Review of Education, Administration and Law (REAL) Vol.

6, (1) 2023, 51-62

Contribution the Effect of Corporate Governance on Firm Performance in Pakistan

a Muhammad Dawood, b Saif ur Rahman, c Umair Majeed, d Sadia Idress

a
M. Phil Scholar, Faculty of Economics & Commerce, The Superior University Lahore, Pakistan
E-Mail: chaudhrydawood55@[Link]
b
Assistant Professor, Faculty of Economics & Commerce, The Superior University Lahore, Pakistan
E-Mail: saifrao12@[Link]
c
M. Phil Scholar, Faculty of Economics & Commerce, The Superior University Lahore, Pakistan
E-Mail: [Link]@[Link]
d
Universiti Utara Malaysia
E-Mail: midress485@[Link]

ARTICLE DETAILS ABSTRACT

History: The study investigates the effect of corporate governance on firm
Accepted 15 December 2022 performance in commercial banking sector of Pakistan. we have
Available Online March 2023 reviewed the previous studies from 1980-2021. In these researches
Pakistani banks' financial performance is improved by board size, long-
Keywords: term CEOs, audit committee size, audit committee independence, foreign
Corporate Governance, ownership, institutional possession, annual preferred meeting, and
Commercial Banks, Firm dividend coverage. In order to safeguard shareholders and improve the
Performance overall financial performance of the business, the banks have advocated
for the adoption of sound corporate governance exercise. Most
importantly, by enforcing appropriate endorsements for noncompliance
DOI: 10.47067/real.v6i1.304 and ensuring compliance with appropriate corporate governance, the
regulatory authority ought to encourage the growth of the commercial
banks of Pakistan. Beyond the rights and responsibilities of various
stakeholders in the management of a company, the study aims to
strengthen company governance in other areas, such as the relationship
between a company and its finance vendors, compliance with societal
demands for felony, ethical, and environmental standards, and others.
The study's most significant contribution to knowledge is in this regard.
The study compresence the interpretations that have frame corporate
governance in relation to the company's overall performance has been
significantly enhanced by this contribution.

© 2023 The authors. Published by SPCRD Global Publishing. This is an

open access article under the Creative Commons Attribution-
NonCommercial 4.0
Corresponding author’s email address: saifrao12@[Link]

1. Introduction
Corporate governance influences banking performance in Pakistan. The various governance
arrangements used to control a corporation with the goal of maximizing shareholder (owner) wealth
has been a significant area of research. According to Jensen and Meckling (1976); Shahzad, Shah, Lai,
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Jan, Shah, & Shad, (2022 It examines the various governance mechanisms used to run a company with
the aim of maximizing shareholder value. A literature review reveals this significance and highlights
conflicts of interest between shareholders and management. Managers are more likely to pursue their
own goals at the expense of shareholders when there are asymmetric information problems and
imperfect contractual relationships between managers and shareholders. Managers, for instance, might
use financial and investment strategies or spend more on expensive projects for their own benefit
rather than to boost the company's value. In addition, this conflict may lead to transfer pricing, in
which the assets of the business they manage are sold to another business they own at a price lower
than the market value in addition, this conflict may result in price shifting. Hasan, Bashir and Bin
Hathir. 2019; 2003, Hassan, Sheikh, & Rahman, 2022); Dennis and McConnell; 2021 (Al-Murashada, Al-
Saeedat, Al-Khudari, Al-Haddad). Both internal business and external market conditions are involved in
this. The way a company is run and how well its governance structure works has a significant impact
on how well it can respond to external factors. 2022 nirala; 1999, Gregory Sims; Joseph and Salici,
2020). A few authors (eg 2000, G. Ruigasera; Nam & Co., (2004) have suggested that managers should
be prevented from allocating the resources of the firm's organization through effective corporate
governance, which ensures better decision-making and competent management. As a result, more
resources are used organization to improve overall performance. Corporate scandals and collapses in
the United States, the rapid expansion of investments and a variety of active institutional buyers, the
idea that companies should complete mergers and acquisitions since the 1980s, and collisions in
Southeast Asia as a result of the 1997 Asian financial year. Disasters, and the operational consolidation
of capital markets in the evolving Millennium served as the basis for corporate governance reform
(Mitton, 2002). Corporate governance has evolved into an interdisciplinary blend as a result of the
broadening of the subject's scope, whose definition is widely accepted throughout the world, from law,
business ethics, accounting, finance, organizational behavior, business control, and politics. (Sundor,
2007).

1.1 Historical Perspective of Corporate Governance

The necessity of corporate governance has been clearly demonstrated in the 21st century by
rising globalization, fierce competition in business, and corporate disasters. The structural factors that
emphasize the importance of corporate governance were the cause of these difficulties, according to
King's report (2002, paragraphs 24-14; Kazem, Ismail, Al-Kinani. Depicts the importance of corporate
governance as“The nineteenth century saw how institutions were created for existing associations; this
was the century of entrepreneurs. With the passage of time, the twentieth century became the century
of control. As attention shifts to the effectiveness and legitimacy of the use of power over corporate
entities around the world, it is expected that the twenty-first century Twenty will be the century of
governance (Hafiza et al., 2022); Shahid et al., 2022).

The concept and practices of corporate governance have evolved over time. Academic
researchers, regulators, and policy makers have taken the concept of corporate governance into account
from both a narrow and a broad perspective. Corporate governance viewed from the narrow or
traditional viewpoint as a system of contractual affiliation between the management of a better
participating company and its shareholders. In theories that are exclusively employer related, this
perspective is also referred to as the shareholder approach. Shleifer and Vishny (1997) gave the
definition of Express keeping a narrow perspective in mind; “Corporate governance defines the ways in
which corporate lenders claim to get a return on their investment,” according to Demirtas (2023) and
Zulfiqar et al., 2022). On the other hand, the modern approach to corporate governance takes into
account other social stakeholders in addition to the company's shareholders and executives. These
stakeholders may be affected either directly or indirectly, by company sports. (2011) by Fernando
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Shareholders, directors, employees, customers, authorities, society, environment, etc. are all examples
of stakeholders. The tool for directing and managing a business is corporate governance. Responsibility
for running their institutions rests with the boards of directors. Shareholders are responsible for
governance, which includes appointing directors and auditors and ensuring that the right governance
structure is in place. Implementation of the business owner's strategic objectives, assisting
management in doing so, monitoring company operations, and providing the shareholders with the
supervision report is among the duties of the administrators. Laws, regulations and general meetings of
shareholders face difficulties due to board appointments Ali, Rahman, & Anser, (2020); Sarwar, Ali,
Bhatti, & Rahman, (2021).

The basis of the corporate structure is the idea of separating ownership from management. This
causes shareholders and directors to fight over personal interests, especially in large companies. While
managers are likely to focus on their individual goals, such as completing the benefits of the position,
the primary goal of owners is to recoup their investment. Jensen & Meckling, 1976), the strength and
rank of running for a major employer (Hubbard & Palia, 1995), or their ability to maintain job stability
by avoiding risky and profitable ventures (Amihud & Lev, 1981; Khoula, Rahman, Idress, 2022).
Directors have the upper hand in this situation because of their increased access to and control over
company resources, which allows them to make decisions more in line with their own goals than with
individual shareholders. Corporate finance contributes to potential capacity regulation pressures that
firms experience. Managers have plenty of leeway to pursue their own interests at the expense of
shareholder wealth because shareholders have little incentive to reveal marketers' behavior and their
overall performance. The principle of shareholder wealth maximization will not guide corporate
decision-making in the absence of effective corporate governance mechanisms. (Nazir et al., 2009;
Sarwar, Ali, Bhatti, & Rahman, 2021). Since the publication of Modern Corporation and Private Equity
by Berle and Means (1932), Lee & Keathley (2022), and others, many studies have been launched by
firm theory.

The global economic downturn and investor preference for companies with desirable
governance apparatus has increased its importance in addition to the phenomenon of regulation
(Rahman, Chaudhry, Meo, Sheikh, & Idrees, 2021; Li et al., 2022). According to Sachs (1998), the 1997
Asian financial crisis, which originated in Thailand in the early 1990s, had a long-term negative impact
on the economies of several Southeast Asian countries. It is usually believed that bad CG form is the
cause of these crises up to a certain point. (D'Cruz, 1999). In addition, the collapse of major
corporations around the world, such as Enron, Etoys, Adelphia, WorldCom, Parmalat, Business
Investor's confidence in capital markets has eroded, and the Financial Institution and XL Holidays have
sounded the alarm about the need for transparency and an honest system of governance in institutions.
The importance of desirable, format with improving firm value and effective manager tracking, policy
makers and other participants in the capital market have focused on the need for companies to have a
robust tracking and duty machine for corporate governance in order to reduce dysfunctions of
shareholders and managers. Interests, which are commonly referred to as the organization's problems.
Cooper, Haq, Islam, and John Jones (2022, January) A rigid set of rules and mechanisms affecting the
smooth and profitable operation of a company is known as corporate governance. Accounting standards
and laws related to financial disclosure, government reimbursement, shareholdings, size, composition
and independence of company boards, as well as different types of company contributions, are included
in this concept of corporate governance (Javid & Iqbal, (2007); Shafique, Rahman, Khizar, Zulfiqar,
2021); Khan, Afridi, Shad, Rahman, (2022) and Bilal, Shah, Rahman, Jehangir, (2022). Shukri, Young,
and Chiang (2022) define corporate governance as the challenge of integrating transparency and
accountability into an organization's operations with the overarching goal. Corporate governance
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should have a significant impact not only on the legal system but also on business. The overall
organizational strategy for managing and controlling the company's financial resources which takes
into account the social and financial requirements of the company is known as corporate governance.
Accurate and open data shared by a good corporate governance system, which improves the liquidity of
emerging capital markets and expands financing opportunities in the future. According to Navissi &
Naiker (2006), strong corporate governance has a significant impact on all firms

1.2 Problem Statement

When you consider that corporations have the entities that impose and produce economic value,
the success of each country's economic system depends greatly on the competitiveness, transparency
and governance of its business within its territory in today's ancient world and aggressive financial
system (Icahn, 2009). One of the most important concerns of state makers all over the world is the
requirement of self-confidence and transparency in the conduct of business enterprises. Due to its
significant impact on the economic growth and development of countries, corporate governance has
evolved into an evolving topic. Many well-run businesses fail for several reasons; One of these reasons
is the lack of good corporate governance. Existing research shows that true corporate governance
improves overall performance in companies. OECD (2009) among others. The economic well-being of a
nation is reflected in the overall performance of its businesses. As a result, the levels of progress in poor
nations are due to absence of excellent commercial authority standards. Thus, the World Bank and
other authors note that these countries are unable to manage their resources. The literature attaches
importance to corporate governance, which is the most pressing issue facing developing countries like
Pakistan.

Several studies in developing countries have shown a strong relationship between overall
corporate performance and good corporate governance, Pakistan. 2007 by Tsamenyi et al.; 2009,
Bokpin et al. In particular, the banking industry as a whole has not been the subject of a study on
corporate governance and performance. “Management of the methods by which the financing materials
of the companies themselves ensure a return to their financing” is the definition of corporate
governance (Shleifer and Vishny, 1997). The banking industry has grown so rapidly and has gained so
much importance in the Pakistani financial system that scrutiny is absolutely necessary. Jain, (2022). It
uses incentive mechanism to align stakeholder interests, develops strategies to prevent corporate
misconduct, and addresses conflicts of interest (Shleifer and Vishny, 1997). The idea of corporate
governance has different meanings to different people in different situations. An organizational system
that clearly divides authority, responsibilities and interests is known as corporate governance. and the
check-and-balance connection among government, \shareholders.

The requirements of the corporate governance process are based on different traditional views
regarding the nature and importance of stakeholders and the separation of ownership and
management. The governance system is affected by the development of the financial market, the idea of
disclosure and transparency, and the degree of separation between ownership and control. Good
governance is measured by accounting standards; and the perceived criminal requirements of the
nation. Effective corporate governance is essential for a liberalized market to allow for greater
economic growth by allowing the free flow of both domestic and foreign capital. This is because it
increases investor confidence and goodwill while ensuring transparency, fairness, commitment and
responsibility. 2003; Gompers et al. Abeng and Verhezen et al. have argued that both firm profitability
and valuation are enhanced by good corporate governance. According to Claysen & Co. (2002),
companies benefit from improved corporate governance through better treatment of all stakeholders,
improved performance, greater access to financing, and lower costs of capital. Donaldson (2003) also
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confirms that; It is essential to have desirable corporate governance in order to enhance investor
confidence and market liquidity. ice et al. The claim that improved governance observes that subsidize
to restored revelations in business commentary might improve emerging market liquidity and capital
formation (2002). The banking area is an vital factor of monetary economics in Pakistan by reason of
its position as a financial intermediary. It protects its customers through confirming amplified earnings
arranged investments and payments then protecting reserves; Promoting American commercial
activities as an economic advisory body for companies. Pakistan has a good government policy that
includes civil society and the private sector in the development and governance of the country in the
future. It is promoted by the government as the "Primary Gateway to Asia" because of its continuing
commitment to democratic governance. It is set to bring in foreign funding for the gas boom in the
personal area, which also creates jobs and reduces poverty.

In fact, one of the most important barriers widely faced by decision makers around the world
has been the requirement of transparency and principle in corporate governance. Due to its significant
impact on the economic growth and development of countries, corporate governance has evolved as a
contemporary issue. One of the main reasons many successful companies fail is the lack of effective
corporate governance. Business entities develop strategies that position them as competitive, if not
industry leaders, in order to be more competitive and to stimulate the industry in which they operate.
Companies must check their surroundings and learn about their competitors in order to take advantage
of competitive advantages. However, despite the fact that this large industry has been effective in
distributing economic resources and providing capital to the majority of Pakistani companies, there are
still fundamental problems with financial institutions. While the majority of Pakistani banks face
technical difficulties, such as a lack of capital, one of the most significant impediments to the efficiency
and overall performance of banks in Pakistan is the lack of proper corporate governance practices. In
today's business world, corporate governance is seen as money, so companies that make it a habit to
teach their employees good corporate governance practices end up with high company performance.

1.3 Objectives of the Study and significances

The primary objective of this study is to investigate the connection between Pakistan's banking
sector's financial performance and corporate governance. Policymakers' understanding of how to deal
with such issues and their associated issues would be enhanced by the data. However, managers in
Pakistan's banking sector will benefit from the study's assistance in developing more effective policies
to prevent non-compliance with regulations. The study's findings would serve as a guide for the
development of measures to promote good corporate governance in Pakistan's banking sector and will
be of enormous benefit to all stakeholders in firms in both private and public banks. The creation of
national indicators for evaluating the corporate governance and performance of Pakistani banks is one
aspect of the study's overall goal. Furthermore, it is planned that; this study's findings, concepts, and
recommendations could be used by both private businesses and the government to implement
performance-related policies. Managers in all facets of a company will be able to use the study's
findings to ensure effective corporate governance. Importantly, the expectation is that; the study will
aid future researchers in their literature review and serve as a guide for other aspects of research
related to corporate governance and company performance.

1.4 Research Questions

How does the size of a company's board affect how well it does?
• How does the independence of non-executive directors on boards affect companies'
performance?

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• In comparison to the separation of CEO and Board Chairman, how does CEO duality affect firms'
performance?
• Is CEO tenure related to a company's performance?

1.5 Organization of the Study

The data on the economic performance of all Pakistani commercial banks, the study investigates
the connection among banking performance and corporate governance. According to various studies,
we have reviewed the previous studies from 1980-2021. Managers are likely to focus on their individual
goals, such as completing the benefits of the position, the primary goal of owners is to recoup their
investment. The company's profitability, accountability, and transparency are all enhanced when good
corporate governance practices are implemented. By aligning the interests of the managers with those
of the shareholders, it also enhances the protection of those interests. The study generally investigated
or examined the connection between Pakistan's banking sector's performance and corporate
governance. The rest of the paper is structured as follows: Literature review section presents the
review of empirical literature related to the corporate governance- firm performance nexus. Conclusion
and policy recommendations are given in the Concluding remarks and recommendations section.

2. Literature Review
The set of procedures adopted with a firm for the desire of cash retailers to participate in the
productive method in order to generate some organizational surplus and to create a fair distribution
among the partners, considering what they have invested in the firm,” is how Matti (1999) defines
corporate management. Schleifer and Vishny (1997) claim that operational corporate governance
reduces the “management rights” granted to managers by shareholders and lenders, thereby increasing
the likelihood that managers will invest in profitable projects for net gift-fee Tarighi, Salehi, Moradi,
and Zimon. Through which business management and oversight meet the strategic requirements of all
stakeholders while also adhering to the ethical, environmental and forensic requirements of the
community Diversity of Anglo-American board members, perceived imprisonment requirements and
accountability requirements are all indicators of good governance. The literature assessment draws on
other work on corporate governance and performance as well as empirical research.

2.1 Corporate Governance

Global efforts to protect traders and stabilize international capital markets are increasingly
dependent on sound corporate governance practices. They encourage investment and assist businesses
in improving their overall performance. There are two ways to identify a current interest in corporate
governance: the East Asian Crisis affected the economies of Thailand, Indonesia, South Korea, Malaysia,
and the Philippines in 1997. Suffer greatly from a lack of foreign capital because of the collapse of their
assets. These nations' economies' weaknesses have brought to light by the absence of a company
governance mechanism. The second occurrence resulted in the collapse of large American corporations
during the corporate crises of 2001 and 2002; Enron and WorldCom, as well as the subsequent
scandals, led to the demise of other businesses like Tyco, Global Crossing, and Arthur Andersen.

The terms "correct governance" and "corporate governance" may be used interchangeably
throughout this examination. The exceptional definitions of company governance that follow are as
follows: The term "corporate governance" (CG) is currently conceived, poorly defined, and, as a result,
vague at the edges. It could be viewed as a goal that is subjective or as a system that should be

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accompanied by the coolest shareholders, employees, customers, and bankers, as well as for the
recognition and status of our nation's economy. A system for directing and managing businesses known
as corporate governance. The governance structure outlines the distribution of rights and
responsibilities among the company's extraordinary contributors, such as the board, supervisor,
shareholders, and other business affairs. In doing so, it also provides the framework for establishing
enterprise goals, achieving those goals, and monitoring overall performance. OECD2004). The
definition provided by the OECD and Cadbury are comparable (Cadbury, 1992). The connection
between people and institutions that store and invest their money in order to earn a return, as well as
between company managers, administrators, and fairness providers, is known as corporate
governance.

2.2 Linking Corporate Governance with Economic Growth

Effective corporate governance is the primary focus here. According to O'Sullivan (2000),
practice can be mediated by a specific but important class of contingencies, such as the resources and
capabilities that shape how firms interact with different organizational environments. Thus, I
investigate how corporate governance is affected by a company's internal and external resources,
procedures, and standards. One aspect of the resource contingency is based on the resource-based view
of the firm, which takes into account the firm's internal talents as well as its skills, experience, and
track record (Barney, 1991; Mahoney and Pandian, 1992; Petersen 1993; 2022, Kragulag's Corporate
Governance, for example , may also play an important role in internal coordination and employee
motivation based on the type of skills and information that are essential to the firm's competitive
advantage., 1959; in influencing competitive advantage, data (Itami and Rochl, 1987) or Grant 1996)
However, writing is most motivating you to confirm that; Corporate governance practices are likely to
shape a company's procedures and competencies. For example, Zohra and Filatochev demonstrate this;
In entrepreneurial businesses that require extensive understanding, corporate governance can be used
strategically to augment and supplement real marketers existing knowledge and experience by
leveraging and enjoying externally generated knowledge. Another aspect of aid-related emergencies is
the idea of resource dependence. According to Pfeffer and Salancik (1978), firms may also attempt to
mitigate or reduce their external dependence by responding to the demands of external actors or
groups on whose resources they depend most. For example, the amount and nature of external
financing is likely to have an impact on corporate governance requirements with regard to
transparency or independence. 1995; Meeks et al. Based on company length, debt-to-equity ratios,
method of incorporation, and global listing, Oxelheim (2019) detects unusual patterns of disclosure.

2.3 Corporate Governance Principles and Codes

Unique Nations has developed corporate governance concepts and rules promulgated by stock
exchanges, groups, business associations or associations (institutes) of administrators and managers
with the help of governments and international organizations. Compliance with these governance
guidelines is usually not mandated by regulation, despite the fact that tokens associated with exchange
listing requirements may also have a coercive effect. For example, companies that are listed on the
London Stock Exchange and the Toronto Stock Exchange have said they will no longer follow the rules
in their national tokens. However, they must show that they follow the rules in those documents, and if
they do not, they must explain why their practices are different. Companies on the list face a lot of
pressure to comply with these disclosure requirements. The following are notable codes and
recommendations

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2.4 The Sarbanes- Oxley Act of 2002
Alexander, twenty-two is a new federal law in the United States that was passed in response to
some of the largest accounting and business scandals, such as Enron, Tyco International, and worldCom
(now MCI). Public acceptance of accounting and reporting practices as genuine declined as a result of
these scandals. Sponsored by Sen. Paul Sarbanes (D-Maryland). And by a majority of 423 to 3 and 99 to
0 in the Senate.

2.5 Cadbury Report

Report of the Committee on Financial Aspects of Corporate Governance, Gee and Co. Ltd. Code of
Best Practices, 1992

3. Corporate Governance models Over the world

3.1 Anglo-American Model
In the industry, there are many distinct approaches to corporate governance. These vary
according to the type of private enterprise you are rooted in. The progressive version, common in
Anglo-American countries, tends to prioritize the interests of the contributors. Employees, managers,
suppliers, customers, and network are recognized in the formatted version located in Japan and
mainland Europe. In different respects, both styles present excellent advantages in terms of
aggressiveness. The harmonized model of corporate governance enables increased innovation and
high-quality competition, while the liberal model of corporate governance encourages radical
innovation and cost competition In the United States, a company is managed by a board of directors
who can choose a government official, usually the CEO On a day-to-day basis, the CEO has a great deal
of power over the business, but some big decisions, such as hiring immediate subordinates, raising
money, finding a new business owner, expanding large capital, or other expensive ventures, require
Board approval. Other responsibilities of the board of directors include formulating policies, making
decisions, monitoring control performance, and managing the company.

Despite the fact that shareholders are supposed to choose the board of directors and be held
accountable, many corporate bylaws make it difficult for anyone other than the largest shareholder to
influence the composition of the board of directors; Instead of being given a choice of board nominees,
privileged shareholders are usually required to "rubber stamp" existing board nominees. Unfair
incentives have plagued many business forums in developed countries, where board members are
subordinate to the CEO who is supposed to monitor their actions. Some people think that serving on
boards of directors is a hobby for CEOs of other companies

3.2 Non-Anglo-American Model

Family businesses dominate in East Asian countries. A look at it with the help of Claessens,
Djankov, and Lang Yew, (2023). The 15 largest families in East Asian countries were investigated and
found to be responsible for the assets of the listed company. Through a system of intersecting family
holdings, the 15 largest families controlled more than half of the publicly owned firms in countries such
as Indonesia and the Philippines, and dominated the capital markets. In Italy,Spain, France (to some
extent), Brazil, Mexico and other South American countries, the Latin model of corporate governance is
dominated by family-owned firms.

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4. Corporate governance and Corporate Performance
According to previous research (Rajan and Zingales, 1998; Rajan et al., 1998), when the term
“corporate governance” first came into widespread use in the early 1990s, many individuals viewed it
as an additional component of models to deal with. (Pandey, Andres, & Kumar, 2023: Berkeley &
Others, 1994; 2000: Hussain et al., 2000; Khatib, Abdullah, Elamer, & Hazaea, 2022). there is a strong
relationship between a company's overall performance and careful corporate governance practices. But
other studies (Bathala and Rao, 1995; Hutchinson, 2002) have demonstrated weak courtship. However,
other investigators (Park and Shin, 2003; Singh and Davidson (2003) have not been able to
demonstrate negative courtship. The restricted nature of the records is responsible for the inconsistent
results of the study. Despite these contradictory results, the majority of the literature is illustrative of
That there may be no doubt about the importance of careful corporate governance in improving a
company's performance. And this is true, as evidenced by the attention that governments, local
organizations, and personal institutions pay to corporate governance issues. The Economic Crises of
2007, OECD (2009); According to Riad's analysis and Ray and Ray (2022) for company lessons learned
from financial crises, failure and weakness in corporate governance preparations, which failed to
protect against excessive risk-taking by financial institutions, were largely responsible for the crises.

McKinsey and Employer released their opinion of a survey of investors on corporate governance
in June 2000. McKinsey, in collaboration with the World Bank, contacted more than 200 institutional
traders, some of whom managed $3.25 trillion. According to Paul Musey's 2002 research, more than
eighty percent of respondents stated that they would be willing to pay a higher price for shares of a
well-run company. They stated that they would pay 18% more over dividends from UK corporation by
virtuous authority practices than for a firm inclusive working but poor governance practices. Shares in
companies in Indonesia or Venezuela, two countries with worse governance practices, saw those
practices rise to 27%. The importance of good corporate governance has been further emphasized in
the wake of recent corporate mishaps. By stock market valuation, Enron was the seventh largest
company in the United States until it failed in December 2001, causing financial devastation. The
smarter traders were aware of some of Enron's governance flaws, most notably the hard-to-grasp
annual report, but they invested rather than joining the bandwagon with other traders. Companies
have benefited from Indonesia's remarkable commitment to corporate governance. On February 8,
2000, five companies and academic institutions formed the Forum for Business Administration
Indonesia (FCGI). You have made a great contribution to spreading ideas about good corporate
governance in Indonesia. The adoption of good corporate governance principles and systems by
Indonesian companies is the primary goal of FCGI. A corporate governance self-assessment was also
developed by FCGI jointly through the Asian Bank constructed on global best traditions in order to help
you reap the benefits of good corporate governance (Gunadi E.M. 2001).

5. Methodology
Table 1:
Independent Variables Dependent Variables
Board Size Performance of the Firm
Board Independence 1. Return on Assets (ROA)
CEO Tenure 2. Return on Equity (ROE)
Audit Committee
Foreign Ownership
Ownership

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Dividend Policy

6. Limitation
However, data limitations prevented the study from examining the other aspects of corporate
governance. As a result, major factors like insider ownership, the nomination committee, CEO
compensation, the remuneration committee, the capital structure, disclosure, and the frequency of
board meetings could not be included. Additionally, we were unable to utilize market performance
measures because only five of the twenty-one businesses examined are listed on the Pakistan stock
exchange. In addition, the company's performance is influenced by more than just good corporate
governance. Legal, social, economic, and political environment issues all play a significant role.

7. Conclusion and Policy Implication

The study generally investigated or examined the connection between Pakistan's banking
sector's performance and corporate governance. The findings suggested that profitability generally
benefits from good corporate governance. The annual general meeting, board size, CEO tenure, audit
committee size and independence, foreign ownership, institutional ownership, and other factors; bank
performance is positively correlated with dividend policy, as well. According to the findings, banks need
to have the right board size that is largely independent of the company's management. The outcome
evidence shows that; the banks are in a good position to support Pakistan's economic growth and
development. Companies would be able to pay dividends to shareholders, increase tax revenue for the
government, support small and medium-sized businesses with financial advice or serve as a financial
advisory body to firms, generate more resources for employment creation, support businesses with
credit, and support businesses with financial advice. According to the results, banks should have an
adequate board size that is essentially independent of the business's management. This can confirm
that the board is proficient to scrutinize organization and that fundamental dominations are well
designed and effective.

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