Management and Engineering
International Journal of Service Science, Management and Engineering
2018; 5(4): 149-154
ISSN: 2381-6031 (Print); ISSN: 2381-604X (Online)
Company Performance and Corporate Governance
Mechanisms: A Multiple Linear Regression Analysis
Kashfia Naz, Mansura Nusrat*
Department of Business Administration, Bangladesh University, Dhaka, Bangladesh
To cite this article
Kashfia Naz, Mansura Nusrat. Company Performance and Corporate Governance Mechanisms: A Multiple Linear Regression Analysis.
International Journal of Service Science, Management and Engineering. Vol. 5, No. 4, 2018, pp. 149-154.
Received: June 2, 2018; Accepted: July 3, 2018; Published: October 26, 2018
The study attempts to unearth the relative impact of corporate governance practices on company performance (financial) of
different banks and financial institutions of Bangladesh. Data were collected using secondary source (annual report of the
companies) and judgmental and convenience sampling were used to select the Banks and Financial institutions. The statistical
tool SPSS is used to analyze the collected data. Multiple regression analysis is used to examine the relative dominance of selected
independent variables (selected corporate governance practices) on the dependent variable (Firm’s performance). The study
discovered no significant impact of Corporate Governance Practices on firms’ financial performances (ROA, ROE, NPAT, EPS),
although hypothesized otherwise. Multiple regression analysis is used to examine the relative dominance of selected independent
variables (selected corporate governance practices) on the dependent variable (Firm’s performance). The study discovered no
significant impact of Corporate Governance Practices on firms’ financial performances (ROA, ROE, NPAT, EPS), although
hypothesized otherwise. One of the paramount limitations of this study is the use of merely 32 listed companies from Dhaka
Stock Exchange only. Thus, the future researchers are expected to prevent the causality of their studies through enlarging their
respondents’ base and scope such as including all listed companies of Bangladesh.
Corporate Governance, Firm Performance, Listed Companies, Net Profit After Tax, Bangladesh
Persuasive corporate governance mechanism is imperative
to set and meet a company’s strategic and financial goal.
However, the goal of corporate governance mechanism is in
twofold: to minimize the gap between management and
shareholder interest and to boost value of the firm . The
basic objective of corporate governance is to enhance
economic efficiency and invigorate its growth. Shleifer and
Vishny, 1997 define corporate governance as the way
suppliers of finance assure themselves of getting a return on
their investment. Sir Adrin Cadbury in global corporate
governance forum defines corporate governance as,
“corporate governance is concerned with holding the balance
between economic and social goals and between individual
and communal goals. The corporate governance framework is
there to encourage the efficient use of recourses and to ensure
equality to require accountability for the stewardship of those
resources. The aim to align as nearly as possible the interests
of individuals, corporation and society” . After the
collapse or financial fraudulent of Erron and WorldCom,
question appeared about the function of board of directors .
The awareness about corporate governance takes place after
the crisis in mid-1997 in Asian countries . One study 
found that in Bangladesh after the fraudulent activities of
some firms like Hallmark group and Bismillah group, the lack
of corporate governance practice is highlighted. They suggest
for building trust through sound corporate governance
practice. Several studies have been conducted to identify
whether there is any impact of corporate governance on firms
performance, the evidence shows mixed outcomes. The body
of literature investigated the conflicting findings: some found
positive impact of firms performance [4, 9, 27], whereas,
150 Kashfia Naz and Mansura Nusrat: Company Performance and Corporate Governance Mechanisms:
A Multiple Linear Regression Analysis
someother found Negative impact on firm’s performance [19,
21, 29, 32, 36]. Most of the studies considered board size,
board independence, and CEO duality as the determinants of
corporate governance, while bank performance is measured
through ROA, ROA and net profit after tax and EPS. The aim
of this paper is to shed new lights on this conflict through
examining the relationship between corporate governance and
firm performance for listed private banks and financial
institutions of Bangladesh.
2. Literature Review
2.1. Relationship Between Corporate
Governance and Firm Performance
Brigham & Ehrhardt  define corporate governance as
the set of rules and procedures that assure that managers do
absolutely use the fundamentals value based management.
Gupta and Sharma  investigated a study to resolve the
impact of corporate governance practices on firm performance
in Indian and South Korean companies, the result emphasized
that companies’ financial performance as well as the share
price does not reflect the corporate governance practice.
Nevertheless, Ahmed, et al.  examined a research on
corporate governance practice in the banking sector of
Bangladesh, found that corporate governance has positive
relation to ROA but not significantly.
2.2. Board Independence and Firm
According to Jenson and Mecking , agency theory
ruling the relationship between a principal and an agent, it is
also the relationship of commitment mechanism. Moreover,
Abdullah and Nasir  refer board independence as, the
percentage of independent director or non-executive directors
in the board. Nevertheless, some researchers disagreed on the
matter that board independence could contribute benefits to
companies [3, 10] for a sample size of 934 large US
Corporation and 400 US firms respectively. While some
researcher found positive relationship among board
independence and form performance [30, 31]. By using a
sample of Indonesian non-financial companies  found
strong empirical support for the hypothesis that family control;
is negatively related to firm performance.
Hashim and Deri  investigated 200 non-financial listed
companies, in Malaysia among that there is a positive
significant result of board independence while firms drop
target earning. Dehaene et al.  revealed that ROE is
positively correlated with a proportion of independent
directors for Belgian companies. Byrd et al  also support
this finding. Dogan et al  examined a study on the impact
of CEO duality on firms’ performance for a sample of 204
listed companies in Turkey. The result found that CEO duality
has a negative impact on firm’s performance, rational with the
agency theory. This findings also supported by [21, 29]. The
study area were Hong Kong, Nigeria and some Asian
countries (Indonesia, Malaysia, South Korea and Thailand)
respectively. Similarly, Ujunawa  has also unearthed a
negative relation between firm’s performance and CEO
duality, with a sample size of 122 Nigerian firms in the year
1991-2008. Moreover, Duru et al  also found that when
the CEO is the chairperson simultaneously financial
performance of the firm is in reverse situation and impartial
with the agency theory.
2.3. Knowledge, Leadership, and Firm
Sometimes it is suggested that the chairman should not hold
the position of CEO, because the chairman perform important
control function , on study of CEO duality and firm
performance the author concluded that duality has no
significant effect on firms performance. A study by Arosa et al.
 with a sample of 307 non-listed Spanish SME, the sample
firms showed a meaningful presence of inside director has a
relation with their knowledge about the firm. The
resource-based [15, 16] has found association between CEO
leadership and firm’s profitability.
3. Purpose and Problem Statement
This paper is an attempt to identify the significant impact of
the selected corporate governance practices on firm’s financial
The study seeks to find out:
1 Whether Corporate governance practices have any
impact on Firm’s financial performance (NPAT) and
2 Which practices affect most the firm’s financial
Figure 1. Conceptual Framework.
4. Data and Methodology
4.1. The Sample Composition
The sample of this paper comprises of the listed firms
included in the Dhaka Stock Exchange (DSE) Ltd, which is
registered as a public limited company and some of its major
functions are: Listing of companies, market surveillance and
monitoring the activities of listed companies. Starting with
the total number of firms (572), the study ended with the 30
listed banks and 23 financial institutions, among which 24
banks and 8 financial institutions were considered at the final
The data were collected from the annual report published by
International Journal of Service Science, Management and Engineering 2018; 5(4): 149-154 151
the considered Banks and Financial institutions during the
2016-2017 fiscal year.
Linear Regression Models are used to test two hypotheses
to calculate the extent to which the corporate governance
practices affects the Firms financial performances (ROA,
ROE). Thus ROA and ROE is set as the dependent variable
and the explanatory variables are the Corporate Governance
practices (Board Independence, Qualification of Independent
First, The study seeks to unravel whether there is a
relationship between the Corporate Governance practices and
the Firm’s performances (ROA, ROE, NPAT, EPS). The logic
behind this hypothesis is that, the companies with better
corporate Governance practices should have higher ROA
(Return on Asset), ROE (Return on Equity), NPAT (Net Profit
After Tax) and EPS (Earning Per Share). ROA basically infers
that how profitable a company is relative to its total asset,
whereas, ROE reveals a company’s financial position by
showing the generated profit with the money shareholders
have invested. NPAT shows a company’s earnings after all
taxation related expenses have been subtracted, and EPS is an
indicator of a company’s profitability and it is the portion of a
company’s profit allocated to each outstanding share of
H1= There are significant impact of Corporate governance
practices on ROA (Return on Asset).
H2= There are significant impact of Corporate governance
practices on ROE (Return on Equity).
H3= There are significant impact of Corporate governance
practices on NPAT (Net Profit After Tax).
H4= There are significant impact of Corporate governance
practices on EPS (Earning per share).
4.3. Variable Identification
Dependent Variable: To test the hypothesizes the following
dependent variables are considered:
1 Return on Asset (ROA): ROA is calculated by dividing
the net income by the total assets.
2 Return on Equity (ROE): ROE is calculated by dividing
the net income by the shareholders equity. It is a measure
3 Net Profit after Tax (NPAT): NPAT refers to a measure
of profit that excludes the costs and tax benefit of debt
4 Earnings per Share (EPS): Firstly, subtracting dividend
on preferred stock from Net income and then dividing
the value by Average outstanding shares calculate EPS.
It is a measure of profitability.
Explanatory Variable: In particular, to assess the level of
CG, the following three sub-indexes are identified from the
commission’s Notification No
SEC/CMRRCD/2006-158/134/Admin/44 dated 07 August
2012 issued under section 2CC of the Securities and Exchange
1 Independent Director
2 Qualification of Independent Director
Above three sub-indexes, contain the following indicators,
which are used to construct the CG index:
1 Independent Director:
a. Is the one fifth of the total board of directors,
b. Is an independent director, is independent director in
less than three listed companies?
c. Is an independent director, convicted by court as a
loan defaulter to any bank or non-bank financial
d. Is the post of independent director remaining vacant
for more than ninety days?
2 Qualification of Independent Director:
a. Is the independent director a knowledgeable person
with capability to comply with all necessary laws and
contribute to the company?
b. Is the independent director a business leader with at least
twelve years of corporate management experience?
c. Is during the special cases of relaxing the
qualifications seek prior approval of the commission?
a. Do the directors report about a discussion on Cost of
Goods sold, Gross Profit Margin and Net Profit
Margin to the shareholders?
b. Do the directors report about a discussion on
continuity of any Extra-Ordinary gain or loss to the
c. Do the directors report about Basis for related party
transactions to the shareholders?
d. Do the directors report about Utilization of proceeds
from public issues, rights issues and/or through any
others instruments to the shareholders?
e. Do the directors report about an explanation if the
financial results deteriorate after the company goes for
Initial Public Offering (IP0), Repeat Public Offering
(RPO). Rights Offer, Direct Listing, to the
f. Do the directors report, If significant variance occurs
between Quarterly Financial Performance and Annual
Financial Statements to the shareholders?
g. Do the directors report Significant deviations from the
last year’s operating results of the issuer company and
the reasons there of to the shareholders?
h. Do the directors report Key operating and financial
data of at least preceding five years to the
i. Do the directors report if the issuer company has not
declared dividend for the year and the reason thereof
to the shareholders?
j. Do the directors report, the aggregate number of
shares (along with name wise details where stated
below) held by: Parent/Subsidiary/Associated
Companies and other related parties (name wise
152 Kashfia Naz and Mansura Nusrat: Company Performance and Corporate Governance Mechanisms:
A Multiple Linear Regression Analysis
details) to the shareholders?
k. Do the directors report, the aggregate number of
shares (along with name wise details where stated
below) held by: Executives, to the shareholders?
To calculate the final rating, each observation is given,
either ‘0’ (for those who do not comply with the particular
provision of corporate governance) or ‘1’ (for those who
comply with the particular provision of corporate governance),
and the dependent variable data is taken as continuous number
4.4. Methods of Data Analysis
After collecting the data from annual reports, they were
analyzed using statistical package (SPSS). Multiple regression
analysis model has been used to weigh the relative dominance
of selected independent variables (corporate governance
practices) on the firm performance (ROA, ROE, NPAT, EPS).
Regression analysis estimates the relationship among
variables with has cause and effect relation; whereas,
regression model having one dependent variable and more
than one independent variables are called multilinear
regression (Uyanik & Guler, 2013). In this study, data for
multilinear regression analysis occurred from 32 listed
companies (572) of Dhaka Stock Exchange Limited,
5. Data Analysis and Interpretation
Data analysis and management were conducted using SPSS.
Statistical significance and relative dominance of identified
variables (corporate governance) on firm performance
performed to test the hypothesis using multiple regression
Here, devised formula for multiple regression analysis to
test Hypothesis one to four are following:
H1: , = .023 – 0.001,+
H2: , = .105 + 0.010,+
H3: , = 2208.309 – 519.510,+
H4: , = .219 + 3.657,+
Table 1. Coefficientsa.
Unstandardized Coefficients Standardized Coefficients
B Std. Error Beta