The Impact of Corporate Governance on Stock Performance: Evidence from Bangladesh

Abstract

Purpose: This explanatory study aims to examine the compliance status of corporate governance mechanisms and their effect on stock performance of textile industry in Bangladesh. Methodology: Fifty annual reports of listed textile companies for the year 2019 have been taken as the sample to find the empirical result of this study. The statistics for description and interpretation of cross-sectional data have been used to explore and examine the causal relationship among variables under study. Findings: From the statistical analysis of governance variables, it is seen that 30% of the sample company have a minimum (5) member in the Board, whereas only 2% companies have more than 10 directors. Moreover, five companies having negative and low return on asset (ROA) do not comply with the governance code provision regarding independent directors. In addition to these, 18% companies have no female director on the Board and are violating the Board diversity policy of corporate governance. This study shows a significant and positive association between the gender diversity and the stock performance, which supports the lens of stakeholder and resource dependency theories and proves that the presence of female directors is an effective mechanism to protect the interest of outside resource providers and. But it infers that the presence of the independent director negatively affects the dependent variable, stock performance that is also statistically significant. Originality: The main value of the study is that it is the first paper in Bangladesh, which has considered the stock price change as proxy for stock performance as per author best knowledge. Practical Implications: The outcome of the paper is most likely to benefit the top managements and directors in formulating a suitable Board dimension, and policy makers in regulating the capital market in Bangladesh for making more informative decisions towards improving their surveillance and monitory systems and ensuring the compliance level of issuer. Research Limitations: This is cross-sectional study, which is limited to textile companies and does not consider primary data.