Global Business and Economics Research Journal ISSN: 2302-4593 Vol.

2 (5): 66 - 74

Corporate governance quality in organization and its impact on key stakeholders (A case study of Attock Cement Public Limited Company, Pakistan)
Kashan Pirzada
Sindh Madressatul Islam University, Karachi, Pakistan kpirzada@smiu.edu.pk, kashan_pirzada@yahoo.com

Monir Ahmed
Sindh Madressatul Islam University, Karachi, Pakistan

Abstract This article’s main objective is to mark the influence of corporate governance over mind as well as heart of shareholders belonging to a firm. This firm is none but the Attock Cement Pakistan Limited. Efforts have been made to identify the quality level of the governance in the firm. A 16-item insight of corporate governance is utilized. It is based on CEO duality, effective audit committee, board independence and ownership concentration. A survey is conducted in which 100 employees of the organization’s key stakeholders take part. Descriptive and inferential analysis is used to get results. According to the findings, corporate governance holds significance and constructive influence can be had on the work of the firm. There is a strong belief that firm’s display of work can go up through improved structure of the corporate governance. Keywords: corporate governance, quality, organization, stakeholders

Citation: Pirzada, K. and Ahmed, M. (2013). Corporate governance quality in organization and its impact on key stakeholders (A case study of Attock Cement Public Limited Company Pakistan). Global Business and Economics Research Journal, 2(5): 66-74.

© Global Business and Economics Research Journal. Available online at http://www.globejournal.org

Page

66

Pirzada and Ahmed Vol 2 (5): 66-74

Global Business and Economics Research Journal ISSN: 2302-4593

1. INTRODUCTION Corporate governance reform program has flown high since late ’90s. It aimed at improving the working of the system. Following the East Asian financial crisis in the year 1997-1998 several Asian nations took a lead in introducing the reform. So came to the fore a composite corporate governance quality (CGQ) index that helped document evolution of the emerging markets and developed economies during 1994-2003. The fallout of the assessment was evident on output growth, productivity, investment as well as on ownership indicators and corporate governance (Ponnu, 2008). Out of 65 non-financial listed firms, position of Argentine stock market is very shaky. Its impact is evident on the standards and practices of corporate governance there. From this background interest may be developed to review whether the information problems and agency are typically considered in more active markets. The target of this study is to mark the variables that have bearing on good corporate governance and to evaluate their fallout on employees and others. Good corporate governance enhances confidence of the public and limits capital expense which is invested. Bhuiyan and Biswas study (2007) says more than sixty per cent who are involved in investment consider good governance uses as an important factor in their investment results. Superior governance has turned to be a slogan and a pride. What is the impact of the economy, society and environment needs to be assessed. It is the demand of the Corporate Social Responsibility and corporate sustainability. The estimation helps improve the company’s reflection vis-a-vis stakeholders’ necessities as well as report on related measurements (Xie et al., 2003). Corporate governance means the path on which companies deal with lawful reliabilities and establish the roots--the roots upon which CSR and corporate sustainability uses work to upgrade standard of business operations. Take for example, Attock Cement Pakistan Limited (ACPL). It is marked as a public limited company. Its existence is evident in Karachi Stock Exchange. It is involved in production as well as sales of the product. It is the sister concern of the Pharaon Group. Its links in Pakistan is with the oil and gas sector. Its involvement is also evident in power and real estate sectors (Wiseman, 1998). Through practices of CSR and corporate sustainability the company has earned name and fame.

rests in the firm choice. And when an “endogenous” firm goes in positive direction, say, on
© Global Business and Economics Research Journal. Available online at http://www.globejournal.org

Page

According to Core, Holthausen and Larcker (1999) the excellence of corporate governance

67

1.1 Corporate Governance Quality

Pirzada and Ahmed Vol 2 (5): 66-74

Global Business and Economics Research Journal ISSN: 2302-4593

managerial incentives, values of the shareholders (stakeholders) it ultimately hit the high target. In other words, it is the implementation of rules and practice that determines the true aspect of corporate governance. There is no doubt that good governance creates congenial atmosphere in the corporation and if such an environment exists the name of the corporation twinkles in the business circle. Its operation can be viewed as a success story. Its name in the market draws best talents, enhances investors’ interest and ensures society’s acceptance. It is ethically sound, legally justified and it proves sustainability. Ultimately, customers, employees, investors and the like look satisfied. In this connection accountability, fairness and lucidity are demanded as far as positive corporate governance is concerned. They are in need in business action among staff, administration and the board. (Oman, 2001). 1.2 The Quality of Corporate Governance in ACPL Attock Cement Pakistan limited applies the changes in corporate governance on sales growth and growth chances of firms grouped by industry. It shows fabulous results. New element of improvement in corporate governance is witnessed on growth of financially dependent industries. It shows sign of improvement particularly to those industries whose growth mainly relies on outdoor finance. Here it needs to be mentioned that out of the renewed operation the demand of the product (cement) soared both in local markets and elsewhere in the region (OECD, 1989). Further, the company extended its business in another field in the year 2006-2007. The investment figure was US $ 61m. It was on 3,300 tpd of clinker. Gradually, its capacity increased and touched at 1,710,000 mt per annum. It became possible through necessary improvements in corporate governance quality. The stakeholders enjoyed better facilities. It ultimately enhanced profitability. 1.3 Objectives The study starts with two objectives. They are as follows:   Explaining the factors and specific channels through which the firm (ACPL) works to introduce the corporate governance. Comparing the quality of corporate governance vis-a-vis employees and other stakeholders of the Attock Cement Pakistan Limited. 1.4 Limitations According to Bergen et al. (1992) the research mainly focuses on evaluating the quality of

© Global Business and Economics Research Journal. Available online at http://www.globejournal.org

Page

with the modern approach. It is to be ensured this study will not be applied in other spheres of

68

corporate governance, how it is effected on shareholders and how far it is accommodated

Pirzada and Ahmed Vol 2 (5): 66-74

Global Business and Economics Research Journal ISSN: 2302-4593

the research. This study stresses only on the factors linked with corporate governance due to time limit and resources restrictions. Data is collected from only one firm that is Attock Cement Pakistan Limited.

2. LITERATURE REVIEW Stresses are on to know the relations of firm’s performance with corporate governance and ownership structures. How these two influence the performance of the firm. Firm’s activities are affected when a clash comes to fore between administration and depositors. Further, the same is in sight between controlling shareholders and minority shareholders. Such a clash develops due to management’s non-serious endeavour and unproductive investments. These are said to be perquisites (Murthy, 2006). It so happens when the interest of the controlling shareholders comes into cross with the minority shareholders. The controlling shareholders take steps for their own benefit pushing aside the interest of the minority shareholders. The view of Daily and Dalton (1994) is that big investors being there might produce harmful outcome on equity financing. It might be so as there is a possibility of expropriation of small investors’ rights. Zenger (1992) and Zajac (1990) try to define how the higher equity is influenced. In this connection they talk of good governance practices and better bookkeeping standards as well as convincing exposures, no matter what kind of legal institutions exist in the country. It is seen that firms whose quality of governance is not up to the mark look for short cut to influence top ranking financial control. This very factor has an impact over corporate governance in context of equity money and the business mold, and on the other, it develops relations between corporate governance and fiscal recital. 2.1 Corporate Governance and Financial Performance Researchers hold diverse opinion on the question of analysis of the corporate governance. Should analysis be made together or alone? While majority of literature on corporate governance opt for separate governance parts, a literature whose base is on index or rating, stresses much on related corporate governance issues. It summarizes experimental researches in which the query is whether firm’s valuation and operating act are linked with individual governance components and overall control standards. It shows practical sign of control of lone corporate governance mechanisms on financial performance is exceedingly questionable. While a few studies locate positive ties of financial performance with

Seward (1990) back the agency theory concept based on negative ties between outside
© Global Business and Economics Research Journal. Available online at http://www.globejournal.org

Page

opponents (Klein, 1998) differ from the above. They find distinct evidences. Walsh and

69

ownership concentration, and thus throw support behind the agency theory prediction, the

Pirzada and Ahmed Vol 2 (5): 66-74

Global Business and Economics Research Journal ISSN: 2302-4593

ownership attention and firm presentation. However, Wiersema and Bird (1993) gets a helpful link between institutional and outside ownership attention and financial results. According to him, family control, board command and management control over firm act are likely to be uncertain (Tosi et al., 2000). However, a few recent literatures accumulate various mechanism of corporate governance to probe a firm’s whole governance excellence. These researches sponsor forecast of the agency theory. Morgenson (2005) says there is a possibility that value of the firm and operational act are improved through better corporate governance. Further it can ensure more efficiency in management, healthier distribution of assets, superior stakeholder management etc. 2.2 Theoretical Framework Corporate governance quality of a firm largely depends on how the institutional mechanisms of a country work. These mechanisms relate to market, political factor, economic issues, legal and regulatory standards etc. The framework identifies that the legal fulfillment of the firm and voluntary action in the matters of corporate supremacy can influence the expropriation costs to scale down in the governance process. Further, it, in regard to developing economy, may strike down the inefficiency level in the institutional arrangements. Better domination quality downs the agency costs that the external providers have to pay for monitoring, auditing and other shapes of insiders’ expropriation. Wit h better sponsor security and lower expropriation through check on shareholders, outside investors give more attention to more investment or payment of higher share prices. Because this way they hope for more profits or dividends.

3. METHODOLOGY The view of Rhodes (1996) is that the study is descriptive as the hypothesis of research is clearly written and further research can be conducted on that basis. Questionnaire is prepared and then utilized for collecting data and analysis. The target population of Attock Cement company employees and Board of Directors of different branches are around 712. From among them 100 employees were selected with a view to ascertain the influence of fine corporate governance over stakeholder’s work. The data was collected through the questionnaire administered personally by the research section of the company from the company’s employees. It consists of 20 items adopted from Thompson and Hung (2002). The

© Global Business and Economics Research Journal. Available online at http://www.globejournal.org

Page

disagree and v) strongly disagree. Additionally data is also gathered from twenty published

70

items are based on 5 points likert such as, i) agree, ii) vigorously agree, iii) no option, iv)

Pirzada and Ahmed Vol 2 (5): 66-74

Global Business and Economics Research Journal ISSN: 2302-4593

research papers. Descriptive analysis and one sample t- test were used and SPSS was applied for data analysis. 3.1 Variables 1. Duality 2. Ownership Concentration 3. Effective Audi Committee 4. Board Independence

4. DATA ANALYSIS AND FINDINGS Descriptive Analysis Variables N Minimum Maximum Mean Std. Deviation Duality 100 1.0 4.0 2.365 .6179 Ownership Concentration 100 1.3 4.0 2.437 .6330 Effective audit Committee 100 1.25 5.00 2.612 .7294 Board Independence 100 1.00 4.25 2.622 .6994 (Scale: 1= Strongly Agree, 2= Agree, 3= Neutral, 4= Disagree, 5= Strongly Disagree) Ranks 1 2 3 4

Table above indicates the analysis of Attock cement employees feedback of different variables. The duality variable has lowest mean which is 2.365 represent the high score of employees and also ranked 1, which reflect that employees perceived that this factor brings quality of corporate governance in the organization , second variable ownership concentration average 2.437 shows respondent seldom agree that it was preferable for quality corporate governance. Effective audit committee variable mean score 2.6125 shows that respondents slightly agree as ranking also indicate the less preference of the users. Board independence more preference of the user’s rank 4.

© Global Business and Economics Research Journal. Available online at http://www.globejournal.org

Page

71

variable mean score 2.6225 shows that applicant hardly agree as ranking also points out the

Pirzada and Ahmed Vol 2 (5): 66-74

Global Business and Economics Research Journal ISSN: 2302-4593

Variables Duality Ownership Concentration Effective audit Committee Board Independence

Mean, Standard Deviation of Variable N Mean Std. Deviation 100 100 100 100 2.365 2.437 2.612 2.622 .6179 .6330 .7294 .6994

Std. Error Mean 1 2 3 4

Variables

One Means T-Test for Decision Making Sample Test Test Value = 2 95% confidence Interval of the difference Lower Upper .242 .312 .467 .483 .488 .563 .757 .761

T Duality Ownership Concentration Effective audit Committee Board Independence 5.906 6.911 8.397 8.900

Df. 99 99 99 99

Sig.(2Tailed) .000 .000 .000 .000

Mean Differences .3650 .4375 .6125 .6225

The above sample t-test shows that all the variables are statistically significant at 5% level. Therefore, the study concluded that all variables are highly important for corporate governance and their impact on key stakeholders.

5. CONCLUSION AND SUGGESTIONS This study examines the corporate governance influence on firm activities. Attock Cement Pakistan Limited is taken as a sample. Monetary and non-monetary data were accrued from among 100 employees. Descriptive and inferential analysis is used to draw conclusion. It helps examine the result of 4 sovereign variables of corporate governance on three dependent ones on the firm’s activities. Corporate governance has various dimensions. Their influence surely falls on the activities of the firm. Focus has been made (in the present study) on CEO duality, effective audit committee, board independence and ownership concentration. Three variables have been picked up for the purpose of judging firm’s activities like return on assets, return on equity and net profit margin. Results show that corporate domination has major and effective influence over firm activities. There are positive indications of hike in firm’s activities through improvement in the corporate governance structure.
© Global Business and Economics Research Journal. Available online at http://www.globejournal.org Page

72

Pirzada and Ahmed Vol 2 (5): 66-74

Global Business and Economics Research Journal ISSN: 2302-4593

5.1 Future Research Good corporate governance can also be achieved by ethical implementation of governance rules and regulations in the organizations. A new paradigm of research could be group of Asian and European firms that implement the quality of good governance in the organizations; this geographical distribution gives us inside about each and every country’s perception. Good governance increases morale of the employees who are the real asset for any organization. Moreover, the analysis of group of organizations’ timely announcement and payment of dividend to the shareholders show strong commitment of the firm’s good governance.

REFERENCES Bhuiyan, M. & Biswas, P. (2007). Corporate Governance and Reporting: An Empirical Study of the Listed Companies in Bangladesh. Dhaka University Journal of Business Studies, 28(1): 441-454. Bergen, M., Dutta, S. & Walker Jr, O. C. (1992). Agency relationships in marketing: a review of the implications and applications of agency and related theories. The Journal of Marketing, 56(3): 1-24. Core, J. E., Holthausen, R. W. & Larcker, D. F. (1999). Corporate governance, chief executive officer compensation, and firm performance. Journal of financial

economics, 51(3): 371-406. Daily, C. M. & Dalton, D. R. (1994). Bankruptcy and corporate governance: the impact of board composition and structure. Academy of management journal, 37(6): 1603-1617. Klein, A. (1998). Firm Performance and Board Committee Structure 1. The Journal of Law and Economics, 41(1): 275-304 Morgenson, G. (2005). Who's Afraid of Shareholder Democracy?. Strakville: Mississipi State University. Murthy, N. R. N. (2006). Good Corporate Governance-A checklist or a mindset. Robert P. Maxon Lecture, George Washington University, February, 6. OECD. (1989). Economic instruments for environmental protection. Washington: OECD

Publishing.
© Global Business and Economics Research Journal. Available online at http://www.globejournal.org

Page

Oman, C. (2001). Corporate governance and national development. Washington: OECD

73

Publications and Information Centre.

Pirzada and Ahmed Vol 2 (5): 66-74

Global Business and Economics Research Journal ISSN: 2302-4593

Ponnu, C. H. (2008). Corporate governance structures and the performance of Malaysian public listed companies. International Review of Business Research Papers, 4(2): 217-230. Rhodes, R. A. W. (1996). The new governance: governing without government. Political studies, 44(4): 652-667. Thompson, P. & Hung, A. C. (2002). Cracking the Singapore Code of Corporate Governance: A Step Towards World-class Corporate Governance and Superior Performance?. Selangor: Centre for Europe-Asia Business Research, Nottingham University Business School, University of Nottingham, Malaysia Campus. Tosi, H. L., Werner, S., Katz, J. P. & Gomez-Mejia, L. R. (2000). How much does performance matter? A meta-analysis of CEO pay studies. Journal of Management, 26(2): 301-339. Walsh, J. P. & Seward, J. K. (1990). On the Efficiency of Internal and External Corporate Control Mechanisms. Academy of Management Review, 15(3): 421-458. Wiersema, M. F. & Bird, A. (1993). Organizational demography in Japanese firms: Group heterogeneity, individual dissimilarity, and top management team turnover. Academy of Management Journal, 36(5): 996-1025. Wiseman, R. M. & Gomez-Mejia, L. R. (1998). A Behavioral Agency Model of Managerial Risk Taking. Academy of management Review, 23(1): 133-153. Xie, B., Davidson, W. N. & DaDalt, P. J. (2003). Earnings management and corporate governance: the role of the board and the audit committee. Journal of corporate finance, 9(3): 295-316. Zajac, E. J. (1990). CEO selection, succession, compensation and firm performance: A theoretical integration and empirical analysis. Strategic Management Journal, 11(3): 217230. Zenger, T. R. (1992). Why do employers only reward extreme performance? Examining the relationships among performance, pay, and turnover. Administrative Science Quarterly, 37(2): 198-219.

© Global Business and Economics Research Journal. Available online at http://www.globejournal.org

Page

74

Master your semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master your semester with Scribd & The New York Times

Cancel anytime.