evidence from an Emerging Economy

In last few decades, impact of corporate governance and financial performance gained tremendous attention of the researchers and policy makers. From agency theory and resource dependence perspective different characteristics of the board can help to achieve the goal of good governance and ultimately affect financial performance. Abundant literature is available on the link between board parameters and firm's financial performance but for developing economies the exploration is still in drought. Considering this, the purpose of this study is to explore the impact of board characteristics on financial performance of the listed companies in Pakistan Stock Exchange, Pakistan. Various board parameters such as board size, number of meetings, board independence, audit committee independence, gender diversity in board and executive directors' compensation are addressed in this study. Data for this research is collected from the listed companies of Pakistan Stock Exchange (PSX) represent six different sectors of the economy. The annual data of selected companies collected from 2009 to 2015. The overall year–firm observations are 1074. Data related to board characteristics and financial performance collected from the audited published annual reports and balance sheets of the selected companies as well as from the publications of State Bank of Pakistan. Accounting and market measures are taken as indicators of financial performance and consider as the outcome variables in this study, whereas the board characteristics are taken as explanatory variables. Panel Data regression analysis revealed that, after controlling for size of firm, board size, audit committee independence are positively linked with firms financial performance, whereas board independence and gender diversity are negatively associated with firms financial performance. However, board meetings found to be insignificant variable. Furthermore, Analysis of Variance describe that there is significant variation with respect to financial performance and board parameters among different sectors of the economy. The study determines that board characteristics influence the firm financial performances in emerging country's perspective have some consistent findings. However, some findings differ as compared to developed country's context, which limit the generalization of the study.