Contributing Factors and Consequences of Corporate Governance in Small Pakistani Listed Companies

Abstract

In this research, the contributing factors of corporate governance practices and their consequences are examined in the context of small Pakistani companies traded on Karachi Stock Exchange before the year 2006. The researcher develops an entirely new database in order to facilitate the construction of an index to determine the corporate governance practices of all 312 companies included in the sample and to evaluate their performances. The study notes that a number of organizational characteristics, such as the nature of auditor, market value of equity, leverage, ownership structure of the company, and composition and size of the boards, are closely associated with effective corporate governance practices. Furthermore, the study provides substantiation that effectual adherence to corporate governance regulations not only enhances the organizational performance, but also improves the quality of reported earnings. In the light of the achieved findings, the study concludes that despite the fact that abidance of governance regulations and practices is likely to enhance the organizational performance, small companies that have constrained resources may choose not to follow or implement them. Therefore, the shareholders and management of these companies are required to take more notice of the pluses and minuses of abiding by the governance systems

Keywords: Corporate governance, small Pakistani listed companies, accruals quality, Karachi Stock Exchange, company performance, Securities and Exchange Commission Pakistan.