2021 001 A Critical Assessment of Interrelationship Among CG, Financial Performance, Refined Economic VA To Firm Value

Journal of the Knowledge Economy
https://doi.org/10.1007/s13132-021-00808-8
A Critical Assessment of Interrelationship Among Corporate

Governance, Financial Performance, Refined Economic
Value Added to Measure Firm Value and Return on Stock
Leo Vashkor Dewri1
Received: 19 October 2020 / Accepted: 30 May 2021

© The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature
2021
Abstract
The purpose of this study is to measure firm value (FV) and return on stock (RoS)
by considering corporate governance (CG), financial performance (FP), and refined
economic value added (REVA) combinedly and also identify the convergence
among these three parameters. The GMM estimator’s method was applied on the
dataset of Dhaka Stock Exchange listed firms during the period 2013 to 2018. The
sample contains 310 firms with 1860 firm years. The study reveals that CG, FP, and
REVA characteristics are significantly conjuncted with FV and RoS. Firms, regard-
less of size, age, and nature, adopting good CG within business management prac-
tice can significantly improve FP and continuously generate positive economic value
for both firms and shareholders over the period, thus enhance FV and RoS. Moreo-
ver, firms confirming continuous growth of FV are able to provide positive RoS to
shareholders. This study ensures necessary guidelines for both firms’ manager and
investors, as managers will be encouraged to implement good CG within the firms
and confirmed to maintain healthy FP and continues REVA growth for the firm.
Investors can assess firm performance and future growth opportunities before taking
any investment decision.
Keywords Firm value · Return on Stock · Corporate Governance · Financial

Performance · Refined economic value-added
Introduction
Measuring firm value (FV) and return on stock (RoS) is fetching key research inter-
est areas among multidisciplinary academicians (i.e., accounting, finance, and eco-
nomics), industry researchers, equity investors, as well as firms’ manager. FV and
* Leo Vashkor Dewri

lvd@ewubd.edu
1
Department of Business Administration, East West University, Dhaka, Bangladesh
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Vol.:(0123456789)
RoS measurement becomes more critical in today’s business context regardless of

type, size, age, volume, and nature. FV maximization (Shah et al., 2015) and pos-
itive RoS to investors depend on sustainable economic and financial growth of a
business, which can be achieved by adopting good governance, financial perfor-
mance (FP), and economic value added (EVA) process; these core issues are now
being discussed in modern finance and business economics theory.
It is certainly important that few specific issues in the capital market, such as
lack of good governance and information asymmetry (Bodie et al., 2014; Morck
et al., 2000) of firms (explicitly FP and EVA), create enormous noise during mak-
ing investment decisions by investors. Morck et al. (2000) scrutinize the influence
of corporate governance (CG) role and symmetrical information availability on
stock price movement on different stock markets. Their research reveals that firms
in well-developed economies usually adapt good CG with proper disclosure of FP
and EVA, which lead to offer higher stock returns rather than emerging markets.
They also recognize that in the well-functioning financial markets, trader/investor
gathers more information regarding individual firm’s before investing; consequently,
share prices reflect on firm-specific information. In a summary, their research results
spark me to examine (a) whether CG and firms’ performance-related information,
i.e., FP and refined economic value added (REVA), influence to enhance both FV
and RoS or not in the emerging market, and (b) if the FV is an important determi-
nant to generate positive or negative RoS of different types of firm over the years,
which are certainly important to investigate. As yet, the capital markets of develop-
ing economy are the full setup with frail CG exercise, where information asymmetry
reassures, thus apposite information regarding firms FP and REVA fade to the inves-
tors. Therefore, unsymmetrical information creates serious problems to investors
to determine the appropriate investment decisions, resulting to investors selecting
adverse stock; hence, investors get a lower or negative return (Zaigham et al., 2019).
This article empirically investigates the FV and RoS by considering CG, FP, and
REVA under the lack of good CG and information asymmetric market environment.
It is worth noting that according to the decision theory (Slee, 2011), investors of
the efficient market assemble and analyze information regarding FP and economic
growth relevant information before taking any investment decisions, and catego-
rizing risky investment alternatives to maximize expected monetary value. Even-
tually, emerging economy capital market performance are far more different than
well-functioning market, where investors become puzzled before investing in any
company due to information asymmetry regarding firms’ performance. Thus, this
is certainly important to measure how lack of good CG and degree of information
asymmetry of FP and REVA sensitively create effect on FV and RoS of different
categories of firm and generates expected monetary value for investors in the emerg-
ing market. Additionally, is the FV influencing the RoS? To justify these funda-
mental issues, I consider Bangladesh as the research object and introduce the con-
cept to measure FV and RoS by reexamining the inter-relationship among CG,
FP, and REVA of the firms.
The contribution of this study to the literature on the determinants of FV and RoS
are fourfold. First, I propose a new bundle of variables and construct econometric
models to examine the relationship between FV and RoS. The choice of these
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variables is not limited to the annual reports, firm CG adaptation reports, and financial
statements of listed companies, but also takes into account to measure the inter-
relationship of CG, FP, and REVA under imperfect market development. I use three
different sizes (i.e., small-medium local firms (SMLFs), large local firms (LLFs), and
multinational firms (MNCs)) of firms to measure the degree of corelationships among
CG, FP, and REVA, and use CG index (CGI), financial ratios, i.e., NOPAT, leverage,
Tobin’s q, EPS, DPR growth over the years that reflect the financial performance, and
REVA, to measure economic value creation for firms and investors of listed compa-
nies. Second, the findings of the study support the views of Ammann et al. (2011),
Kaplan (2017, 2016), Kogan and Papanikolaou (2013), Baseri et al. (2012), Pourali
and Roze (2013), Lee and Kim (2009), and Bacidore et al. (1997). Ammann et al.
(2011) believe that good CG practice firms generate higher firm value by reducing the
degree of information asymmetry in the process of FP and REVA reporting to share-
holders, creditors, management, employees, and regulators (Bao & Bao, 1998). Also,
avoiding large fluctuations in stock prices, thereby reducing financing costs and higher
cash flow to investors, discretely. Third, this article empirically analyzes all listed com-
panies in the Bangladesh capital market from 2013 to 2018 to measure the influence
of FV on RoS. Thus, the result of this study assists Bangladesh businesses to reform
management practice by adopting good CG as well as encourages managers to prepare
FP and REVA reports in a timely fashion; henceforth, this will assist to develop sus-
tainable investment and financing markets. Moreover, this research certainly could be
a significant reference for reforming the capital markets in other emerging economies.
Finally, the core contribution of this research is to introduce a safe investment manage-
ment technique for investors and in value creation aspect for firm managers (Table 8
(possible strategic steps for the safe investment management techniques for investors)
and Fig. 1 (for managers)).
This paper has constructed the following steps. In the “Literature Review and
Conceptual Framework Development” section, literature review and conceptual
framework development have covered based on three mentioned firm performance
measurement techniques to measure FV and RoS. Afterward, the “Research design”
section has discussed data sampling and methodology by developing econometrics
models based on hypothesis. Next, the “Empirical Results and Analysis” section has
analyzed and interpreted the regression results of the composite data set and test
hypothesis. Finally, the “Conclusion” section mentioned the concluding remarks and
implications of outcomes.
Literature Review and Conceptual Framework Development
Corporate Governance, FV, and Return on Stock
Corporate governance is a systematic approach to govern the firms’ operational

activities with the ethical manner by following certain rules of standard which are
embedded with the system imposed by both the firm management and the regula-
tory authority in the economy to manage the business process (Al-ahdal et al., 2020;
Brown & Caylor, 2006; Cremers & Nair, 2005; La Porta et al., 2000). By
13
following ISS 2004 CGI dataset and Standard and Poor’s transparency and disclo-
sure (S&P T&D), Brown and Caylor (2004), Aggarwal and Williamson (2006), and
Cheng et al. (2008) affirm that implementing effective corporate governance means
maintaining the structure of the audit committee (AC), board composition includ-
ing director’s education (DE), and CEO duality (CD), ownership structure (OS), and
financial transparency and information disclosure through Internet-based reporting
(IBR) of the firms according to the regulatory guidelines.
AC is one of the most integral parts of the CGI, where both internal and exter-
nal members engage to scrutinize and prepare financial and nonfinancial reports
of the organization according to the regulatory guidelines (Cadbury Committee
Report, 1992; the Combined Code, 2003, 2006; the Financial Reporting Coun-
cil (FRC), 2016; Bédard & Gendron, 2010). Boards of directors (BoDs) form the
AC and disseminate the power to supervise the process to prepare financial and
annual reports for shareholders (Agyemang-Mintah & Schadewitz, 2017; Aldamen
et al., 2012; Hillman & Dalziel, 2003). Becker et al. (1998) argues that firms account-
ing information reliability and credibility depend on the reputation of the auditors.
Thus, the reputation of the AC is economically significant on FV, as highly reputed
AC generates higher FV and contrariwise (Almaqoushi & Powell, 2017). Further-
more, a well-recognized auditor generally supervises to prepare both financial and
annual reports by confirming the highest level of integrity with explanatory notes to
shareholders, which enhances both FV (Almaqoushi & Powell, 2017; Dhaliwal et al.
2010) and RoS. Conversely, the inferior-quality auditor has less supervisory control
on financial report processing with less financial reporting integrity by manipulating
earning management which lowering both FV and RoS (Dhaliwal et al., 2010; Chen
& Zhou, 2007; Chen et al., 2006; Xie et al., 2003; Bedard & Johnstone, 2004; Collier
& Gregory, 1999; Abbott et al., 2000).
BoD is one of the major elements of measuring CGI of the firm (Aguilera
et al., 2015). Active role of board of directors (Judge & Reinhardt, 1997; Coles
et al., 2001) is the major driving force on firm performance (Dalton et al., 1999;
Stiles & Taylor, 2001); therefore, effective board structure facilitates to maximize
shareholders’ wealth (Knauer et al., 2018; Zafar et al., 2016). Empirical research
reveals certain complex results on firm value with the array of board character-
istics, which include board size, composition of the board and independency of
directors during decision making (Fich, 2005; Hermalin & Weisbach, 1998), board
meeting frequency and participation ratio, directors’ education, CEO duality,
and leadership capacity (Fauver et al., 2017; Jermias & Gani, 2014; Allegrini &
Greco, 2013; Zona, 2014; Brown & Caylor, 2004; Aggarwal & Williamson, 2006;
Morck et al., 1988; Burkart et al., 1997; Bolton & Von Thadden, 1998; Lehman
& Weigand, 2000; Lipton & Lorsch, 1992; Jensen, 1993). Experimental research
explains that higher performing firms frequently arrange board meeting to moni-
tor the firm-level activities with engaging of external board members and reduce
significant level of agency cost by eliminating communication gap to the share-
holders (Merendino & Melville, 2019; Nazir & Afza, 2018; Zafar et al., 2016;
Mehrotra, 2016; Fama & Jensen, 1983). In addition, Ritchie (2007) identifies that
CEO duality could help to diminish information asymmetry as well as enhance the
power of best utilization of financial resources by reducing significant level cost
13
of capital and enlarge the firm financial performance. In contrast, according to the
stewardship theory by Brickley et al. (1997), holding of dual roles by a single per-
son as CEO and chairperson of the board could reduce communication gap, inter-
nal conflict, and inconsistence in decision making by the board.
Ownership structure is another significant variable of CGI (Kapil & Mishra, 2019).
Family or insider ownership (IO) is predominating in the emerging economies (Dinh
& Calabro, 2019). High level of IO (sponsor/directors ownership stock) of firms sig-
nificantly generates both higher FV and RoS due to strong control on firm managerial
activities (Kapil & Mishra, 2019; Merendino & Melville, 2019; Nazir & Afza, 2018;
Chu, 2011; Jemsen & Meckling, 1976; Grossman & Hart, 1983). Similarly, IO assists
to reduce significant level of agency cost by synchronizing the interests of BoD and
external shareholders (Jemsen & Meckling, 1976; Grossman & Hart, 1983). Con-
versely, other studies reveal negative relationship with FV, RoS, and IO (Chang &
Shim, 2014; Jiang & Peng, 2011; Lauterbach & Vaninsky, 1999). Empirical research
reveals complex result on both institutional and government ownership to measure
firm performance (Tran, 2014; Alfaraih et al., 2012; Huang & Xiao, 2012; Liao &
Young, 2012; Lee, 2008; Mak & Li, 2001; Barnhart & Rosenstein, 1998). Foreign
ownership has composite effect on firm performance (Bayrakdaroglu et al., 2012;
Lee, 2008).
Disclosing corporate information and communicate with financiers through corporate
Web site is becoming a common phenomenon for the modern firms. Firms adopt IBR
can reduce significant level of agency cost and information asymmetry (Puspitaningrum
& Atmini, 2012; Capriotti & Moreno, 2007). Higher performing firms maintain sophis-
ticated management information system, which enable firms to disclose update corpo-
rate information regarding FP and value-added relevant activities to shareholders, other
financiers, as well as different stakeholders (Puspitaningrum & Atmini, 2012; Hunter
& Smith, 2011; Coupland, 2006), consequently enhancing the FV and RoS. According
to Pervan (2006), Oyelere et al. (2003), Cheng et al. (2006), and Hassan et al. (2009),
there is a positive correlation with firms’ profitability and liquidity disclosure and IBR,
which send positive signals to market to enhance the share price and FV. Contrarywise,
firms are hiding information due to unfavorable news or low performance (Craven &
Marston, 1999). However, IBR creates positive image of the firm and upsurge firms’
acceptability across the board (Garg & Gakhar, 2010; Coupland, 2006).
Empirical research reveals that good CG practiced organization can significantly
reduce agency cost (Fernando, 2011) by eliminating conflict of interest between
managers and minority shareholders, resulting diminish information asymmetry
along with assist to enhance FV and RoS (Audousset-Coulier et al., 2016; Nazir
& Afza, 2018; La-Porta et al., 2002; Gompers et al., 2003; Park & Jang, 2010;
Wijethilake et al., 2015). Numerous empirical researches expose that FV and
RoS are positively significant with CG (Gompers et al., 2003; Park & Jang, 2010;
Wijethilake et al., 2015; Nazir & Afza, 2018; Rashid, 2018). Conversely, there is no
significant relationship between CG and FV on Canadian TSX/S&P indexed firms
(Gupta et al., 2009). Toledo and Bocatto (2015) recognize that Canadian large firms
achieve higher market value by practicing good governance within the firm, while
RoS is negatively significant. Akbar et al. (2016) observe that there is no signifi-
cant relationship between CG and firm’s performance in the UK. Gupta and Sharma
13
(2014) identify that CG significantly less correlated with FV in developing econo-

mies. Furthermore, CG does not create an impact on RoS in the Asian capital mar-
ket (Budiharjo, 2016; Toudas & Bellas, 2014). Experimental research conducted
by Suhadak et al. (2018) on the Indonesian stock market which reveals that CG is
negatively correlated with FV. Conversely, CGI is positively significantly correlated
with FV in developing economy, if companies adapt CGI within business practice.
Wahab et al. (2007) conducts an experimental research on 440 firms of Malaysian
capital market and recognizes that CGI-adapted firms enhance more FV and maxi-
mize shareholders’ wealth than their counterparts. However, CG configuration in an
emerging economy like Bangladesh does not reach into the acceptable level by local
firms (Hasan et al., 2013) as well as fail to build confidence intensity among the
external investors on firm performance (Hasan et al., 2014; Hasan & Omar, 2015).
Financial Performance, FV, and RoS
FP reflects the overall financial and economic activities of the firm by consider-
ing profitability, business growth, and shareholders’ wealth maximization (Susanti
& Restiana, 2018; Gentry & Shen, 2010; Ross, 1977; Ravenscraft, 1983; Amato
& Wilder, 1985) in a certain period. Similarly, FP analysis helps to measure firm’s
financial strength and weakness by comparing with previous years trend and different
companies in the same industry (Brigham et al., 2007). Indeed, higher financial per-
forming firms offer greater dividend yield, advanced RoS, and generate superior FV
(Bodie et al., 2014; Johnson et al., 2005; Jiao, 2011), which attracts external investors
to invest in the firm (Kurniati, 2019) than counterparts. Miller and Bromiley (1990)
identifies that RoS influences by FV, which is measured by firms underlying FP (debt
to equity, cash flow, proper utilization of financial resources, returns on investment,
and so on). Conversely, stock price movement is not always influenced by the FV, as
share price fluctuation can be influenced by managerial disclosure regarding FP or
prospective dividend policy, regardless of market efficiency (Bettis, 1983). Moreover,
manipulated financial reporting with higher financial valuation, projected abnormal
growth, and unfair disclosure of the firm mislead the stock price and wrongly present
FV, which actually generates a negative economic return to the shareholders akin to
Enron and WorldCom (Sherman & Young, 2016; Bhasin, 2012) due to lack of CG.
Financial performance analysis helps to measure a firm’s strength and weakness
by comparing with recent year activities performance or trend, as well as the difference
among companies in the same industry (Brigham et al., 2007). Bromiley (1990) identifies
that stock price reflecting the FV which is measured by firms underlying financial perfor-
mance (debt to equity, cash flow, proper utilization of financial resources and returns of
those and so on) as well as capital market efficiency. Conversely, stock price movement
does not always reflect the actual FV as share price fluctuation can be influenced by man-
agers’ disclosing information regarding financial performance or prospective dividend pay-
ment to shareholders regardless of market efficiency (Bettis, 1983). Orlitzky (2001) and
Lee and Kim (2009) argues that financial performance has a nonlinear effect on firm size;
as profit maximization, growth of the business (Varaiya et al., 1987), financial management
(funding strategy, investment plan, dividend policy, and capital structure), as well as firm
13
age are differing in different firms, also in the industry specific. To measure the FP of the
firms, the researchers are commonly using the return on assets (ROA), return on equity
(ROE), return on investment (ROI), net operating profit after tax (NOPAT), earning per
share (EPS), dividend payout ratio (DPR), and Tobin’s q (Suhadak et al., 2019; Fallatah
& Dickins, 2012; Gentry & Shen, 2010; Hult et al., 2008; Abor, 2005). ROA, ROE, and
ROI (Kalsie & Shrivastav, 2016; AlNajjar & Riahi-Belkaoui, 1999) measure the firms’ net
income growth or decline over the period by utilizing total assets, financial leverage, and
equity of the firm. The higher ROA, ROE, and ROI lead to the higher stock price as share-
holders expect a higher return from their investment (Kurniati, 2019) which enhances the
FV. Similarly, Riley et al. (2003) identifies positive relationship with EPS and RoS. More-
over, the continuous growth of ROA, EPS, and DPR of the firm reflects the sustainable
growth of the firm and vice versa. Alwathainani (2009) argues that continuous financial
growth of the firm assists to measure future returns. Financial leverage has a nonlinear rela-
tionship on firm’s profitability (Lopez–Valeiras et al., 2016) as financial leverage manage-
ment mostly depends on managerial efficiency of the firm regardless of the firm size and
age. Conversely, Shah et al. (2015), Worthington & West (2001), and Lee & Kim (2009)
argue that traditional FP parameters fail to measure the concrete FV and RoS due to lack of
incorporation weighted average cost of capital employed by the firm.
Indeed, good governance practice firms maintain financial resources more
efficiently and effectively by focusing shareholders wealth maximization, con-
tinuous economic value addition through confirming sustainable growth in the
market than the counterpart. Therefore, firms can achieve superior profitability
over the period along with augment the FV and RoS (Suhadak et al., 2019). Chen
et al. (2011); Bozec and Bozec (2012); Jiao (2011), and Brown and Caylor (2004,
2005) argue that good CG-adapted firms maintain superior FP which assists to
boost FV and RoS.
FV and RoS Measure by REVA
Stewart (1991) introduces EVA concept to determine firms’ true incremental eco-
nomic value, which measures by deducting weighted average cost of capital (WACC)
from NOPAT of the firm’s specifics period. EVA-adapted firms significantly gener-
ate positive RoS and enhance FV, as management of the firms continuously seeks
the opportunity to reduce cost of capitals by reducing corporate risks and maxi-
mizing corporate earnings (Biddle et al., 1997; Bhasin, 2012; Chen & Dodd, 1997;
Lander & Reinstein, 2005). Experimental researches reveal that EVA is consider-
ably a better notion to estimate firm performance and RoS measurement (Baxendale
& Bowen, 2001; Alipour & Pejman, 2015; Awan et al., 2014; Chow et al., 2003;
Garvey, 2000; Bacidore et al., 1997; O’Byrne, 1996; Bodie et al., 2014). An inves-
tor relies on the real profit of the firm which is measured after deducting the cost of
capitals of each firm for a single year (Ashraf, 2018; Shah et al., 2015). In addition,
Lander and Reinstein (2005), Biddle et al. (1997) and Wallace (1997) argue that
“EVA Financial Management System” assist firm managers to enhance operational
efficiency through effective use of financial resources by reducing financing cost and
legitimate investment decision.
13
However, EVA fails to provide appropriate firm market capitalization value as

EVA ignores to measure current market value rather than book value of assets
(Lee & Kim, 2009). Bacidore et al. (1997) propose REVA to measure FV as an
alternative of EVA, as REVA considers both physical market value of assets and
the growth strategy, where EVA includes book value of assets. They argue that
firms WACC should be measured based on current market price then book value
of assets as the capital commitment by the external financier (investors, credi-
tors, and suppliers) imply based on present market value rather than the book
value of assets as well as profit growth (Bodie et al., 2014; Bacidore et al., 1997).
Researchers identify that REVA is significantly related with FV (Shah et al., 2015;
Pourali & Roze, 2013; Lee & Kim, 2009; Bacidore et al., 1997) and RoS com-
pared to the EVA (Nugroho, 2018; Nakhaei et al., 2016; Baseri et al., 2013).
Indeed, good CG-adapted firms significantly increase economic value by
maintaining financial resources more efficiently and effectively, correspondingly
confirming sustainable growth in the market than the counterpart, resulting to
maximized shareholders’ wealth (Lander & Reinstein, 2005; Vig & Datta, 2018).
Consequently, firms can achieve superior profitability over the period, augment
the FV, and ensure positive RoS. As follows, REVA has superior power over EVA
to increase FV and RoS (Bacidore et al., 1997).
Conceptual Framework Development
FV and RoS Is Influenced by CG, FP, and REVA
Good governance practice within the organization is a matter of fair orientation

of managerial application toward shareholders’ wealth maximization, rather than
the manager’s personal interest (Andreou et al., 2013). Good governing firms
typically involved with proper monitoring of operational activities, maintaining
accurate public disclosure with the highest level of transparency to shareholders
(Kraff et al., 2013; Chen et al., 2011). Ivashkovskaya & Stevanova (2011) con-
ducted research on 300 companies of both emerging and developed economies, as
well as Russian economy. This research reveals positive relationship with FP and
CG which enhance FV. Chen et al. (2011), Bozec & Bozec (2012), Jiao (2011),
and Brown & Caylor (2004, 2005) argue that good CG-adapted firms maintain
superior FP, thus enhancing the economic value of the firm by reducing capital
charges over the period (Bacidore et al., 1997; Lee & Kim, 2009) which assist
to boot FV and RoS. Empirical researches have been conducted on CG, FP, and
REVA to measure FV and RoS and validate the convergence among these varia-
bles (Wardhana et al., 2017; Kokoreva & Stepanova, 2013; Connelly et al., 2012;
Fallatah & Dickins, 2012; Lee & Kim, 2009; Chae et al., 2009; Wahab et al.,
2007; Gompers et al., 2003; Lander & Reinstein, 2005; Klapper & Love, 2004).
Whether, very few or none of the researches have been considered CG, FP, and
REVA combinedly to measure FV and RoS, which are fundamentally important
13
to measure. For this reason, I am going to test the hypothesis of this research as
follows:
H1: CG, FP, and REVA are interlinked to enhance FV.
H2: CG, FP, and REVA are interlinked to enhance RoS.
FV Positively Influence on RoS
The FV reflects in its RoS, as FV progression over the years hinge on convergence of
continuous improvement of FP and confirming REVA for the firm as well as share-
holders through adopting good CG (Marius et al., 2015; Huang et al., 2011; Johnson
et al., 2005). Hao et al. (2011) argue that investors pay less for the low performing
firm, as lower performing firm loss FV due to financial loss.
H3: FV positively influence on RoS.
Research Design
Sample and Data
This research attempts to measure FV and RoS of three different categories of firms
by considering CG, FP, and REVA. To conduct the study, the researcher considers
310 listed companies out of 345 listed instruments from Dhaka Stock Exchange of
Bangladesh from the year 2013 to 2018, and year 2013 is used as the lag year to esti-
mate study variables (i.e., to FV and RoS), where total 1860 number of firm-years
considered. The initial screening process follows to isolate data from the observation
that could create bias results and disturb the generalizability of the study. Stand-
ardized variables (z-score) technique is applied to utilize the data trimming method
and eliminated 48 instruments like mutual funds, corporate bonds, and debenture to
keep the sample variables consistent as those are not relevant to this research. The
major reason for considering the year from 2013 to 2018 to measure FV and RoS is
because of the major restructuring process initiated in the year 2013 by the bourse’s
authorities and the Security and Exchange Commission. As a result, the number of
stocks increases due to stock splits, brings down the face value of each stock into
equalizer price, introducing and implementing the demutualization act.
Firm sizes are categorizing according to the firms’ market capitalization. Com-
panies with BDT 1000 million (USD 118 million) or more are considering large
local firms (LLFs). Whereas, companies market capitalization is less than 1000 mil-
lion BDT or USD 118 million consider as small and medium local firms (SMLFs).
Multinational corporations (MNCs) are considering according to the cross-border
business operations and manage by global corporate headquarters such as Reckitt
Benckiser Bangladesh Ltd, GlaxoSmithKline Bangladesh Limited, and Bata shoe
and so on. This study considers the company’s annual reports, corporate disclosure
13
OS
CG adapted
BC CG firms
IBR EPS
AC ROA
DPR
ROE FP
NOPAT
Tobin’s Q
ROI
Enhance FP
REVA
H2
REVA by firm RoS (+)
H1
FV (+)
H3
Firms creates FV+
Fig. 1 Hypothesis model developed by following Entity Relationship Diagram (ERD) from software
engineering concept
on the bourses’ Web site, and corporate news from the company Web site and daily
business news of the last 6 years to pull necessary information.
In this study, FV and RoS dynamics are examined empirically by using the
Arellano–Bover/Blundell–Bond generalized method of moments (GMM) estima-
tor, which includes the lagged differences of the dependent variable (CG, FP, and
13
REVA) as instruments in the level equation and resolves the endogeneity bias
problem among estimators. According to Engblom and Oikarinen (2015), the
Arellano–Bover/Blundell–Bond estimator is suitable for this analysis for a num-
ber of reasons: (1) a linear functional relationship analysis; (2) fixed individual
effects; (3) heteroskedasticity and autocorrelation within individuals but not
across them; (4) one left-hand-side dynamic variable, which is depending on its
previous results; and (5) independent variables are correlated with past and cur-
rent realizations of the error.
Econometric Models
Econometrics Model 1
Suhadak et al. (2018) and Fuenzalida et al. (2013) argue that adoption of good
CG positively correlated with FP of the firm, thus enhancing the economic value
of the firm over the period (Bacidore et al., 1997; Lee & Kim, 2009). However,
Connelly et al. (2012) and Erkens et al. (2012) identifies that CG negatively
related with FP and FV, whether very few researches have conducted on REVA
performance relating with this. To validate this relationship and test H1, the pre-
sent study examines the impact of CG, FP, and REVA on the FV by considering
the following model.
FVit = 𝛽0 + 𝛽1 CGit + 𝛽2 FPit + 𝛽3 REVAit
+ 𝛽4 Firm_sizeit + 𝛽5 Leverageit + 𝛽6 Ageit
(1)
+ 𝛽7 IndustyDummyit + 𝛽8 YearDummyit
+ 𝛽9 Mkt. Index dummy + 𝜀it
Firm_Valueit = FV including financial, market and refined economic value-

added variables for firm i for time t; CGit = vector of corporate governance
variables, including the audit committee, board structure, ownership structure,
directors education, IBR and company Web site, and an integrated measure of
corporate governance index (see Appendix for details of corporate governance
variables measurement) by following self-constructed index based on 38 pro-
visions grouped into five subindexes: audit committee, board structure, owner-
ship structure, recruiting qualified higher official, and information transparency
through company Web sites; this process is adopting by following ISS 2004 CGI
dataset and S&P T&D.
FPit = Vector of financial performance variables, including return on assets
(ROA), return on equity (ROE), return on investment (ROI), net operating profit
after tax (NOPAT), earning per share (EPS) and dividend payout ratio (DPR) and
Tobin’s q (see Appendix for details of financial performance variables measure-
ment) by following Marius et al. (2015), Fallatah and Dickins (2012), Gentry and
Shen (2010), Combs et al. (2005), Hult et al. (2008), Abor (2005), La Porta et al.
(2000), and Suhadak et al. (2019).
13
REVAit = Vector of REVA variables, including NOPAT and weighted average

cost of capital (see Appendix) by following Shah et al. (2015), Pourali and Roze
(2013), Lee and Kim (2009), and Bacidore et al. (1997).
Firm_Sizeit = Size of the company as a control variable for firm j for time t.
LVRGit = Leverage ratio of firm j for time t.
Ageit = Age of firm j for time t.
Mkt. Index dummyit = Market index is considered as an explanatory variable to
measure the relationship between stock price movements and market index j for time
t.
ɛit = Residual.
Chen & Wang (2011) argue that CG is positively correlated with FP, therefore
enhancing the economic value of the firm over the period by reducing capital
charges (Bacidore et al., 1997; Lee & Kim, 2009), resulting to firms generating posi-
tive RoS (Johnson et al., 2005; Jiao, 2011). However, Brammerm et al. (2009) and
Drobetz et al. (2003) identify that CG negatively correlated with FP and RoS; none
of the research have been conducted on relating with CG, FP, and REVA. To vali-
date this relationship and test H2, the present study examines the impact of CG, FP,
and REVA on the RoS by considering the following model.
RoSjt = 𝜇0 + 𝜇1 CGjt + 𝜇2 FPjt + 𝜇3 REVAjt
+ 𝜇4 Firm_sizejt + 𝜇5 Leveragejt + 𝜇6 Agejt
(2)
+ 𝜇7 IndustryDummyjt + 𝜇8 YearDummyjt
+ 𝜇9 Market_Indexjt + 𝜀jt
where RoSjt is the adjusted stock return by following three performance measure
CG, FP, and REVA; CGit is corporate governance (audit committee, board struc-
ture, ownership structure, hiring highly qualified executives, company Web site; see
Appendix); FPit is financial performance (ROA, ROE, ROI, NOPAT, EPS, DPR, and
Tobin’s q; see Appendix); REVAit is refined EVA (net income -kd(1-Tax)D - ke (E);
see Appendix); size is the log of total assets, leverage ratio of firm j for time t; Agejt
is the age of firm j for time t; Mkt. Index dummy is the market index is considered as
an explanatory variable to measure the relationship between stock price movements
and market index j for time t; ɛjt is the residual.
Huang et al. (2011) and Johnson et al. (2005) reveal that RoS is positively signifi-
cant with FV, as higher performing firm (financially performing better by attaining
EVA continuously through adopting good CG) provides higher RoS to its inves-
tors. Morck et al. (2000) argue that RoS is insignificantly correlated with FV in
13
developing economy. To validate this relationship and examine H3, the present study
also examines the impact of FV on the RoS by considering the following model.
RoSkt = 𝛼0 + 𝛼1 FVkt + 𝛼2 Firm_sizekt
+ 𝛼3 Leveragekt + 𝛼4 Agekt + 𝛼5 IndustyDummykt (3)
+ 𝛼6 YearDummykt + 𝛼7 Market_Indexkt + 𝜀kt
where RoSjt is the adjusted stock return from year 2013 to 2018 by following FVkt
of subsequent years; F irm_valueit is considered by CG, FP, and REVA in model 1;
size is the log of total assets, leverage ratio of firm j for time t; Agejt is the age of
firm j for time t; Mkt. Index dummy is the market index is considered as an explana-
tory variable to measure the relationship between stock price movements and market
index j for time t, ɛjt is the residual.
Empirical Results and Analysis
Summary Statistics
Overall, 27 scalable variables put on the right-hand side of the table as well as four
dichotomous variables bottom of the table are considered for descriptive statistics
in . Another three variables are considered on top of the table—SMLF, LLF, and
MNCs—which are based on the market value of firms’ asset size, ownership struc-
ture, and business operation pattern of the companies1. According to the descrip-
tive statistics, MNCs are presenting comparatively better FP than LLFs and SMLFs,
where MNCs are generating RoS2 BDT 614.14, 14.14% ROA, 12.75% ROE, BDT
843 (million) NOPAT, and 9.75 q. While LLF is engendering RoS BDT 151.68,
8.19% ROA, 9.57% ROE, and 2.26 q’, whereas SMLF RoS BDT 57.42, 2.87% ROA,
and 1.65 value of Tobin’s q. Also, MNCs are incurring greater return on equity
and EPS compared to both LLF and SMLF, where ROE and EPS are considering
12.75% and 20.15% for the MNCs, whereas both ROE and EPS, 9.57% and 6.78%
for the LLF, as well as 2.31% ROE and 1.015% EPS for SMLFs. There is an opti-
mistic perception among market participants as maximum firms’ market value of
assets higher than book value. In this regard, all firms’ Tobin’s q value is 6.805,
which indicates the positive growth of the firms in the future. Furthermore, sig-
nificant number of SMLFs are paying a lesser dividend or no dividend compared
to both MNCs and LLFs. As many SMLFs are retaining the majority of its earn-
ings for its future growth and/or several firms have negative growth with negative
annual earnings, while MNCs are offering higher dividend to its shareholders due to
1
Market value of assets consider according to the value of the assets is mentioned in the balance sheet
during the consideration period and do a natural log of all firms’ assets, patterns of ownership (percent-
age of local and foreign holdings), business volume, based on NOPAT.
2
RoS = [(P1 - P0)+D] /P0, where, P 0 = beginning stock price of time t, P1 = ending stock price of time
t-1, D = dividend of time t
13
higher level of earning efficiency rather than LLFs. The dividend payout ratio (DPR)
is reflecting the same as SMLFs .46%, LLFs 4.5%, and MNCs 9.5%. The average
economic value as measured by both EVA and REVA for all firms, such as BDT
1376.11 million and 1351.31 million as well as entities are generating 1.02% REVA3
and 1.039% EVA against their total assets. The value variation between REVA and
EVA is incurred based on the measurement market value of assets and book value
of assets of firms during the considering period by following Bacidore et al. (1997)
proposed formula. Consistent with the results of ROA and Tobin’s q, REVA is far
more lesser (negative) for SMLFs compare to both MNCs and LLFs in the sam-
ple, i.e., REVA BDT 13.29 million for the SMLFs, whereas the LLFs are generat-
ing BDT 712.18 million in terms of REVA which is 1.43% of their total assets and
MNCs are accumulating REVA BDT 1645.142 million that is 2.60% of total assets
of the firms. There are greater variations among these variables as indicated by its
higher standard deviation. In terms of leverage utilization, the LLFs are using more
leverage than SMLFs, which are 43.31% for LLFs and 29.71% for SMLFs; on the
other hand, MNCs are utilizing comparatively less leverage than both SMLFs and
LLFs which is 21%. LLFs and SMLFs are using more debts for expanding their
business and managing their spontaneous liabilities than MNCs. Frequency of direc-
tors’ education is much higher in MNCs rather than local entities, as a result, overall
FV and RoS of MNCs are superior than local entities. Similarly, 89% of MNCs are
maintaining IBR according to the regulatory guidelines, where the majority of local
firms are very much reluctant to maintain the company webpage properly.
According to the CG-related variables such as the internal AC (IAC) consist
of a minimum of three members as per the law of security and exchange commis-
sion; one independent board of directors is considered as an AC chairman. Each AC
is responsible to provide financial and nonfinancial reports to BoD of the firm in
every 4-month or 6-month intervals from the date of first reporting. The members
of IAC are considered as nonexecutive directors observing the operational activities.
In addition, less than 50% of the firms get audited annual financial reports by the
highly reputed audit firms in the sample organizations. Moreover, practicing of hir-
ing high or moderate quality audit firms is posing by LLFs or MNCs, where EACQ
is approximately 57% of LLFs and almost 94% of MNCs are obtaining the services
by the high-quality auditors to get their financial statements audited. While 30% of
SMLFs are recruiting better qualified audit firms to audit firm’s annual reports than
the counterpart.
The average board sizes of listed firms consist with approximately seven mem-
bers in a board, whereas average board size of neighboring countries 11 of India
(Mehrotra, 2016) and 9 for Pakistan (Zafar et al., 2016) which is less than both
countries. Lipton and Lorsch (1992) recommend that small board size potentially
effects on firm performance. In addition, approximately 33% of board independence
3
REVA = net income -kd(1-Tax)D - ke (E) = natural log ( NOPATt - kd {(1-Tax) [Dm/Dm + E m] (D+E) }
– ke {Em / D
m+E m] (D+E) }, where Dm equal D and Em equal E; as book value and market value of debt
and equity should be equal. Bacidore et al. (1997) argue that positive REVA creates shareholders’ value
at end of the period as financiers are looking at the market value of their investment and future return at
the beginning of the investment period.
13
is observing by listed firms and 89% firms having CEO duality, where the CEO is
holding both chairman and CEO position at the same time. On an average, the board
meets 7 times in a financial year to supervise the operational and strategic issues of
firms with an active participation rate of 75% from its directors. The board inde-
pendence is much higher for MNCs which is 75% compared to both large firms as
well as small and medium firms. Conversely, the attendance rate of the board of
directors in the board meeting is higher in MNCs than SMLFs and LLFs.
To measure the CG, the study is also considering the ownership structure of
the sample organizations such as sponsor directors or directors, government, insti-
tutions, foreign investors, and common stockholders. Sponsor directors’ (insider
ownership) are holding more than 69% of ownership in our sample firms of total
outstanding shares. However, the level of ownership held by sponsor directors is
much greater in MNCs, which is 78% of total share ownership compared to the other
firms in the bourse as core investors of the companies bring foreign direct invest-
ment (FDI) or joint venture (JV) to establish the company in Bangladesh and enjoy
maximum profits which are earning by the company. In contrast, sponsor directors
(insiders) of both types of local firms are holding consecutively 53% of SLMs and
62% of LLFs of total outstanding shares. Different government agencies are holding
12% ownership of SMLFs, 22% of LLFs, and 14% of MNCs; as a whole, govern-
ment holding is approximately 12% of all firms. Financial institutions are holding
almost 19% of the total outstanding shares of all firms. Whereas nearly 8% of shares
of all firms owned by foreign investors as off study time. The ownership structure is
evidence that institutions are holding more ownership than foreign investors’ coun-
terpart as the unstable political conditions and unfavorable business environment
of Bangladesh. Besides the mentioned ownership of all firms, 14% of ownership is
holding by general inventors in the bourse.
Finally, to measure the integrated and comprehensive analysis of the CGI, we use
38 CGI conditions where internal scale is considered from 0 to 38. Thirty-eight con-
ditions of CGI fit into five broad categories such as audit committee, board structure,
ownership structure, and Internet-based financial reporting. In addition, the study is
considering low-performing CG organizations are holding lower CGI score and the
highest CGI scoring organizations are better practicing CG organizations. Further-
more, CGI percentage is calculating by following the final score of CGI and divided
by maximum score of 38 of all sample firms. Table 1 represents that the mean value
of CGI for SMLF is 11.08 which indicates that almost 29% of the small and medium
firms are practicing good CG with the organization. Similarly, 51% LLFs are exer-
cising good CG practices within their organization, where the mean value of CGI of
LLFs is 19.03 in the scale of 38. Eighty-seven percent of MNCs are practicing good
CG within their organizations, where mean value of CGI of MNCs is 33.25 out of 38
simultaneously. The overall descriptive study indicates that almost 52% of firms are
lagging to practice the good CG in Bangladesh. Majority of firms are highly family
oriented with less voluntarily practicing CG mechanisms due to weaker legal system
of the country (Biswas, 2013; Hasan et al., 2013). Earlier research also argues that
firms in the emerging economies are characterized by highly family ownership ori-
ented with lack of transparency (Dinh & Calabro, 2019; Cheung et al., 2007) as well
13
Table 1 Summary statistics for study variables
Variables (SMLF) (LLF) (MNC) Full sample
Mean SD Mean SD Mean SD Mean SD
13
RoS (BDT) 57.42 360.913 151.68 412.12 614.14 745.45 359.74 641.21
ROA (%) 2.87 8.25 8.19 15.41 14.14 17.15 6.29 12.28
ROE (%) 2.31 9.51 9.57 13.51 12.75 14.35 11.12 16.21
ROI (%) 1.51 6.01 7.11 11.91 10.24 12.41 9.14 14.51
EPS (%) 1.015 8.12 6.78 9.39 20.15 7.15 15.81 15.12
DPR (%) 0.46 6.51 4.5 7.16 6.5 7.12 6.5 13.12
NOPAT (m. BDT) 29.14 57.74 571.14 751.14 843.14 1124.12 27.86 1514.77
Tobin’s q 1.65 15.15 2.26 8.63 9.75 11.14 6.805 2.905
REVA (m. BDT) −20.29 65.014 712.18 419.63 1645.142 1428.12 1351.31 1226.71
REVA/TA (%) −0.10 0.39 1.43 1.29 2.60 1.77 1.02 1.45
EVA (m. BDT) −26.31 76.57 978.432 856.12 1861.23 1631.90 1376.11 1123.09
EVA/TA (%) −0.13 0.58 1.97 1.67 2.94 2.02 1.039 4.75
Leverage (%) 29.71 28.45 43.31 25.31 21.14 29.12 57.24 27.91
Total assets (m. 200 480 4,962 4,443 6,321 8,045 13,239 21,251
BDT) (market
value)
Age (years) 35.40 16.38 40.69 21.21 47.43 17.15 43.69 21.21
Audit committee 1.9801 1.124 3.4212 1.0971 4.152 1.124 3.1421 1.131
Audit committee 0.1351 0.1114 0.4501 0.1981 0.3512 0.1314 0.4101 0.1920
independence
Audit committee 3.0579 0.3124 3.1170 0.4141 3.421 0.5124 3.2144 0.5504
activity
External audit 3.124 1.422 4.491 2.145 4.124 1.2451 3.561 2.15
committee
quality
Board size 5.1 1.18 7.5513 1.857 7.142 1.245 7.1254 1.7874
Table 1 (continued)
Variables (SMLF) (LLF) (MNC) Full sample
Mean SD Mean SD Mean SD Mean SD
Board independence 0.2956 0.1914 0.5127 0.3127 0.7512 0.2351 0.3317 0.2186
Board activity 3.5121 0.8714 7.1425 2.914 5.152 2.145 8.4312 3.2154
Board participation 0.6291 0.0971 0.6891 0.0975 0.8132 0.065 0.7512 0.0945
rate
Sponsor/director 0.531 0.381 0.625 0.4157 0.78 0.111 0.6923 0.4711
OS
Government OS 0.281 0.125 0.224 0.151 0.14 0.231 0.1214 0.2514
Institutional OS 0.1021 0.193 0.074 0.2107 0.113 0.245 0.088 0.1756
Foreign OS 0.021 0.185 0.0115 0.1627 0.12 0.345 0.0021 0.1418
General investors 0.2130 0.174 0.314 0.1942 0.14 0.018 0.1415 0.3189
OS
CG index 11.08 15.47 19.03 13.33 33.25 15.77 20.09 6.51
CGI (%) 29.166 40.712 51.833 35.08 87.5 4.15 52.88 17.146
Dichotomous Frequency case Percent adoption Frequency case Percent adoption Frequency case Percent adoption Frequency case Percent adoption
variables =1 =1 =1 =1
EACQ 175.11 30.15 121.40 57.15 67.15 94.142 832.09 47.12
CEO duality 196 71.21 186 71.18 54 47.125 241 89.10
Directors education 321 53 210 67 43 87 234 57
IBR 211 37 187 57 74 89 1145 43
13
as very less accountability with the weaker legal system (Dinh & Calabro, 2019;
Klapper & Love, 2004).
Empirical Results and Analysis
To do an empirical analysis, at first, the study investigates the relationship among

CG mechanisms (audit committee, board composition, and ownership structure,
Internet-based reporting including financial transparency and information disclo-
sure, and CGI), FP, REVA, FV, and RoS by using the real trade data of bourse,
financial information disclosures, and related corporate information disclosed by
firms in the annual reports and company Web site of the listed firms. Pearson’s cor-
relation coefficient is used to test the multicollinearity among independent variables
of the study. Tables 2 and 3 represent that entire coefficient values those are less
than .40, which is far less than the threshold value 0.90 or more. In this respect, this
can be justified that there are no multicollinearity exists among independent vari-
ables and proceed to next level experimental analysis.
Corporate Governance to FV and RoS
In respect to all independent variables’ concentrations (CG, FP, and REVA) (see
Table 1) both FV and RoS are consecutively significant with 99% and 90% of
MNCs. Conversely, FV and RoS of LLFs are insignificant with all variables, where
SMLFs are negatively significant with FV.
To measure the FV by corporate governance variables are considered: audit com-
mittee, board composition including director’s education and CEO duality, owner-
ship structure. Ac_Size is 95% positively significant FV and 90% positive linear
relationship with RoS of MNCs, as these firms recruit large size AC according to
their international corporate guidelines. A larger size AC can enhance operational
efficiency by implying their wider array of expertise to generate higher FV. Whereas,
there is insignificant relationship with AC and FV of local entities, as majority of
local firms maintain a small size AC due to low financial ability or neglecting CG
guidelines Ac_Size is negatively significant with all FV, as majority listed firms
belong to local entities in the bourse. RoS is 90% significantly related to LLF. Ac_
ind is 95% significant with MNCs’ FV, which supports that the Ac_size as large AC
has a great level of independence than small AC by listed firms. Moreover, high
level of independency of the AC enhances the committee activities in MNCs, where
the AC can exercise their due diligence expertise to improve the organizational per-
formance. Contrary, no subjective or analytical judgment exists with LLFs’ FV with
Ac_ind. On the other hand, negative relationships associated with SMLFs and all
FV with Ac_ind, as the small size of the audit committee has a low level of interven-
tion on firms auditing activities. According to the discussion, it can argue that large
AC with high level of independence can improve organizational performance sig-
nificantly which enables to enhance FV. Ac_Act is 95% significant with FV and 90%
significant with RoS of MNCs, as AC of multinational firms are performing their
routine work according to their hiring contract.
13
Table 2 Pearson’s correlation coefficient of CG variables
Vari- Size Lev. Age AcSize AcInd AcAct EACQ BS BI BA BPR DE CD IBR SDOS GOS IOS FOS COS CGI
ables
Size 1
Lev. 0.31 1
Age 0.01 0.04 1
AcSize −0.08 −0.05 −0.10 1
AcInd −0.01 0.02 0.080 −0.11 1
AcAct 0.04 0.12 0.028 0.115 −0.01 1
EACQ 0.21 0.24 −0.24 0.008 0.120 0.11 1

BS 0.03 0.34 −0.03 −0.515 0.125 0.06 0.21 1
BI 0.21 0.16 0.032 −0.008 0.383 0.09 0.19 0.16 1
BA 0.45 0.19 0.002 −0.044 −0.12 0.03 0.08 0.013 −0.05 1
BPR 0.05 0.04 −0.01 0.056 .015 0.21 0.31 0.084 0.21 0.03 1
DE 0.32 −0.15 0.171 −0.026 −0.08 −0.07 −0.04 −0.27 −0.16 −0.19 0.241 1
CD 0.031 0.07 0.021 0.019 0.014 0.034 0.03 0.007 0.02 0.01 0.014 0.15 1
IBR 0.071 0.014 0.05 0.014 0.047 0.031 0.07 0.014 0.05 0.01 0.047 0.042 −0.05 1
SDOS 0.35 0.21 0.153 −0.012 0.006 −0.19 0.18 −0.26 −0.18 −0.27 0.342 0.16 0.05 0.01 1
GOS 0.04 0.31 0.15 −0.214 0.042 −0.12 0.12 0.031 0.11 0.23 −0.04 −0.21 0.07 0.06 −0.01 1
IOS 0.21 0.06 −0.02 0.029 0.013 0.06 0.11 0.116 0.05 0.11 −0.04 0.048 0.08 0.09 0.07 −0.05 1
FOS 0.02 0.08 0.04 −0.01 −0.068 0.09 0.08 −0.17 −0.03 −0.06 −0.03 −0.06 −0.07 0.08 −0.06 0.02 0.01 1
COS 0.41 −0.21 −0.05 −0.012 −0.006 −0.19 −0.08 − 0.26 −0.18 −0.27 −0.04 −0.16 0.05 0.02 −0.02 0.13 −0.17 0.12 1
CGI 0.12 0.23 0.22 0.017 0.020 0.19 0.02 0.39 0.25 0.15 0.341 −0.28 0.01 0.01 0.11 0.05 0.207 0.288 0.03 1
Lev. leverage, AcSize size of audit committee, AcInd audit committee independence, AcAct audit committee activity, EACQ external audit committee quality, BS board
size, BI board independence, BA board activity, BPR board participation rate, DE directors education, CD CEO duality, SDOS sponsor/directors ownership stock, GOS
government ownership stock, IOS institutional ownership, FOS foreign ownership, COS common stock ownership, IBR Internet-based reporting
13
Table 3 Pearson’s correlation coefficient of financial performance and refined economic value-added variables
Variables Size Lev. Age REVA EVA ROA ROE ROI NOPAT EPS DPR Q FP
13
Size 1
Lev. 0.013 1
Age −0.06 0.063 1
REVA −0.06 0.098 −0.04 1
EVA 0.125 −0.19 −0.04 0.10 1
ROA 0.116 0.199 −0.03 −0.077 0.041 1
ROE 0.086 −0.01 −0.04 0.11 0.214 0.112 1
ROI −0.08 −0.21 0.341 0.07 0.023 0.0594 0.031 1
NOPAT 0.027 0.029 0.11 0.07 0.412 −0.034 0.116 −0.014 1
EPS 0.32 −0.01 −0.063 −0.042 0.125 −0.181 −0.11 0.039 0.0402 1
DPR 0.012 −0.012 −0.27 −0.045 0.008 0.2524 −0.26 −0.01 −0.053 0.152 1
Tobin’s q 0.065 0.071 0.01 0.05 −0.02 0.0008 0.003 0.005 0.007 0.093 0.053 1
FP 0.007 0.015 0.15 0.05 −0.021 0.021 0.39 −0.059 0.2242 0.234 0.0867 0.047 1
REVA refined economic value added, EVA economic value added, ROA return on assets, ROE return on equity, ROI return on investment, NOPAT net operating profit after
tax, EPS earning per share, DPR dividend payout ratio, FP financial performance
Moreover, MNCs are recruiting big four external audit firms for their auditing
process; as a result, EACQ is 99% significant with FVs and 95% significant with
RoS. Ac_Act and EACQ is 90% significant with FV of LLFs, as certain number of
firms are hiring high-quality external audit team to measure both financial perfor-
mances. Contrary, SMLFs’ FV and RoS are linearly nonsignificant with Ac_Act and
EACQ, as SMLFs fail to hire or lack of intention to recruit higher quality external
auditors to audit their financial annual reports. As a result, firms are obtaining lack
of transparency and fair disclosures persists firm managers to engage asset value or
stock price manipulation of the firms. Kipkoech and Rono (2016) empirical results
reveal that the AC structure is very much similar to this researcher outcome. The
study results are almost similar with subsamples of other studies and have been sup-
ported by earlier researchers such as Nazir and Afza (2018), Bouaziz (2012), and
Hamdan et al. (2013).
Theoretically, it is argued that small size governing board can play an effective
role to enhance the organizational performance due to faster decision-making
process (Yermack, 1996; Lipton & Lorsch, 1992) and can build effective com-
munication among board members. Board size (BS) is significantly positive
with FV and RoS of MNCs and BS consists of five to ten members. The BS of
MNCs is small but boards of directors bring additional international due dili-
gence expertise to the organization, which assist MNCs to gain high level
of success compared to local firms. BS is 90% significant with FV, but there
is nonlinear relationship with RoS, as most of the board members of LLFs
have wider range of business management expertise on their domain. Contrariwise,
FV and RoS of SMLFs are not linearly significant, as the board is composed of 90%
firms with comparatively low skilled BoD than MNCs and LLFs. BI is negatively
correlated with SMLFs’ FV, whereas BI is significantly positive with FV and RoS.
FV of both MNCs and LLFs is significantly related to the BA and BPR as maxi-
mum number of board meeting can enhance the overall performance due to con-
tinuous monitoring of the firm activities. RoS of LLFs significantly correlated with
BA, where RoS of MNCs highly correlated with BPR. This result is consistent with
subsample results of early researchers (Al-ahdal et al., 2020; Bonn et al., 2004).
CEO duality is positively significant with FV and RoS of all listed firms as major-
ity CEOs of listed companies are part of the board members; in some extent, they are
core owners of the company. Majority, LLFs have positive correlation with FV, RoS,
and CEO duality, as CEO duality structure can assist to reduce cost significantly
by decreasing information transferring and processing costs with the organization
(Yang & Zhao, 2013; Goodwin & Seow, 2000). In addition, CEO duality also can
facilitate to take more effective decisions in a more timely fashion (Peng et al., 2009)
by eliminating agency costs. On the other hand, CEO duality on majority SMLFs’
FV and RoS is significantly negative due to lack of transparency and fair disclo-
sure leading to corruption and downsize the overall FV. Similar result is reflected
on failure of Enron in 2001 (Cuong, 2011; Clark & Demirag, 2002). SMLFs’ FV is
negatively significant with DE, as majority directors of SMLFs are not adequately
qualified in business management, whereas MNCs’ FV and RoS are highly signifi-
cant with DE. Similar result is revealed by previous researchers, i.e., Rakhmayil and
13
Yuce (2013) and Rakhmayil and Yuce (2008). RoS of MNCs is significantly cor-
related with IBR, and with its well-presented content, external investors get to know
details of past and present performance of the firm and predict future activities of
the company, which significantly related with Puspitaningrum & Atmini (2012),
Hunter and Smith (2011), and Coupland (2006) research. Whereas, both RoS and
FV of SMLF are negatively significant, as majority small and medium firms fail
to maintain company Web site with full of content according to the regulatory
guidelines. There is nonlinear correlation among RoS, FV, and LLF, as half of
the LLFs are maintaining company Web site properly with full of content and half
are not. These results are consistent with earlier researchers, i.e., Ararat et al. (2017),
Ammann et al. (2011), and Cheung et al. (2007).
Ownership structure is another most important parameter of measuring CG index
of firms. Majority shareholdings of SDOS of all firms are significantly positive with
FV, while RoS is nonlinearly significant with SDOS of all firms. SDOS is 90% posi-
tively significant with FV and RoS of LLFs and SMLFs, as majority ownership of
both firms is owned by certain family members. Moreover, majority local firms are
operating their business by second or third generation of founders. Family businesses
are certainly managed based on their private interest and decision-making processes
influenced by sole or precise members of the board of the firms. Similarly, SDOS of
MNCs are 95% significant with FV and 90% with RoS, as majority ownership of the
firms is owned by parent company. As a result, sponsor directors of MNCs are more
concern about long-term sustainability of the firms rather than short-term gain. GOS
has 90% positive significance on MNCs’ FV. IOS is negatively correlated on mul-
tinational companies’ FV, as MNCs are operating their business as their own busi-
ness process rather than influenced by local ownership. FOS has 95% positive sig-
nificance on MNCs’ FVs as other foreign investors investing MNCs based on firm
performance. FOS significantly correlated on LLFs’ FV and RoS, as foreign inves-
tors typically invest high growth company with potentially higher sustainable return
from their investment, rather than low growth. FOS is significantly correlated with
RoS of SMLFs, while there is no correlation with FV. COS has no significant impact
on overall FV. However, there is a significant correlation with RoS, as less supply
of common stock generally creates higher demand, which leads to higher abnormal
return and vice versa. Ownership structure of firms create significant impact on FV
and RoS; earlier research reveals complex result same as this research (Dewata &
Isnurhadi, 2012; Hadad et al., 2003).
FV and RoS of MNCs are consecutively 99% and 95% positively significant with
corporate governance practice, as if CG increase 1%, then FV will increase 0.079
and 0.095% and vice versa. LLFs’ FV and RoS is nonlinearly significant with CG
practice, if entities increase 1% CG implementation, then FV will increase 0.814
and RoS 0.021%. On the other hand, CG practice is negatively significant with FV
of SLMFs, as majority firms are not practicing any corporate governance within
the firms which is reflected on high level of difference between mean and stand-
ard deviation of q’ and REVA (see Table 1). According to the correlation table, if
SMLFs increase 1% CG practice within the firms, then FV will decrease 0.28 in
short term and RoS will increase 0.017% by following the CG implementation news.
An experimental research conducted by Suhadak et al. (2019) on Indonesian stock
13
market reveals that CG is negatively correlated with FV. This study reveals that CGI
to FV and RoS varies on different types of firm structure, as MNCs’ FV and RoS are
highly correlated with CG, whereas SMLFs’ FV and RoS are negatively correlated
and LLFS FV and RoS are insignificantly correlated with CGI.
Financial Performance to FV and ROS
Financial performance measurement is also considered to measure FV and RoS of

listed firms in Dhaka stock exchange. ROA and ROI are 90% significant with FV of
LLF, with coefficient values of 0.06 and 0.01. FV and RoS of MNCs is positively
significant with all financial performance measuring variables (coefficient of ROA,
0.714 and 0.060; ROE, 0.005 and 0.083; ROI, 0.001 and 0.0031; NOPAT, 0.055
and 0.0614; EPS, 0.06 and 0.008; DPR, 0.001 and 0.0451; and Tobin’s q, 0.003
and 0.0061). FV and RoS are significantly correlated with accounting variables of
MNCs (AlNajjar & Riahi-Belkaoui, 1999), as majority of MNCs are following IAS
and IFRS rules to prepare their audited annual financial reports. Riley et al. (2003)
research result reveals that FV and RoS are significantly correlated with that finan-
cial performance reporting.
On the other hand, SMLFs’ and LLFs’ FV and RoS are positively insignificant
with EPS and DPR ratio. Ohlson and Johanness (2016) experimental result reveals
similar results. Jordan et al. (2007) argue that EPS varies from large to small size
firms. All FV is 90% positively significant with Tobin’s q, as majority of firm market
value of assets is higher than book value and few firms’ market asset value is lower
than the book value of assets. Alternatively, FV and RoS of SMLFs are nonlinearly
insignificant with Tobin’s q, as many SMLF market value of assets are less than
book value. FV and RoS are both positively insignificant with firm performance
of both SMLFs and LLFs, as if financial performance increase 1%, then FV will
increase 0.381 and 0.04% and vice versa. Both FV and RoS of MNCs are positively
significant with FP.
This study reveals very much complex result on FV and RoS by considering
financial performance measurement due to majority shareholders are mistreatment
power to accomplish their objective by depriving minority shareholder (Marius
et al., 2015; Fallatah & Dickins, 2012; Gentry & Shen, 2010; AlNajjar & Riahi-
Belkaoui, 1999) in the emerging economy like Bangladesh.
Measuring FV and RoS by REVA
The third step, I have considered EVA and REVA to measure the FV and RoS of all
firms. EVA is 90% significant on FV of LLF, as EVA enhances overall FV through
operational efficiency, which indicates that if firm obtains EVA within business
operations, it can enhance FV (0.054 and 0.68, p value of .10) or vice versa. FV
(0.73) and RoS (0.06) are positively significant with EVA of MNC firm, as these
firms continuously add economic value through operational efficiency to the firm,
also to shareholders return. REVA is positively insignificant on FV of both SMLFs
(0.16) and LLFs (0.72), as there is high variation among firms’ market value of debts
13
and equity, as very less strategic approach is being observed on EVA by both of the
firms, which creates insignificant impact on FV after deducting cost of equity, debt,
and tax of both types of firms. Similarly, RoS is positively insignificant with REVA
of SMLFs (0.0407), whereas RoS is 90% correlated with REVA of LLFs (0.058),
as REVA-adapted firms continuously focus to enhance shareholders’ wealth maxi-
mization though operational efficiency and vice versa. FV (0.89) and RoS (0.71) of
MNCs are successively 95% and 99% positively correlated with REVA, as MNCs
are continuously focusing on enhancing their FV and positive RoS by confirming
economic growth through operational expansion. Pourali & Roze (2013), Lee and
Kim (2009), and Bacidore et al. (1997) identify that REVA is more significant to
measure FV than EVA. Similarly, REVA generates more realistic output of RoS than
EVA (Nugroho, 2018; Nakhaei et al., 2016; Baseri et al., 2012) of firm.
Durbin–Wu–Hausman test is applied to measure the endogeneity problem among
control variables, and the test results are robust of those variables. Industrial, mar-
ket, and yearly variations of firms are observed to analyze overall facts.
The second level of this study (see Table 5) is to investigate whether the RoS
is influenced by CG practice, FP, and REVA of Bangladeshi listed firms or not.
RoS of all firms is 90% significantly related with REVA and ownership structure
of the firm, where 90% significant with FP, AC, CGI, and all variables. There is
90% significant relationship among firm size to RoS of all firms and 90% negatively
significant with RoS of all firms. CGI has nonlinear collinearity with all firms (see
Table 4), as SMLF is negatively significant and LLF is insignificant with FV and
CGI. Whereas, MNCs’ FV is positively significant with CGI; as a result, MNCs’
average stock return increases much higher than LLFs (see Table 1). Moreover,
overall LLFs’ average stock price movement variation is quite higher; therefore,
mean and standard deviation of stock price are highly deviated among LLFs. The
study also reveals that maximum stock prices of LLFs are below the face value as
well as average market value; few stock prices’ average movement is one to two and
half times higher than average market value and rest of the stock prices’ average
change are two to three times higher than the average market value. These highly
deviations of average price movement occur of LLFs’ stocks due to change of REVA
among the firms (Table 5).
On the other hand, very less statistical significance is observed between SMLFs
with financial performance measures and CGI, whereas strong statistical significance
is obtained with REVA and SMLFs’ stock price. Thus, very high level of stock price
variation among SMLFs is measured; hence, mean and standard deviation of stock
price is highly deviated among small and medium firms (see Table 1). According
to Lander and Reinstein (2005) and Vig and Datta (2018), CG- and EVA-adapted
firms provide more return to their shareholders than their counterparts. The study
also exhibits that few stocks of listed SMLFs generate five times higher return than
average market price as majority of the stocks are owned by sponsor directors of
the company as well as certain portion is hold by institutions and small quantities
hold by general investors; as a result, both sponsor directors and institutions take the
opportunity to create extra demand of stock by spreading counterfeit news to the mar-
ket and enhancing the stock price. According to Lynch and Rothchild (2012), firms
with small capital base provide greater return compared to higher capital-based firms
13
Table 4 Empirical results of CG, FP, and REVA on FV and RoS

Variables SMLF LLF MNCs All firms
FV RoS FV RoS FV RoS FV RoS
Intercept 7.59 7.01 9.14* 78.34* 12.12*** 102.12* 21.10* 31.81

Ac_Size 0.068 0.073 0.015 0.0072* 0.0014*** 0.0814* −0.041* 0.07
Ac_Ind −0.04* −0.164 0.012 −0.714 0.027** 0.651 −0.006* 0.003
Ac_Act 0.025 0.012 0.005* 0.025* 0.0420** 0.011* 0.006 −0.076
EACQ 0.004 −0.031 0.002* 0.01 0.051*** 0.002** 0.004 −0.3***
* ** * *
BS 0.176 −0.014 0.13 0.511 0.031 0.012 0.25 0.13*
* * * ** ** *
BI −0.09 0.0014 0.001 0.012 0.0041 0.004 00214 0.21
BA 0.005 0.031 0.007* 0.0061* 0.025* 0.0034 0.0008 −0.013
BPR 0.035* 0.08*** 0.142** 0.003 0.0017** 0.008** 0.0071 0.574
* * * * **
DE −0.04 −0.51 0.025 0.25 0.0510 0.142*** 0.061* 0.013*
* * *** **
CD −0.061 0.008 0.0009 0.001 0.005 0.061 0.0341 0.321
IBR −0.022 * −0.101* 0.0071 −0.081 0.098 0.341* 0.132 0.145
SDOS 0.061* 0.071 0.071* 0.152* 0.0761** 0.0712* 0.0512* 0.04
GOS 0.021 0.0710 0.014 0.06 0.0021* 0.037 0.0061* 0.021
IOS 0.08 0.034 −0.06 0.019** −0.031* 0.014 0.0050* 0.001
FOS 0.021 0.031* 0.005* 0.014* 0.0517** 0.047** 0.0061 0.06 **
COS 0.061 0.0071 0.02 1.514* 0.001 0.0041** 0.081 0.041*
CGI −0.28* 0.0107 0.814 0.021 0.049*** 0.095** −0.8161 0.62
ROA 0.031 −0.006 0.06* −0.054 0.714** 0.060** 0.415 −0.081
ROE 0.324 0.901 −0.17 0.041* 0.005** 0.083*** −0.18 0.61**
* *** ** *
ROI 0.023 −0.814 0.01 −0.014 0.001 0.0031 0.001 0.035*
** * * *** **
NOPAT 0.051 0.971 0.65 0.981 0.055 0.614 0.043 0.874**
* * ** *** ** *
EPS 0.573 0.01 0.03 0.0517 0.06 0.008 0.014 −0.017
DPR 0.011* 0.073* 0.23* 0.0804** 0.001** 0.451** 0.0015 0.061*
* ** * *
Tobin’s q 0.011 0.014 0.0147 0.0810 0.004 0.0061 0.001 0.071
FP 0.381 0.041 0.04 0.0147 0.013*** 0.084** 0.0014* 0.0171*
* ** * **
EVA 0.054 0.0005 0.68 0.0001 0.073 0.06 0.041 0.0031
REVA 0.16 0.0407 0.72 0.058* 0.89** 0.71*** 0.071** 0.0003**
* * * *
Size −0.05 0.087 −0.04 0.0714 −0.021 −0.022 0.0712 0.0814
Lev. −0.21 −0.0007 −0.01 0.007 −0.014* 0.814 0.045 0.614
Age −0.001 0.617*** −0.02 0.013 −0.034 0.961* −0.02** 0.08**
Mkt.Ind.dummy −0.014 −0.001* −0.07 −0.001* −0.0012 −0.010 −0.005 −0.010*
Ind. Dummy −0.01 0.0014 0.008 0.0014 0.0007 0.013 0.5214 0.0014
Year Dummy 0.02 0.230 0.015 0.230 0.0071 0.120 −0.014 0.081
F-Value 20.14 21.01*** 21.40 21.01*** 19.910 172.01 8.10 31.04
Adjusted R2 0.214 0.211 0.114 0.211 0.1012 0.124 0.210 0.014
RMSE 0.110 0.231 0.131 0.231 0.0914 0.214 0.197 0.104
*
, **, ***, significant at 90%, 95%, and 99%, respectively
due to low volume of shareholdings. In addition, many listed SMLFs’ average stock
prices are below than the face value and average market value during that period,
as several firms are suspended their business operation for many years and sponsor
13
Table 5 Empirical results of CG, FP, and REVA on RoS

Variable AC Board IBR Ownership CGI FP REVA All variables
structure
Intercept 16.59* 18.14 11.54 97.71* 54.89 81.01 51.25 14.10**

Ac_Size 0.015 0.031
Ac_Ind 0.124 0.0032*
Ac_Act 0.01 0.006
EACQ 0.013* 0.073*
BS 0.051 0.051
BI −0.003 0.103
BA −0.012 0.073
BPR 0.001 0.0141
DE 0.0131 0.061
CD 0.034 0.045
IBR 0.052 0.023
SDOS 0.317 ** 0.0312**
GOS 0.0214 0.0710
IOS 0.0131* 0.041*
*
FOS 0.0128 0.016
COS 0.001 0.021
CGI 0.014 0.070
ROA 0.410** 0.0571*
*
ROE 0.110 0.0103*
*
ROI 0.0012 0.045
NOPAT 0.071 0.012**
EPS 0.012 0.023*
Tobin’s q 0.091 0.0075*
**
DPR 0.201 0.124**
REVA 0.051 0.103*
* *
Size −0.01 −0.14 0.41 −0.015 0.13 0.001 0.024 0.012*
Lev. −0.011 −0.001 0.121 −0.1201 −0.250 −0.0021 −0.002 −0.054*
* *
Age 0.001 −0.002 0.051 0.003 0.001 0.023 0.041 −0.002*
Mkt_ 0.0021 0.0231 0.0104 0.0861 0.0221 0.307 0.412 0.0811
dummy
Ind.Dummy 0.0017 0.030 0.007 −0.004 0.001 0.0054 0.0033 0.0128
Year 0.021 0.014 0.015* 0.014* 0.08** 0.014* 0.0041 0.012
dummy
F-Value 13.14 15.14 18.81*** 17.07*** 9.08*** 11.13*** 13.54 17.12
2
Adjusted R 0.211 .112 0.214 0.131 0.165 0.291 0.113 0.151
RMSE 0.191 0.091 0.175 0.101 0.201 0.210 0.105 0.112
*
director’s sold their major ownership of those companies; as a result, these firms fail
to generate both financial and economic values for the external investors. Maximum
SMLFs are generating lower return on the stock compared to MNCs and LLFs, as
13
both of the firms have high volume of capacity to generate significant value than
SMLF. CGI is positively significant with different firm size where minority entities
alike MNCs; these firms are practicing CG within the organizations and engendering
more financial and economical value for both the firms and investors. Majority local
firms are lacking of CG practice within the organization; thus, most of the listed enti-
ties’ stock price is much lower than the CG practiced firms (see Table 1). Financial
leverage and firm age are 90% negatively significant with all firms’ RoS. REVA and
all variables are 95% significant with RoS. EPS and DPR are 95% positively signifi-
cant with RoS, whereas ROA and ROE are 90% significant with RoS. External AC
quality is 90% significant with RoS.
BS and CEO duality are 95% positively significant and BPR is 90% significant
with RoS. SDOS of ownership structure is 95% significant with RoS. There is insig-
nificant relationship with CGI and RoS, as majority firms are reluctant to practice
good CG to operate their businesses. According to Cheung et al. (2007), firms in
emerging economies are characterized by high family ownership oriented with lack
of transparency. Market index dummy positively influence RoS by enhancing REVA
(market capitalization). In addition, year dummy positive coefficient reflects that
RoS depends on firm’s economic growth or decline over the period of time.
The third level of this study (see Tables 6 and 7) is to investigate whether the
stock price is influenced by FV among the listed organization in Bangladesh or
not. According to the statistical information, few SMLF stocks provide four to five
times higher returns compared to the majority of LLFs or MNCs, as those com-
panies provide signals of better FP, REVA, and handsome amount of dividend.
Similarly, few numbers of stocks provide a positive abnormal return, where both
REVA and financial performance are negative. Reversely, a large number of SMLF
stocks generates an insignificant lower return or no return or two to three times
lower return on the stock during this period, as REVA/TA value is .10% decline of
Table 6 Empirical results of FV and 6 years return on stock

Variable Year 2018 Year 2017 Year 2016
SMLFs LLFs MNCs SMLFs LLFs MNCs SMLFs LLFs MNCs
Intercept 17.93 25.17 37.12 27.71 41.73 51.91 24.24 31.73 46.91
Firm_value −0.071 0.0314 0.154** −0.032 0.061* 0.0923** −0.041 0.037* 0.0421**
Size 0.005 0.0101 0.0012 0.001 0.021 0.031 0.027 0.0064 0.012
Lev. 0.0032 0.021 0.021 0.0032 0.013 0.006 0.0102 0.0054 0.0162
Age 0.014* 0.001 −0.012 0.0241* 0.021* 0.005 0.0510* 0.0341* 0.0912
* * * *
Mkt. Ind. 0.0023 0.0231 0.041 0.061 0.051 0.070 0.0011 0.064* 0.041*
dummy
Ind. Dummy −0.001 −0.0011 −0.0021 −0.007 0.0023 0.0011 0.031 0.0721 0.0612
Year. 0.007 0.002 0.0011 0.012 0.010 0.012 0.040 0.0231 0.012
Dummy
F-Value 13.94 20.14 27.11 19.11 31.91 43.11 21.20 27.04 35.08
Adjusted R2 0.321 0.354 0.41 0.341 0.371 0.42 0.29 0.311 0.390
RMSE 0.131 0.110 0.21 0.172 0.132 0.231 0.131 0.113 0.191
13
Table 7 Empirical results of FV and 6 years return on stock

Variable Year 2015 Year2014 Year 2013
SMLFs LLFs MNCs SMLFs LLFs MNCs SMLFs LLFs MNCs
Intercept 21.01 29.53 41.32 19.71 24.31 37.12 13.32 21.06 31.61
Firm_value −0.039 0.031* 0.0312** 0.012 0.0213 0.0712* 0.0061 0.0310 0.0096
Size 0.0012 0.0251 0.002 0.0121 0.0371 0.0131 0.0010 0.0412 0.0091
Lev. 0.0011 0.0131 0.0091 0.0131 0.0421 0.0143 0.0411 0.0613 0.032
Age 0.0412* 0.0291* 0.0612 0.0515* 0.0471* 0.0096 0.0081 0.0323 0.0541
* *
Mkt. Index Dummy 0.0210 0.013 0.061 0.0082 0.0013* 0.072* 0.0121 0.0512 0.001
Ind. Dummy 0.0061 0.0091 0.0096 0.0152 0.0143 0.0681 0.041 0.0056 0.0341
Year. Dummy 0.014 0.0139 0.0067 0.021 0.0021 0.0109 0.0311 0.0624 0.0054
F-Value 18.31 29.91 31.031 18.21 23.13 29.091 18.05 21.21 23.54
Adjusted R2 0.23 0.291 0.312 0.211 0.25 0.291 0.192 0.221 0.231
RMSE 0.113 0.109 0.162 0.110 0.108 0.151 0.109 0.105 0.149
*
SMLFs over the period, as higher REVA firms provide higher stock return and a
lower REVA firms offer lower RoS (see Table 1). Correspondingly, a certain num-
ber of LLF stock price are below than the face value and/or average market value,
while few stock price average movement are one to two and half times higher than
average market value; at the same time, the rest of the stock price average changes
are two to three times higher than those average market value. These high varia-
tions of average stocks price movement occur due to change of REVA value, FP,
and corporate disclosures among the firms during that time. Firms with higher
dividend yield and continuous financial and economic growth enhance FV and
offer a higher return on the stock during this time frame that fulfils the assumption
of H3. On the other hand, the majority stock price of MNCs significantly increases
during the period, as these firms offer higher dividend yield by maintaining good
CG, FP, and REVA to enhance FV, which fulfil the assumption of H1 and H2.
Similar result is revealed by Bromiley (1990), Al-ahdal et al. (2020), Pourali &
Roze (2013), and Nugroho (2018) on their research output that stock price and FV
are measured by firms’ underlying financial performance, corporate governance
index, as well as economic growth of the business. Financial leverage is nega-
tively significant with return on the stock during that time. Market index dummy
is positively correlated with RoS from 2015 to 2017, whereas the market index is
negatively significant with stock return on the year 2013 and 2018, as the major
restructuring of Dhaka stock exchange was induced in 2013 and significant down-
trend trigged after bubble burst of the bourse in 2018.
13
Table 8 Possible strategic steps for the safe investment techniques
FV RoS Relationship status Possible investment Justification of the outcome
+ + Positive Character: fundamentally strong firms with high positive RoS. Sustainable return from investment is being observed. Firms are
MNCs (i.e., GlaxoSmith-Kline Bangladesh Ltd.) and certain LLFs practicing good CG, maintaining healthy FP and continuously
(i.e., Square Pharmaceutical Ltd.) adding economic value for the firm as well as for the investors.
+ − Inverse Character: fundamentally strong firms with low positive RoS. Firms are practicing partial CG code; i.e., dividend payout ratio is
Majority LLFs (i.e., majority financial institutions, and nonfinancial comparatively very low then counterpart. Also, financial performance
firms such as Summit Power Ltd.) and certain SMLFs. growth is not significant and lesser REVA is being observed.
− + Inverse Character: fundamentally low strong firms with high positive RoS. Abnormal return is being observed from the firm. Firms are not
Certain SMLFs (i.e., Legacy Footwear Ltd.) practicing proper corporate governance guidelines, fail to maintain
FP adequately and no economic value addition for the firms.
− − Negative Character: fundamentally fragile with negative RoS. Negative return is being observed. Firms are ignoring to practice CG
Majority SMLFs and very few LLFs (i.e., United Air Ltd.) completely, fail to maintain FP adequately and no economic value
addition for the firms.
13
Justification of the Empirical Analysis (Table 8)
Possible FV Improvement and Increase RoS Technique for Managers
Managers can significantly improve FV by following CG mechanism and confirm

sustainable financial growth through REVA of the firm (Table 9).
Conclusion
This study reveals the sophisticated relationship among moderating variables, i.e.,
CG, FP, and REVA to measure FV and RoS of three categories of firm, i.e., SMLFs,
LLFs, and MNCs in Bangladesh. In addition, this study also investigates the rela-
tionship between FV and RoS.
There is an insignificant relationship with CG, FV, and RoS of all firms, as
majority firms are reluctant to practice good corporate governance to operate their
businesses. The study result reveals that LLFs’ FV and RoS have nonlinear relation-
ship with CG practice. While, CG practice is negatively significant with the FV of
SMLFs, as majority firms are not practicing any corporate governance within the
firms. Conversely, FV and RoS of MNCs are positively correlated with CG practice.
Many previous studies on CGI reveals similar complex result on emerging econo-
mies (Hasan & Omar, 2015).
According to the research results FV and RoS, both are positively insignificant
with the firm performance of both SMLFs (0.381) and LLFs (0.04). FV and RoS of
MNCs are positively significant with financial performance. Bromiley (1990) iden-
tifies that FV reflecting the RoS is measured by firms’ underlying financial perfor-
mance as well as capital market efficiency.
FV 95% and RoS 99% significantly related with REVA of MNC firms, whereas
RoS 90% significantly correlated and FV positively insignificant with REVA of
LLFs. Similarly, SMLFs’ FV and RoS are positively insignificant with REVA.
In conclusion, I can argue that CG, FP, and REVA are interlinked to each other
to measure FV and RoS of Bangladesh listed firms. As higher governing firms are
able to maintain better financial performance and enhance economic value addition
to the firms as well as shareholders (such as MNCs and few LLFs) and vice versa
(for instance SMLFs and many LLFs). In this regard, I could say that firm could
enhance significant level of sustainable growth and provide good returns to their
shareholders, if firm maintain good CG and reduce information asymmetry on pub-
lic disclosure.
Practical Implication of This Research
This explanatory research provides some practical guidelines for investors, regula-
tors, as well as firm policy makers. Before taking any investment decision to any
firm, investors should consider the firm’s sustainable economic growth over a cer-
tain period by considering REVA. Indeed, REVA reflects the real earnings’ growth
13
of the firm, as capital charges (WACC) are deducting from net income of the firm. In
addition, investors should also consider firm’s EPS and DPR growth over the period
as well as CGI. This consideration will help investors to protect investment capital
and gain sustainable return from the investment.
For the firm policy makers, this research is significantly useful for them to
enhance FV and generate positive RoS by engaging with continuous improvement
of firm economic activities though adopting CG, fair financial reporting, and REVA
as economic value-added concept to measure true value of the firms. Indeed, adopt-
ing good governance could enhance FV, shareholders’ wealth, and significantly
motivate executives to perform their activities for best interests of stakeholders and
prevent them to manipulate financial and nonfinancial activities. Also, government-
level policy makers should put more concentration to reduce cost of borrowing for
the business to enhance NOPAT.
In respect of regulators, this empirical research addresses some practical implica-
tions. Bangladesh Security and Exchange Commission (BSEC) should develop effec-
tive corporate governance monitoring system which will help to prevent fraudulent
activities by the firms to protect minority shareholders’ interest and introduce market
discipline. In addition, BSEC could introduce financial and economic advisory services
for listed firms to provide necessary business advice for improvement activities to frag-
ile firms with certain financial charges. This following process will help to build a sus-
tainable capital market in Bangladesh for long term.
Limitation of This Research and Scope of Future Studies
This research has several limitations; first, findings of this study dominantly repre-
sent quantitative methodology and principally considers Bangladesh as an emerging
economy to attain the research objective; future research should consider cross-national
evidence to extract more extensive results by using alternative methodology to assem-
ble data from wider sources such as semi-structured interviews of corporate executives
along with both individual and institutional investors, experimental researches, and
cross-national multiple case studies including quantitative and secondary data studies.
These multiple theoretical approaches aid to hypothesize and interpret unreal-
ized findings in more details and discover several questions and related answers
regarding to measure firm value and return-on-stock. Second, I use only three
determinants such as CGI, FP, and REVA to measure firm value, where many
macro-economic factors, i.e., business cycle, industry cycle, industry competi-
tion, industry-specific regulations along with hi-tech deployment in day-to-day busi-
ness operation to measure FV more deeply; future studies should consider men-
tioned macro-economic and hi-tech factors to measure FV. Third, I consider FV,
CGI, FP, and REVA to measure return-on-stock, and future research may cover both
money market and capital market policies including fund flow to the market, also insti-
tutional investor’s role on the capital market to measure RoS directly.
13
Appendix
Table 9 Variable’s measurement

Variables Measurement
[Panel A] Value measure

FV Natural log of market value of total assets
Return on stock (RoS) Return on stock is measured by lending stock price of the ending time t “minus”
opening stock price of time t by following subsequent period.
[Panel B] CGI
AC_Size Internal and external audit committee size measured by total number of audit
committee members/total number of directors on the board
AC_Ind Internal and external audit committee independence measured by ratio of executive
and nonexecutive directors in audit committee to total members of audit committee
members as well as financial reports fair disclosing authority, and related compliance
management
AC_Activity Audit committee activity measured by frequency of audit committee meetings in
a financial year, reporting to internal and external stakeholders
EACQ (external audit External auditor committee quality is a dummy variable with the value of “1”
committee quality if firm is being audited by well renowned auditing firms and “0” otherwise.
Quality of audit firms is considered based on the list of audit firms, which is
published by Institute of Chartered Accounting of Bangladesh (ICAB).
BS Board size measured as natural log of total members of board of directors
BI Board independence measured as; 1 × (outside directors/BS inside directors)
BA Board activity; total number of board meetings in a financial year, reporting to
holdings company and external stakeholders
BPR Board participation rate; measured by total participation of board members in all
meetings/total required attendance
CD CEO duality; a dummy variable is 1 if CEO holds the position of chairman of
the board as well; and zero otherwise
DE Directors education; a dummy variable is 1 if firms directors are highly qualified;
and zero otherwise
IBR Internet-based reporting; a dummy variable is 1 if firms maintain company Web
site with adequate corporate information as per the regulatory guidelines; and
zero otherwise
SDOS Sponsor/directors ownership stock measure by fraction of shares owned by sponsor
directors as a ratio to total shares outstanding
GOS Government ownership stock measure by fraction of shares owned by government
ownership as a ratio to total shares outstanding
IOS Institution ownership measure by fraction of shares owned by institutions as a
ratio to total shares outstanding
FOS Foreign ownership measure by fraction of shares owned by foreign investors as a
ratio to total shares outstanding
COS Common stock ownership measure by fraction of shares owned by common
stockholders as a ratio to total shares outstanding
13
Table 9 (continued)
Variables Measurement
CGI CG index is an integrated and composite measure of 62 CG provisions based

upon different provisions of corporate governance structure of firm. The value
of CGI ranges from 0 to 62 where a higher score indicates better quality of
governance. We divided CGI value by 62 to obtain percentage of governance
quality in the firm.
[Panel C] Financial performance measures
ROA Return on assets; measured by earnings after interest and taxes/total assets
ROE Return on equity; measured by earnings after interest and taxes/total equity
ROI Return on investment; measured by earnings after interest and taxes/total investment
capital in time t
NOPAT Net operating profit after tax: operating income multiplied with (1−Tax Rate)
EPS Earnings per share measured by net income divided by total number of outstanding
shares
DPR Dividend payout ratio measured by 1 minus retention ratio
Tobin’s q Tobin’s q; Market value of firm/book value of assets
RoS Return on stock is measured by ending stock price of the ending time t “minus”
opening stock price of the opening time t by following subsequent period.
FP Financial Performance is measured by vector of financial performance variables,
including return on assets (ROA), return on equity (ROE), return on investment
(ROI), net operating profit after tax (NOPAT), earning per share (EPS) and
dividend payout ratio (DPR) (see annexure for details of financial performance
variables measurement)
[Panel D] Refined economic value added
EVA Economic Value added; Earrings after interest and taxes – Capital charge (capital
charge = capital employed*WACC)
REVA Net income − kd(1−Tax)D − ke (E) = natural log (NOPATt − kd {(1−Tax) [Dm/
Dm + Em] (D+E)} − ke {Em/Dm + Em] (D+E) }, where Dm equal D and E m
equal E; as book value and market value of debt and equity should be equal by
following Bacidore et al. (1997) REVA calculation.
[Panel E] Control variables
F_Size Firm size is measure by natural log of market value of total assets
Lev. Leverage is calculated by total liabilities/total assets
Age Log of age of firm, as measured by number of years since the commencement
year of firm.
Acknowledgements I would like to express my full gratitude to my spouse Mrs. Mary Tod Biswas for
her full support and encouragement to complete the research article. I am also expressing my great appre-
ciation to my students of different courses; those who were collected trade data for their course works by
following the instruction and submitted to me on regular basis. I would like to extent my thanks to the
East West University authority to offer the working environment to complete the research work as well as
all Librarians for their great efforts.
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2021 001 A Critical Assessment of Interrelationship Among CG, Financial Performance, Refined Economic VA To Firm Value

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Journal of the Knowledge Economy

A Critical Assessment of Interrelationship Among Corporate

Leo Vashkor Dewri1

Received: 19 October 2020 / Accepted: 30 May 2021

Keywords Firm value · Return on Stock · Corporate Governance · Financial

* Leo Vashkor Dewri

RoS measurement becomes more critical in today’s business context regardless of

Literature Review and Conceptual Framework Development

Corporate Governance, FV, and Return on Stock

Corporate governance is a systematic approach to govern the firms’ operational

(2014) identify that CG significantly less correlated with FV in developing econo-

Financial Performance, FV, and RoS

FV and RoS Measure by REVA

However, EVA fails to provide appropriate firm market capitalization value as

Conceptual Framework Development

FV and RoS Is Influenced by CG, FP, and REVA

Good governance practice within the organization is a matter of fair orientation

FV Positively Influence on RoS

Sample and Data

Firm_Valueit = FV including financial, market and refined economic value-

REVAit = Vector of REVA variables, including NOPAT and weighted average

Empirical Results and Analysis

Empirical Results and Analysis

To do an empirical analysis, at first, the study investigates the relationship among

Corporate Governance to FV and RoS

EACQ 0.21 0.24 −0.24 0.008 0.120 0.11 1

Financial Performance to FV and ROS

Financial performance measurement is also considered to measure FV and RoS of

Measuring FV and RoS by REVA

Table 4 Empirical results of CG, FP, and REVA on FV and RoS

FV RoS FV RoS FV RoS FV RoS

Intercept 7.59 7.01 9.14* 78.34* 12.12*** 102.12* 21.10* 31.81

Table 5 Empirical results of CG, FP, and REVA on RoS

Intercept 16.59* 18.14 11.54 97.71* 54.89 81.01 51.25 14.10**

Table 6 Empirical results of FV and 6 years return on stock

SMLFs LLFs MNCs SMLFs LLFs MNCs SMLFs LLFs MNCs

Table 7 Empirical results of FV and 6 years return on stock

SMLFs LLFs MNCs SMLFs LLFs MNCs SMLFs LLFs MNCs

FV RoS Relationship status Possible investment Justification of the outcome

Justification of the Empirical Analysis (Table 8)

Possible FV Improvement and Increase RoS Technique for Managers

Managers can significantly improve FV by following CG mechanism and confirm

Practical Implication of This Research

Limitation of This Research and Scope of Future Studies

Table 9 Variable’s measurement

[Panel A] Value measure

CGI CG index is an integrated and composite measure of 62 CG provisions based

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