Corporate Governance and Firm Efficiency: Empirical Study of Pakistan


  • Muhammad Nisar Khan PhD Scholar, Abdul Wali Khan University, Mardan, Lecturer in Finance, Bacha Khan University, Charsadda,Pakistan.
  • Adnan Ahmad Assistant Professor, Abdul Wali Khan University, Mardan, Pakistan
  • Muhammad Ilyas Lecturer in Finance, Abdul Wali Khan University, Mardan Pakistan
  • Ihtisham Khan Assistant Professor, Abdul Wali Khan University, Mardan Pakistan



Data Envelopment Analysis, Corporate Governance Index, Non- Financial Sector, Pakistan Stock Exchange


In this exploratory study, we examine the effect of firm level corporate governance on firm efficiency calculated through Data Envelopment Analysis (DEA) during the period from 2008-2017 for a sample of 136 non-financial firms listed on Pakistan Stock Exchange (PSX). DEA is a non-parametric technique developed by Charnes, Cooper and Rhodes (1978) which is used to measure firm efficiency by taking different input and output variables. In this study we have used three input and three output variables for firm overall technical efficiency (OTE) measurement, input variables were Total Assets, Total Liabilities and Cost of Goods Sold (CGS) and output variables were Gross Sales Revenue (Sales), Income before Tax (IBT) and Net Income (NI). Overall technical efficiency was calculated through DEA for selected non-financial firms. In the second stage, the association between firm efficiency measured through DEA and corporate governance estimated by Corporate Governance Index has been fully confirmed in selected firms. Firm size, growth, dummy variable for financial crises 2007-09, GDP growth, and operating cash flows (OCF) were used as control variables. The results show that better implementation of CG practices by the firms will help in increasing their efficiency. In other words, better CG practices help firms to utilize their resources in the better way to produce firm outputs (sales/Profit).


Abdelkhalek, T., & Solhi, S. (2009, February). Efficiency and productivity of Moroccan commercial banks: nonparametric approach. In Economic Research Forum, Working Papers (Vol 1, 2009).

Andrie?, A. M., C?praru, B., & Nistor, S. (2018). Corporate governance and efficiency in banking: evidence from emerging economies. Applied Economics, 50(34-35), 3812-3832.

Alchian, A.A. and Demsetz, H. (1972) “Production, Information Costs and Economic Organization”. American Economic Review, Vol. 62, pp. 772-795.

Andrie?, A. M., C?praru, B., & Nistor, S. (2016). Corporate governance and efficiency in banking: evidence from emerging economies. Applied Economics, 50(34-35), 3812-3832.

Bhimani, A. (2008) “Making Corporate Governance Count: The Fusion of Ethics and Economic Rationality”. Journal of Management and Governance, Vol. 12, No. 2, pp. 135-147.

Black, jang & Jim, (2003). “Does corporate governance affect firm value? Evidence from Korea”. Journal of law economics and organization. 22(2), 366-413.

Charnes, A., Cooper, W. W., & Rhodes, E. (1978). Measuring the efficiency of decision making units. European journal of operational research, 2(6), 429-444.

Clarkson, M. B. E. (1995). “A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance”. Academy of Management Review, Vol. 20, No. 1, pp. 92-117.

Clark, T. (2004) “Theories of Corporate Governance: The Philosophical Foundations of Corporate Governance” London and New York: Routledge.

Cyert, R.M. and March, J.G. (1963) “A Behavior Theory of the Firm”. New Jersey-USA, Prentice Hall.

Daily, C.M., Dalton, D.R. and Canella, A.A. (2003) “Corporate Governance: Decades of Dialogue and Data”. Academy of Management Review, Vol. 28, No. 3, pp. 371-382.

Davis, J.H., Schoorman, F.D. and Donaldson, L. (1997) “Toward a Stewardship Theory of Management”. Academy of Management Review, Vol. 22, pp. 20-47.

Donaldson. L and Davis. J. (1991) “Stewardship Theory or Agency Theory: CEO Governance and Shareholder Returns”. Academy of Management Review, Vol. 20, No. 1, pp. 65.

Donaldson, T. and Preston, L.E. (1995) “The Stakeholder Theory of the Corporation: Concepts, Evidence and Implications”. Academy of Management Review, Vol. 20, No. 1, pp. 65-91.

Eisenhardt, K.M. (1989) “Agency Theory: An Assessment and Review”. Academy of Management Review, Vol. 14, pp. 57-74.

Freeman, R. E. (1984) “Strategic Management: A Stakeholder Approach”. Pitman, London.

Flegg, A. T., Allen, D. O., Field, K., & Thurlow, T. W. (2004). Measuring the efficiency of British universities: a multi period data envelopment analysis. Education economics, 12(3), 231- 249.

Gillan, S. L. (2006). Recent developments in corporate governance: An overview

Hawley, J.P. and Williams, A.T. (1996) “Corporate Governance in the United States: The Rise of Fiduciary Capitalism”. Working Paper, Saint Mary's College of California, School of Economics and Business Administration.

Hillman, A.J., Canella, A.A., and Paetzold, R.L. (2000) “The Resource Dependency Role of Corporate Directors: Strategic Adaptation of Board Composition in Response to Environmental Change”. Journal of Management Studies, Vol. 37, No. 2, pp. 235-255.

Holmstrom, B. and Milgrom, P. (1994) “The Firm as an Incentive System”. The American Economic Review, Vol. 84, No. 4, pp. 972-991.

Jensen, M.C. and Meckling, W. (1976) “Theory of The Firm: Managerial Behavior, Agency Costs And Ownership Structure”. Journal of Financial Economics, Vol. 3, pp.305-360.

Johnson, J.L., Daily, C.M. and Ellstrand, A.E. (1996) “Boards of Directors: A Review of Research Agenda”. Journal of Management, Vol. 22, No. 3, pp. 409-438.

Lin, C., Ma, Y., & Su, D. (2009). Corporate governance and firm efficiency: evidence from China's publicly listed firms. Managerial and Decision Economics, 30(3), 193-209.

Liputri, O., & Tirok, J. (2009). Analysis of corporate governance and relative efficiency of public companies listed in Indonesian stock exchange. Journal of Applied Finance and Accounting, 2(1), 31-50.

Mantri, J. K. (2008). Research methodology on data envelopment analysis (DEA). Universal-Publishers.

McNamee, M. J., & Fleming, S. (2007). Ethics audits and corporate governance: The case of public sector sports organizations. Journal of Business Ethics, 73(4), 425-437.

Mohamad, N. H., & Said, F. (2010). Measuring the performance of 100 largest listed companies in Malaysia. African Journal of Business Management, 4(14), 3178-3190.

Mustafa, S. O. B. A., I??l, E. R. E. M., & CEYLAN, F. (2016). the impact of corporate governance practices on bank efficiency: a case of turkey. Journal of suleyman demeral university institute of social sciences (25), 305-322.

Padilla, A. (2002) “Can Agency Theory Justify the Regulation of Insider Trading”. The Quarterly Journal of Austrian Economics, Vol. 5, No. 1, pp. 3-38.

Pound, J. (1993) “Proxy Contest and The Efficiency of Shareholder Oversight”. Journal of Financial Economics, Vol. 20, pp. 237-265.

Shah, butt & Hassan, (2009). “Corporate governance and earning management. An empirical evidence from pakistan listed company.” European journal of scientific research 6(4) 624-638.

Shleifer, A. and Vishny, R.W. (1997) “A Survey of Corporate Governance”. Journal of Finance, Vol. 52, No. 2, pp. 737-783.

Sundaram, A.K. and Inkpen, A.C. (2004) “The Corporate Objective Revisited” Organization Science, Vol. 15, No. 3, pp. 350-363.

West, A. (2006). Theorising South Africa’s corporate governance. Journal of Business Ethics, 68(4), 433-448.

Wheeler, D., Colbert, B. and Freeman, R.E. (2003) “Focusing On Value: Reconciling Corporate Social Responsibility, Sustanibility and A Stakeholder Approach in A Network World”. Journal of General Management, Vol. 28, pp. 1-28.

Williamson, O. (1996) “The Mechanisms of Governance”. Oxford University Press, Oxford.




How to Cite

Muhammad Nisar Khan, Adnan Ahmad, Muhammad Ilyas, & Ihtisham Khan. (2020). Corporate Governance and Firm Efficiency: Empirical Study of Pakistan. Review of Economics and Development Studies, 4(2), 135-144.