CEO DUALITY, BOARD INDEPENDENCE AND FIRM FINANCIAL PERFORMANCE: EVIDENCE FROM AN ASIAN EMERGING MARKET

Abstract

This study explores the relationship between CEO duality, board independence, and firm financial performance of listed companies in Pakistan, an Asian emerging market with a unique institutional background, family-controlled business, larger board independence, and CEO duality in companies listed on the Pakistan Stock Exchange (PSX). We used a sample of 146 listed manufacturing companies for the period–2003-2012. The dynamic generalised method (GMM) is employed to estimate and address endogeneity issues. The study finds an insignificant association between CEO duality and firm financial performance in the absence of board independence. However, we observed a significant positive association between CEO duality and financial performance in the presence of large board independence. This study concludes that the association between CEO duality and firm financial performance is contingent on the being of outside directors on the board. This study extends the body of existing literature on CEO duality and board independence financial performance with reference to an emerging Asian market, more specifically Pakistan. Based on the results, it suggests that policymakers should pay particular attention to the quality of corporate governance, specifically board structure, while predicting financial performance.