The Importance of Corporate Governance fot the Financial Development of a Country

The Importance of Corporate Governance fot the Financial Development of a Country

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Corporate governance is very important for financial development of country. After East Asian financial crisis developing countries realize the importance of corporate governance in development of economy. In 1990 The OECD Organisation for . The relationship between ownership structure and firm performance is an important area of study in the broader field of Corporate Governance from last two decades. Researchers have focused mainly on managers and major shareholders interests on firm ownership. These researchers explored the relationship of ownership structure and firm performance keeping in view the conflict of interests of managers and owners of the firm.

Corporate governance deals with the way how supplier of finance the firms manger to get return on their investment (Shleifer and Vishny, 1997). Corporate governance mechanism is very important even in developed economies. According to Shleifer and Vishny (1997) in developed countries corporate governance mechanism is exit with small differences. In less developed countries corporate governance mechanisms do not exit. Corporate governance is a mechanism through which outside investor protects themselves from insiders (La Portal et al, 2000).

Conflict arises in companies when Shareholders (owner) and manager (agent) or different shareholders have divergent goal. Secondly conflict also arises due to asymmetric information about participant’s action and preferences. Firm need corporate governance structure to address these issues. Jensen and Meckling (1976) conclude that this problem can be by separating corporate ownership from corporate management. This separation helps the executives to pursue their own interest rather the interest of shareholder. In countries with wea...


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...rations have been deducted from sales, and income taxes recognized. It is one of the best measures of the overall results of a firm, especially when combined with an evaluation of how well it is using its working capital. The measure is commonly reported on a trend line, to judge performance over time. It is also used to compare the results of a business with its competitors.
Net Profit Ratio= Net profit /Net sales *100
2.9 Delimitations: The data is selected from security exchange commission of Pakistan that’s why conclusion drawn from this study will true for companies of Pakistan
Financial companies has excluded from the test. Companies due to unavailability of data are also excluded from the test.

The operational and financial mechanism behind the effect of ownership structure on firm performance is not analyzed for the sake of limiting the scope of analysis.


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