Corporate Governance and Tobin's Q as a Measure of Organizational Performance

• Published in: British journal of management Vol. 29; no. 1; pp. 171 - 190
• Main Authors: Singh, Satwinder, Tabassum, Naeem, Darwish, Tamer K., Batsakis, Georgios
• Format: Journal Article
• Language: English
• Published: London Blackwell Publishing Ltd 01.01.2018
• Subjects: Articulation; Boards of directors; Committees; Concentration; Corporate governance; Economic models; Generalized method of moments; Organizational performance; Outside directors; Ownership; Pakistan
• ISSN: 1045-3172; 1467-8551
• DOI: 10.1111/1467-8551.12237

This empirical study examines the relationship between corporate governance and organizational performance (OP), measured using Tobin's Q (TQ) in the context of an emerging economy for which, as yet, only a handful of studies have been conducted. We employ a system generalized method of moments approach controlling for endogeneity and test it on a newly created dataset comprising 324 listed firms in Pakistan. We find that board size, number of board committees and ownership concentration are positively linked with high TQ ratio, whilst board independence and CEO duality display a negative relationship. In terms of moderating effects, we find that ownership concentration negatively moderates the relationship between board independence and OP, as well as that of CEO duality and OP. The relationship between the number of board committees and OP is positively moderated by ownership concentration. Our findings contribute towards a better articulation and application of a more concrete measure of OP − that of the TQ ratio − whilst, at the same time, testing the board composition–performance relationship in the context of an upcoming and increasingly important emerging market. Wider applicability of results and policy implications are discussed.