Professional Documents
Culture Documents
Table of Contents:
1: Introduction
4: Research Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6: References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Thesis2
1. Introduction:
1.1: Corporate:
Corporate is a group or large company which is recognized in a law and act to authorize as a
single company. Corporate is a business for their members and shareholders has unlimited and
limited liability, they buy and sell their stock and share which is depended on the board of
director performance.
Corporations state provide legal rights to separate from its owner. This business organization has
limited liability of its owners, the issuance of shares which easily transferable stock and easily
existence as a going concern. The process which is suitable to a corporation are called
incorporation, which provide the company to focused those owners which are liable personally
in that situation in which company gives a condition is limited liability and a company has
separate legal standing from its owners. The incorporation is also give companies a more easily
1.2: Governance:
The meaning of governance is obtaining the policies and affairs of an organization. Governance
is the processes, in which governments are select, create and applied public policy, monitored
and changed. The governance is a system of interaction between the judiciary, administration and
legislature. In this shareholder define interact with institutions of authority and their interests
GOVERNANCE is consist on processes, institution and mechanisms through which groups and
citizens , to manage a nation's affairs from economic and administrative authority , exercise of
political articulate their interests. It is exercise their obligations and their legal rights, and
mediate their differences. Governance is the sandwich between CEO/staff to the one side and
Thesis3
shareholder in other side. Governance is the system in which we hold the social and economic
resources for the development of the countries. Governance is the system in which power is
exercised the economic and social resource of the management of the countries for the
development. Governance is a system in which people using the power against any one because
they have power. Governance is the way in which those with power use that power.
Corporate governance is consists on institutions, processes and mechanisms, through this people
economic and administrative authority like social issues which interact with it and control
nations issues, manage political like which create competitors and show there interest. It is
Corporate governance means organization doing everything not only relationship to a direct or
indirect stakeholder, it has also interaction and a society at large. The society at large is done in
ethical transparent for company interactions. In the codify rules company attract with the
various stakeholders, how the civilized people in the organization by the complains of law and
society organization itself. We shall expand the society which is operating in the complains of
law, it is the basic courtesy. The company which norms will have to be legal complains and
expired to have corporate governance principle. The first step of good corporate governance is
Good corporate governance structures encourage companies to exploration and control systems
and adequate with the risks innovated and provide accountability, innovation, to create value
Good corporate governance achieved their directors and boards and gives more attention than
they given to the previous companys delegations, strategic directors, behavior in the market and
processes. Good corporate governance increases the share price of the organization. Investor
does not subscribe for good corporate governance principle there for they are hesitant to invest
there. Separate audit committee, independent directors, and Transparency are especially
important. All parties to corporate governance have an interact, in the effective performance of
the organization. Benefits and reputation, Directors, while shareholders receive capital returns
customers receive goods and services; suppliers receive compensation for their goods or
The quality of corporate governance is a theoretical application of good practice and the quality
of management is how they would be responsible for ensuring it was applied and how would
Securities and Exchange Commission of Pakistan issued the code of corporate governance
which establishes a framework for good corporate governance in the organization; that
companys which are listed in KSE, in March 2002. The Code is a prescribe of best practices,
to enhance the and ensure of companies, designed to provide a framework of that companies
which are listed on Pakistan's stock exchanges, there are promoting market confidence,
Thesis5
controlled with the objective of safeguarding the interests of stakeholders and directed. In doing
this, code in the corporate governance structure drown the experience of the other countries, the
common law tradition are similar to the Pakistan in particular experience of those countries. The
Code of Best Practice of the Cadbury Committee on the Financial Aspects of Corporate
parts communication of governance , explain the end scenario, comply, disclosure, In the report
of Greenbury in 1995 which left the directors pay, on corporate governance published, the
Report of the Turnbull and Hampel Committee on Corporate Governance published in 1998 the
in which published the organization for development and economic corporation of the Principles
the King's Report (South Africa) , and (U.K.) like the internal control, Higgs/Smith (2003) in
this report include that non executive auditor and directors make up the principle and combine
code. The first step of achieving the good corporate governance performance in Pakistan to
systematic implementation.
to refine the principle of consolidation, contemplated by the SEC. Ultimately, for the changing
in Pakistan a manager, stakeholder, auditor, directors and shareholder respective role in their
conduct and perceive corporate entities, and control would be necessitate in changing the culture,
this is necessarily relevant and must not only incremental. This study is a contribution towards
this effort.
Economic Growth
Increase Capital
effectively because they maintain investors confidence, through this company increase
the capital.
Share Price
Corporate governance reduces the capital cost, which give a positive impact on the share
Proper Inducement
Corporate governance gives proper inducement to the owners and managers achieve
Minimizes Risk
wastages
Develop Brand
It provides the better plan through which an organization made better brand formation an
development.
Interest
Thesis7
Through corporate governance company fallow those steps which member getting
interest.
Some time directors taking some policy decisions which can become a problem in publicly
traded corporations, which are not necessarily for shareholders. In the case when any
shareholders dont hold a controlling interest in the organization and most of shareholder is
voting by proxy then directors and officers controlling corporations assets. Ownership and
management can be separate because it can resolve the confliction of interest between
management duty which increase the shareholder value and its interest to increase their income.
Corporate insider refers to officers, employees and directors of an organization because they
may have approach to originated or maintained in strict secrecy or privacy which may be non
public information about an organization that affect the shares value. Corporate insider are not
strictly prevent from trading corporate shares but it should report to the SEC. Illegal inside
trading occurs when the share holder sell shares to a buyer without access to the information
which are confidential and relevant to the future value of shares. Illegal insider trading also
committed with the shareholder who are not directly related with the organization, such as a
Misleading Statement:
It is many way from which company provide to our factually of the accurate information on the
Cost of Regulation:
Corporate governance abuse has triggered the enactment to federal laws and larg body of state
designed to prevent those abuse. Compliance with such laws can be expensive and burden for the
organization.
Code of Ethics:
This is defining about the rules of organization, principles which are applicable and better
By Law:
Code of Conduct:
This is defining how an organization can organized from which a shareholder get maximum
profit.
This is defining procedures to give special focus on the treatment of the price sensitive
information.
Internal Dealing:
Thesis9
This is defining the flow of information of the market in such case when relevant person who
are involving company shares, perform operation, and other financial products issued which
control the company listed on the countries regulation markets or unlisted but accounting for
This is defining the procedures when concerned parties dealing with the company itself.
This is defining the administrative liabilities and aims at preventing criminal offences,
consolidate and spreading managerial practices, promoting an efficient organization structure and
Insider Register:
In this include the list of the member which are access and manage privileged information if
Charter of Values:
This is translated the languages of the entire groups. The charter enhances principles of
corporate governance and endorses the main aspects of it, with the reference to the international
standards.
Memorandum of Association:
This is simply called the memorandum; it is the document which creates the relationship between
the India, Pakistan, United Kingdom, Sri Lanka, Ireland and Bangladesh. It is also used in the
Thesis10
common law of the common wealth. It is necessary of a new company to file this document. In
this document just only contain the limited information that was required prior to 1 October
2009.
Articles of Association:
When a new company establish it is required to registered in under the law of India and many
company. In this discussing different voting rights which are attached to the different classes of
the shares and stock, the valuations of the IPR of one partner and valuation of intellectual rights
in that way in which we value real estate of other partner, the appointment of directors, director
meeting, management decisions, transferability of shares, Special voting rights of chairman, the
dividend policy, winding up , knowledge of penalties for disclosure and founders of agreement,
The audit committee is a committee of board which is appointed by the board. It shall have at
least three members whom shall be non executive directors. In this two member are quorums if
one member is out of country then these two member shall be appointed any director as the
replacement of that member. The meeting of the committee should hold at least four times a year.
Finance director, CEO and other senior management required to attend the meeting and give the
explanation, operations, and information which are relevant to the company. The committee also
invite the external auditors the attend the meeting and give answer of the following question
Thesis11
which are related to the audit procedures and financial controls of the company, non executive
Company Law:
The purpose is to consolidate the law, make sure that the growth of corporate enterprise in
Pakistan. It interacts to the investors and creditor it is imported because investor wants minimum
Board of Directors:
A board of director contains on a member who oversee the company activities. It is also called
board of members, board of trustee, board of governors, board of visitors or board of regents. It
is refer to the board. BOD have some duties: approving the annual budgets, supporting, selecting,
reviewing and appointing the performance of CEO, operating the availability of the financial
resources, establishing the objectives and broad policies which governing the organization,
compensation of company management and setting the salaries, accounting to the stakeholders
for the organizations performance. The legal responsibilities of the board member and board are
varying with the jurisdiction within which it operate and with the nature of the organization.
These responsibilities are much more complex and rigorous for the other types.
Other Stakeholders:
The other stakeholders are those which are affected to the organization through the actions as a
whole. This concept was firstly used in 1963. In the other stake holders includes: customers in
this ethical products, value customer care, quality. Governments in this legislation, truthful
Thesis12
communication, rates of pay, respect, job security. Trade Unions in this jobs, qualities and staff
protection. Owner is a person who has interest in the success of the organization. Suppliers
provide equitable business opportunities and used the product at the end. Creditors in this new
contracts, liquidity and credit score. Community in this shares, environmental protection, jobs,
1.11:Problem Statement:
Corporate governance is the matters for development. It has an important role in helping to
increase the flow and decrease the financial capital cost that firms want to finance their
investment activity. The importance of this role is likely to continue to grow, has grown
considerably in recent years, when the capacity of traditional sources of such finance to supply
those needs of corporations for extra firm finance has grown precisely at a time as the needs has
greatly diminished.
1.12:Research Question:
Corporate governance play very important role to resolve the crisis of the country. Strong
corporate governance practice give strong result in the level of organization because good
corporate governance increase the size, leverage, tangibility, profit etc. proper governance
expand our economic growth, invite the investor to invest in this company, stay in this country.
2: Literature Review:
There are lot of studies which examined the relationship between corporate governance and
firms performance. This is show that how good governance practices increase the productivity
and economic value of the firms and deduce the systematic risk. (Shleifer and Vishny, 1997;
According to Mitton (2001) describe that higher price performance is related with the firms that
the indicators are focused on high outside ownership concentration, high discloser quality rather
than diversified. According to Brown and Caylor (2004) describe that the findings indicate that
governed better firms are relatively more valuable and pay more cash to their shareholder and
more profitable. According to Lipton and Lorsch (1992) and Jensen (1993) describe that firm
performance increase through the limited board size because the benefits through the larger
boards increased the monitoring those are outweighed from the poor decision making and poor
According to Yermack (1996) describe that it is the inverse relationship between asset
utilizations , board size and profitability, and Tobins Q. Anderson et al.(2004) describe that the
cost of debt is not higher for larger boards because creditors view of these firms of their financial
accounting processes having more effective monitor. According to Kinney (2004) describe that
there is no association between implementation or internal audit services, fees paid financial
information system design and earning restatements. According to Fich and Shivdasani (2004)
describe that firms with the director stock option plans have higher profitability and higher
Thesis14
market to book ratios and these documents give the positive reaction from stock market when the
According to Ashraf and Ghani (2005) describes that development of accounting practices,
origins, disclosures in Pakistan and growth these factor are influenced them. They are
documented that weak enforcement mechanisms and lack of investor protection are critical
factors as compared to cultural factors in which examine the state of accounting in Pakistan. It
said that it is enforcement mechanisms that are paramount to improving the accounting quality in
According to La Porta, et al (1999) said that legal environment is stronger than inverts
protection trend can be increase and it increase the willingness of invest tends. They examine
that it has strong positive association between firms performance and corporate governance.
According to Drobetz et al. (2004) describe that there is positive relationship between in firm
valuation and governance practices. According to Aggarwal et al. (2008) describe the
According to Adjaoud et al (2007) describe that there was not a significant relationship
between accounting based measure of performance and scores, but measure of value created and
The study examines the relationship of the firm performance and corporate governance in
context of Pakistan market by using the data set and additional test of robustness and
sophisticated techniques. In the literature addresses paper gape by using the adequate data set to
According to Gompers, Ishii, and Metrick (2003) described that firms with fewer
shareholder rights have lower stock return and lower firm valuations. It describe the Investor
Thesis15
Responsibility Research Centre (IRRC) data. Twenty four governance factors classify into five
groups: voting rights, state laws, other takeover defense, tactics for delaying hostile takeover ans
director protections. These factors are anti takeover measures so G index is also a anti takeover
protection as compare to broad index of governance. It examine that firms shareholders rights
have higher profits, lowest capital, higher firm value, made fewer corporate acquisitions, and
According to Rais and Saeed (2005) described corporate governance in the way of
understand the assess the efficacy of the regulation policy of SECP and dynamics of public
decision making. There are some reservations and constraints about the way it was implemented
and drafted. The gearing themselves up to adopt the Code in the listed companies.
According to Ghani (2002) described that there are great impact on the corporate
governance in Pakistan business groups for non financial firm listed on the KSE of Pakistan for
1998 to 2002. Financial performance gives result of the business group in Pakistan that are
efficient economic arrangements that substitute for missing or inefficient outside institutes and
markets. The investors view the business group as a mechanism to expropriate minority
shareholder.
corporate governance play a significant role for Pakistan, this mobilize the great saving through
capital provided. The corporate governance system is compatible with the objective of raising
external equity capital through the capital market. The corporate structure of Pakistan is
interlocking directorships. They said that a crucial challenge for policy makers is to maintence of
profit increasing incentives and optimize the dual objectives of minority shareholder protection
for family controllers. . If this happens the reform may end up creating sub optimal incentives for
profit maximization by families. The concern is that reforms whose main objective is minority
shareholder protection may dampen profit maximizing incentives for families without providing
with the high operational expenses tended have positive profitability ration and loan intensity or
credit risk negatively related with the performance. According to Berger (1995) examine that
capital asset ratio has positive relationship with the performance. He examines the impact of
capital asset ratio on return on equity. According to Anghozo (1997) describe that bank interest
margin positively related to the management efficiency, leverage, default risk and opportunity
cost. There are great impacts of firm level characteristics on US bank net interest margin.
According to Ben Nacecur and Goaied (2001) describe that a bank who tried to improve their
capital, improve labor productivity, and high deposits are performed well. According to
Kosmidou (2008) describe that stock market capitalization and GDP have significant relation
with the ROA and money supply growth has insignificant impact on profitability.
3:Theoretical Framework:
Nature of research
Corporate governance play very important role in the success of an organization. It helps to
discourage fraud and achieving great transparency and fairness. It provides long term strategic
Thesis17
objective of the organization and protects the rights of shareholders. An organization provides
the careful management because it has many important decisions which could give the benefit to
the social welfare, directors and shareholders etc. Stability of the stock price is the important
factors its give the future prediction about the investor. Training of director because it is very
difficult to find the right people for job. Involvement of stakeholder also important to increase
the productivity and efficiency. Improved the shareholder communication also important because
shareholder communication refers to the ability of investors to vote their shares. Through this
investor communicate with the company in which they want to invest. Talented workforce also
important because its an ability of the organization to attract and hold good people and attract
to imperative for its success. Organization should have proper checks and balance. In this they
have three important disciplines: self discipline, market discipline, and regulatory discipline.
Goodwill and reputation are also imported because it can be improved the organization success
through different tricks: strong relationship with the stakeholder, corporate social responsibility
Hypotheses:
governance. Good thinking for the performance of an organization to have strong and
independent board of directors, CEO, including investment in people, good environment for
investment, and leads to higher income, provides better social indicators to reduce poverty. To
Thesis18
increase the performance of an organization it includes two factors long-term performance and
short-term performance".
Short-term performance: market value, market share, profitability, capacity usage, customer
We use the Balance Scorecard model to measures of the performance of the organization.
Through BSC model we measure the financial and non financial performance of the
organization. It has four perspectives: learning and growth, costumer, financial, and internal
process. Im obtaining two organizations data PEL and Shell and analysis the performance of the
organization. These four factor analysis with varimax rotation which was performed on the BSC
perspectives in order to extract the dimensions underling the construct. The finance variable
describes the two dimensions and has different elements of these dimensions. These elements
explain the finance variable of two companys 20% and 5.46% of total variance. The factors
Profitability (fin1) includes operating income, return on total assets, economic value
Financial operation (fin2) includes percentage change in sale revenue debt to total asset
ratio and cost reductions in key area, average payment period for payables, account
receivable turnover.
The custom relationship variable has four dimensions and 15 other elements which explaining
the customer relationship about the two companies 7% and 4.2% of total variance. The factor
labeled customer relationship (cus1), volume (cus2), marketing cost (cus3), market share
(cus4):
request, number of new customers, and number of customers lost, customer loyalty,
Sale volume (cus2): total sale volume in quantities, sale volume in each channel.
Market cost (cus3): rate of sale revenue, marketing costs as a percentage of sales,
Market share (cus4): brand recognition, market share of each product, total market
The process variable contains three dimensions which have 15 elements that explaining the
two companys performance 6.3% and 3.5% of total variance. The factors were labeled
Innovation (pro2): warranty claims number of new product and services R&D costs as
repaired the defected products, quantity of defected units, number of on-time delivery,
The variable of learning and growth has three dimensions and these dimensions have 13
elements which explaining the two companies performance 6% and 2.5% of the total variance.
The factors were labeled employee capability (gro1), employee relations (gro2), and
development.
Work environment (gro3): ethic violations in the work place, communication among
4: Research Methodology:.
Im using the sample of two companies PEL and Sell Company which are listed in the
KSE, using the sample of four year from 2007 to 2010. The numbers of total firm were two, for
Table 1
Sample Screening Criteria
Years
______________________________________________________________________________________
______________________________________________________________________________________
The data covers the period 2007 to 2010. The period is chose because of data available and
complete. In Table one we define the firm performance which are changed in every year. The
PEL company performance in 2007 is 0.5 in 2008 is 0.6 in 2009 is 0.5 in 2010 is 0.5. The total
performance in four year is 2.1. The Sell company performance in 2007(0.3) in 2008(0.5) in
Variables Definition
Financial leverage
b. Debt to Assets = (ST Debt + LT Debt)/Assets
c. Debt Leverage= Total Debt to Equity
In the Table 2 we examine the financial measure which is listed, that can used to compare and
examine the financial characteristics of the companys. Table 2 also provides the definition of the
Results
Company and Shell Company which show means of different selective financial
economy.
Liquidity Ratio:
In the Table3 we examine that the four year current ratio of the PEL company
mean value 1.77 is higher than the Shell company current ratio, mean value 0.13.
The difference of this current ratio is 1.64%. This is suggested that PEL Company
have short-term solvency and have higher liquidity as compared to Sell Company.
In the Table 3, we examine the leverage ratio of the two companies from
2007 to 2010. The Shell Company have mean debt/equity ratio of four year is
(0.56), and the PEL Company have the mean debt/equity ratio is (0.79). The result
In the table3, gross profit margin of PEL Company is (0.45), which is more
than the Sell Company gross margin (0.26). Similarly operating profit margin mean
of PEL 0.25 is higher than the Shell Company operating profit margin (0.02). The
ROA:
ROA is basically used to determine the performance of an organization. In
the Table3 the ratio is measure through the accounting based performance. In this
table ROA of PEL company average mean (20.00) are more than the Sell company
average mean value (5.46). The result shows the difference about 78%, this
difference tell clearly that PEL have more level of financial performance as
compared to Sell.
percentage of net profits for both, the PEL and Sell Company? The dividend payout ratio of Sell
Company is higher than the PEL Company. In this the difference is 68%.
both the companys. The average four year revenue of the PEL Company is 0.42 is
greater than the Sell Company. The difference is 18%. The average mean value of
the assets growth of the PEL Company 0.32 is greater than the Sell Company assets
growth 0.20. The difference of this is 12%. This is show that PEL Company play
Limitation:
Energy crisis
Data availability
Time constrain
Thesis26
Energy crisis:
Data availability:
Finding of data are really tuff because obtaining primary data it is difficult. Secondary data are
Time constrains:
There are shortages of time which are given. This research are really big and time are short so
We are just focus on specific topic which are given. We should see another way to learn more
In this research we are finding the crisis of the Pakistan, and how corporate governance resolve
the crisis of our country which are facing. We are focusing the effect of the corporate governance
on the level of performance. To see the crisis of our country Im focus the role of corporate
model. In the financial measure Im using ROA model explains the ratios and describes the
dimensions of BSC and elements of the variable. Im selecting two companies PEL and Shell
Thesis27
Company find the rations and explain BSC model to communicate with the member of the
organization.
We are finding that corporate governance play very important role to resolve the crisis of the
country. Strong corporate governance practice give strong result in the level of organization
because good corporate governance increase the size, leverage, tangibility, profit etc. proper
governance expand our economic growth, invite the investor to invest in this company, stay in
this country. Corporate governance play very important role in the success of an organization. It
helps to discourage fraud and achieving great transparency and fairness. It provides long term
strategic objective of the organization and protects the rights of shareholders. An organization
provides the careful management because it has many important decisions which could give the
benefit to the social welfare, directors and shareholders etc. Stability of the stock price is the
important factors its give the future prediction about the investor. Training of director because it
is very difficult to find the right people for job. Involvement of stakeholder also important to
increase the productivity and efficiency. Improved the shareholder communication also important
because shareholder communication refers to the ability of investors to vote their shares.
Through this investor communicate with the company in which they want to invest. Talented
workforce also important because its an ability of the organization to attract and hold good
people and attract to imperative for its success. Organization should have proper checks and
balance. In this they have three important disciplines: self discipline, market discipline, and
regulatory discipline. Goodwill and reputation are also imported because it can be improved the
organization success through different tricks: strong relationship with the stakeholder, corporate
Corporate governance is the matters for development. It has an important role in helping to
increase the flow and decrease the financial capital cost that firms want to finance their
investment activity. The importance of this role is likely to continue to grow, has grown
considerably in recent years, when the capacity of traditional sources of such finance to supply
those needs of corporations for extra firm finance has grown precisely at a time as the needs has
greatly diminished.
The growth of portfolio equity flows from OECD emerging markets to contribute to the stability
of international financial markets, points to the potential for improved corporate governance in
developing countries and especially by institutional investors. The potential benefits are also
significant of such stability. There are equally important benefits of improved corporate
governance for achieving productivity growth in the real economy and on the potential benefits
of many developing countries. Volatility compared huge wastage of real investment resources
and with excessive rigidities, reflects the actions of distributional cartels, both human and
material in many under develop countries. Reflected rent seeking and in ubiquitous self dealing
growth and widely constitute a serious obstacle. Improved corporate governance has play
important role to overcome the obstacles to productivity growth and in helping to limit that
behavior.
Thesis29
Reference:
Javed, A. Y., Iqbal, R. (2007) . The relationship between corporate governance indicators and
firm value: A case study of Karachi Stock Exchange. Pakistan Institute of Development
http://www.eaber.org.intranet/documents.htm.
in developing countries and Emerging Economics, (Issue 13 (2001)), 12-40. Retrieved from
http://www.google scholar.com.pk.
Carmichael, J., Kaufmann, D. (2001) . Policy for the Financial Sector in Context of
Globalization. Public Sector Governance and the Finance Sector, (Issue June (2001)), 4-13.
Marck, R., K., Steier, L. (2005) . The global history of corporate governance on introduction.
National Bursar of economic research, (issue January (2005)), 6-30. Retrieved from
http://www.nber.org/paper/w11062.
Thesis30
Rehman, R., Mangla, I. (2005) . Corporate governance and performance of financial Institutions
Chaudhry, I., S., Malik, S., Khan, N., K., Rasool, S. (2009) . Factors affecting good governance
http://www.eurojournal.com/ejsr.htm.