Corporate governance, firm performance, and business group affiliation: evidence from India

Purpose - The purpose of this paper is to investigate whether, in emerging economies, the relationship between a firm's corporate governance (CG) and its performance is associated with firm's affiliation to a business group. Design/methodology/approach - A total of 209 publicly listed firms in India during a 10-year period from 2007 to 2016 were studied, and the random effects model was employed for analysis. Findings - Empirical evidence showed that board size and institutional shareholding positively impacted firm performance, whereas the proportion of independent directors negatively impacted performance. In group-affiliated firms in emerging economies, chief executive officer duality negatively impacted, whereas institutional shareholding positively impacted performance. These results are consistent with the principal-principal agency theory. The study found no discernible impact of proportion of independent directors on firm performance in group-affiliated firms. Originality/value - In analyzing the governance-performance relationship and its association with business groups, this study extends current understanding by connecting business group research in emerging economies with CG and firm performance research. In examining firms from several industries over a long period of time after controlling for firm size, capital structure and spends on research and development and marketing, the results of this study offer rich empirical evidence that contributes to the extant literature on the nature of the governance-performance relationship.