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Table of Contents:

1: Introduction

1.1: Define corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5


1.2: Define Governance . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . .6
1.3: Define Corporate Governance. . . . . . . . . . . . . . . . . .. . . . . . . .7
1.4: Good Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . ..7
1.5: Quality of Corporate Governance. . . . . . . .. . . . . . . . . . . . . . . 8
1.6: Code of Corporate governance. . . . . . .. . . . . . . . . . . . . . . . . .8
1.7: Advantages of Corporate governance. . . . . . . . . . . . . . . . . . . . .9
1.8: Disadvantages of Corporate governance. . . . . . . . . . . . . . . . . . .10
1.9: Sources . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
1.10: Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.11: Problem statement. . . . . . . .. . . . . . . . . . . . . . . . . . . . . 15
1.12: Research question . . . . . . . . . . . .. . . . . .. . . . . . . .. .16

2: Literature Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

3: Theoretical Framework. . . . . . . . . . . . . . . . . . . . . . . . . .20

3.1: Nature of research . . . . . . . . . . . . . . . . . . . . . . . .20


3.2: Hypotheses . . . . . . . . . . . . .. . . . . . . . .. . . . .. . 21
3.3: Model and Variables . . . . . . . . . . . . . . . . . . . . 21

4: Research Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . 24

4.1: Data Collection. . . . . . . . . . . . . . . . . . . . . 24


4.2: Sample. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
4.3: Limitations. . . . . . . . . . . . . . . . . . . . . . . . . 28

5: Finding and Conclusion . . . . . . . . . . . . . . . . . . . . . . . 29

6: References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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1. Introduction:

1.1: Corporate:

Corporate is a group or large company which is recognized in a law and act to authorize as a

single company. Corporate is a business for their members and shareholders has unlimited and

limited liability, they buy and sell their stock and share which is depended on the board of

director performance.

Corporations state provide legal rights to separate from its owner. This business organization has

limited liability of its owners, the issuance of shares which easily transferable stock and easily

existence as a going concern. The process which is suitable to a corporation are called

incorporation, which provide the company to focused those owners which are liable personally

in that situation in which company gives a condition is limited liability and a company has

separate legal standing from its owners. The incorporation is also give companies a more easily

way to manage their ownership structure.

1.2: Governance:

The meaning of governance is obtaining the policies and affairs of an organization. Governance

is the processes, in which governments are select, create and applied public policy, monitored

and changed. The governance is a system of interaction between the judiciary, administration and

legislature. In this shareholder define interact with institutions of authority and their interests

with each other.

GOVERNANCE is consist on processes, institution and mechanisms through which groups and

citizens , to manage a nation's affairs from economic and administrative authority , exercise of

political articulate their interests. It is exercise their obligations and their legal rights, and

mediate their differences. Governance is the sandwich between CEO/staff to the one side and
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shareholder in other side. Governance is the system in which we hold the social and economic

resources for the development of the countries. Governance is the system in which power is

exercised the economic and social resource of the management of the countries for the

development. Governance is a system in which people using the power against any one because

they have power. Governance is the way in which those with power use that power.

1.3: Corporate Governance:

Corporate governance is consists on institutions, processes and mechanisms, through this people

economic and administrative authority like social issues which interact with it and control

nations issues, manage political like which create competitors and show there interest. It is

intervening their difference and adobe their legal rights.

Corporate governance means organization doing everything not only relationship to a direct or

indirect stakeholder, it has also interaction and a society at large. The society at large is done in

ethical transparent for company interactions. In the codify rules company attract with the

various stakeholders, how the civilized people in the organization by the complains of law and

society organization itself. We shall expand the society which is operating in the complains of

law, it is the basic courtesy. The company which norms will have to be legal complains and

expired to have corporate governance principle. The first step of good corporate governance is

complains of law in an efficient way.

1.4: Good Corporate Governance:


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Good corporate governance structures encourage companies to exploration and control systems

and adequate with the risks innovated and provide accountability, innovation, to create value

through entrepreneurism, innovation, development.

Good corporate governance achieved their directors and boards and gives more attention than

they given to the previous companys delegations, strategic directors, behavior in the market and

processes. Good corporate governance increases the share price of the organization. Investor

does not subscribe for good corporate governance principle there for they are hesitant to invest

there. Separate audit committee, independent directors, and Transparency are especially

important. All parties to corporate governance have an interact, in the effective performance of

the organization. Benefits and reputation, Directors, while shareholders receive capital returns

customers receive goods and services; suppliers receive compensation for their goods or

services, Directors work and management receive salaries.

1.5: Quality Of Corporate Governance:

The quality of corporate governance is a theoretical application of good practice and the quality

of management is how they would be responsible for ensuring it was applied and how would

govern the quality of the governance in the final analysis.

1.6: Code of Corporate Governance:

Securities and Exchange Commission of Pakistan issued the code of corporate governance

which establishes a framework for good corporate governance in the organization; that

companys which are listed in KSE, in March 2002. The Code is a prescribe of best practices,

to enhance the and ensure of companies, designed to provide a framework of that companies

which are listed on Pakistan's stock exchanges, there are promoting market confidence,
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controlled with the objective of safeguarding the interests of stakeholders and directed. In doing

this, code in the corporate governance structure drown the experience of the other countries, the

common law tradition are similar to the Pakistan in particular experience of those countries. The

Code of Best Practice of the Cadbury Committee on the Financial Aspects of Corporate

Governance published in December 1992 (U.K.)which cover split CEO/Chairmen separation a

parts communication of governance , explain the end scenario, comply, disclosure, In the report

of Greenbury in 1995 which left the directors pay, on corporate governance published, the

Report of the Turnbull and Hampel Committee on Corporate Governance published in 1998 the

in which published the organization for development and economic corporation of the Principles

of Corporate Governance, important documents in this regard in 1999, the Recommendations of

the King's Report (South Africa) , and (U.K.) like the internal control, Higgs/Smith (2003) in

this report include that non executive auditor and directors make up the principle and combine

code. The first step of achieving the good corporate governance performance in Pakistan to

systematic implementation.

Further requirement of measuring is educate stakeholders of strict compliance of the advantage,

to refine the principle of consolidation, contemplated by the SEC. Ultimately, for the changing

in Pakistan a manager, stakeholder, auditor, directors and shareholder respective role in their

conduct and perceive corporate entities, and control would be necessitate in changing the culture,

this is necessarily relevant and must not only incremental. This study is a contribution towards

this effort.

1.7: Advantages of Corporate Governance:

Economic Growth

Strong corporate governance provides a success and economic growth.


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Increase Capital

Strong corporate governance increases the capital of a company efficiently and

effectively because they maintain investors confidence, through this company increase

the capital.

Share Price

Corporate governance reduces the capital cost, which give a positive impact on the share

price, and company get profit.

Proper Inducement

Corporate governance gives proper inducement to the owners and managers achieve

objectives that are in interests of the organization and the shareholders.

Minimizes Risk

Strong corporate governance also minimizes corruption, mismanagement, risks and

wastages

Develop Brand

It provides the better plan through which an organization made better brand formation an

development.

Interest
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Through corporate governance company fallow those steps which member getting

interest.

1.8:Disadvantages Of Corporate Governance:

Ownership Management Capration:

Some time directors taking some policy decisions which can become a problem in publicly

traded corporations, which are not necessarily for shareholders. In the case when any

shareholders dont hold a controlling interest in the organization and most of shareholder is

voting by proxy then directors and officers controlling corporations assets. Ownership and

management can be separate because it can resolve the confliction of interest between

management duty which increase the shareholder value and its interest to increase their income.

Illegal insider trading:

Corporate insider refers to officers, employees and directors of an organization because they

may have approach to originated or maintained in strict secrecy or privacy which may be non

public information about an organization that affect the shares value. Corporate insider are not

strictly prevent from trading corporate shares but it should report to the SEC. Illegal inside

trading occurs when the share holder sell shares to a buyer without access to the information

which are confidential and relevant to the future value of shares. Illegal insider trading also

committed with the shareholder who are not directly related with the organization, such as a

relative of the corporate insider, government regulator and outside auditor.


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Misleading Statement:

It is many way from which company provide to our factually of the accurate information on the

financial statement in the way that is misleading to investor.

Cost of Regulation:

Corporate governance abuse has triggered the enactment to federal laws and larg body of state

designed to prevent those abuse. Compliance with such laws can be expensive and burden for the

organization.

1.9:Sources of Corporate Governance :

Code of Ethics:

This is defining about the rules of organization, principles which are applicable and better

relationship with the organization to the employees.

By Law:

This is defining the companys operations and main rules.

Code of Conduct:

This is defining how an organization can organized from which a shareholder get maximum

profit.

Treatment of confidential information:

This is defining procedures to give special focus on the treatment of the price sensitive

information.

Internal Dealing:
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This is defining the flow of information of the market in such case when relevant person who

are involving company shares, perform operation, and other financial products issued which

control the company listed on the countries regulation markets or unlisted but accounting for

more than 50% of its assets.

Procedural code for transactional with reeled Organization:

This is defining the procedures when concerned parties dealing with the company itself.

Management and control model:

This is defining the administrative liabilities and aims at preventing criminal offences,

consolidate and spreading managerial practices, promoting an efficient organization structure and

enabling control oriented.

Insider Register:

In this include the list of the member which are access and manage privileged information if

disclosed. This is significantly influence with the market price instructions.

Charter of Values:

This is translated the languages of the entire groups. The charter enhances principles of

corporate governance and endorses the main aspects of it, with the reference to the international

standards.

1.10: Factors of Corporate Governance:

Memorandum of Association:

This is simply called the memorandum; it is the document which creates the relationship between

outsider and an organization. It is the document which is required to incorporate a company in

the India, Pakistan, United Kingdom, Sri Lanka, Ireland and Bangladesh. It is also used in the
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common law of the common wealth. It is necessary of a new company to file this document. In

this document just only contain the limited information that was required prior to 1 October

2009.

Articles of Association:

When a new company establish it is required to registered in under the law of India and many

countries. Articles of association and memorandum of association both are constitution of a

company. In this discussing different voting rights which are attached to the different classes of

the shares and stock, the valuations of the IPR of one partner and valuation of intellectual rights

in that way in which we value real estate of other partner, the appointment of directors, director

meeting, management decisions, transferability of shares, Special voting rights of chairman, the

dividend policy, winding up , knowledge of penalties for disclosure and founders of agreement,

first right of refusal in which purchase rights.

Board Audit Committee:

The audit committee is a committee of board which is appointed by the board. It shall have at

least three members whom shall be non executive directors. In this two member are quorums if

one member is out of country then these two member shall be appointed any director as the

replacement of that member. The meeting of the committee should hold at least four times a year.

Finance director, CEO and other senior management required to attend the meeting and give the

explanation, operations, and information which are relevant to the company. The committee also

invite the external auditors the attend the meeting and give answer of the following question
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which are related to the audit procedures and financial controls of the company, non executive

director also invited.

Company Law:

The purpose is to consolidate the law, make sure that the growth of corporate enterprise in

Pakistan. It interacts to the investors and creditor it is imported because investor wants minimum

risks and better protection.

Board of Directors:

A board of director contains on a member who oversee the company activities. It is also called

board of members, board of trustee, board of governors, board of visitors or board of regents. It

is refer to the board. BOD have some duties: approving the annual budgets, supporting, selecting,

reviewing and appointing the performance of CEO, operating the availability of the financial

resources, establishing the objectives and broad policies which governing the organization,

compensation of company management and setting the salaries, accounting to the stakeholders

for the organizations performance. The legal responsibilities of the board member and board are

varying with the jurisdiction within which it operate and with the nature of the organization.

These responsibilities are much more complex and rigorous for the other types.

Other Stakeholders:

The other stakeholders are those which are affected to the organization through the actions as a

whole. This concept was firstly used in 1963. In the other stake holders includes: customers in

this ethical products, value customer care, quality. Governments in this legislation, truthful
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reporting, taxation, low unemployment, VAT. Employees in this compensation, truthful

communication, rates of pay, respect, job security. Trade Unions in this jobs, qualities and staff

protection. Owner is a person who has interest in the success of the organization. Suppliers

provide equitable business opportunities and used the product at the end. Creditors in this new

contracts, liquidity and credit score. Community in this shares, environmental protection, jobs,

truthful communication and involvement.

1.11:Problem Statement:

Corporate governance is the matters for development. It has an important role in helping to

increase the flow and decrease the financial capital cost that firms want to finance their

investment activity. The importance of this role is likely to continue to grow, has grown

considerably in recent years, when the capacity of traditional sources of such finance to supply

those needs of corporations for extra firm finance has grown precisely at a time as the needs has

greatly diminished.

1.12:Research Question:

Corporate governance play very important role to resolve the crisis of the country. Strong

corporate governance practice give strong result in the level of organization because good

corporate governance increase the size, leverage, tangibility, profit etc. proper governance

expand our economic growth, invite the investor to invest in this company, stay in this country.

Corporate governance play very important role in the success of an organization


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2: Literature Review:

There are lot of studies which examined the relationship between corporate governance and

firms performance. This is show that how good governance practices increase the productivity

and economic value of the firms and deduce the systematic risk. (Shleifer and Vishny, 1997;

John and Senbet, 1998 and Hermalin and Weisbach, 2003).

According to Mitton (2001) describe that higher price performance is related with the firms that

the indicators are focused on high outside ownership concentration, high discloser quality rather

than diversified. According to Brown and Caylor (2004) describe that the findings indicate that

governed better firms are relatively more valuable and pay more cash to their shareholder and

more profitable. According to Lipton and Lorsch (1992) and Jensen (1993) describe that firm

performance increase through the limited board size because the benefits through the larger

boards increased the monitoring those are outweighed from the poor decision making and poor

communication of larger groups.

According to Yermack (1996) describe that it is the inverse relationship between asset

utilizations , board size and profitability, and Tobins Q. Anderson et al.(2004) describe that the

cost of debt is not higher for larger boards because creditors view of these firms of their financial

accounting processes having more effective monitor. According to Kinney (2004) describe that

there is no association between implementation or internal audit services, fees paid financial

information system design and earning restatements. According to Fich and Shivdasani (2004)

describe that firms with the director stock option plans have higher profitability and higher
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market to book ratios and these documents give the positive reaction from stock market when the

firm announce stock option plans for their directors.

According to Ashraf and Ghani (2005) describes that development of accounting practices,

origins, disclosures in Pakistan and growth these factor are influenced them. They are

documented that weak enforcement mechanisms and lack of investor protection are critical

factors as compared to cultural factors in which examine the state of accounting in Pakistan. It

said that it is enforcement mechanisms that are paramount to improving the accounting quality in

the developing economies.

According to La Porta, et al (1999) said that legal environment is stronger than inverts

protection trend can be increase and it increase the willingness of invest tends. They examine

that it has strong positive association between firms performance and corporate governance.

According to Drobetz et al. (2004) describe that there is positive relationship between in firm

valuation and governance practices. According to Aggarwal et al. (2008) describe the

governance index in a particular company as a percentage of attributes has in place.

According to Adjaoud et al (2007) describe that there was not a significant relationship

between accounting based measure of performance and scores, but measure of value created and

scores has significant relationship.

The study examines the relationship of the firm performance and corporate governance in

context of Pakistan market by using the data set and additional test of robustness and

sophisticated techniques. In the literature addresses paper gape by using the adequate data set to

examine this nexus and challenging econometric techniques.

According to Gompers, Ishii, and Metrick (2003) described that firms with fewer

shareholder rights have lower stock return and lower firm valuations. It describe the Investor
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Responsibility Research Centre (IRRC) data. Twenty four governance factors classify into five

groups: voting rights, state laws, other takeover defense, tactics for delaying hostile takeover ans

director protections. These factors are anti takeover measures so G index is also a anti takeover

protection as compare to broad index of governance. It examine that firms shareholders rights

have higher profits, lowest capital, higher firm value, made fewer corporate acquisitions, and

higher sale growth.

According to Rais and Saeed (2005) described corporate governance in the way of

regulation impact assessment enforcement, application, and framework in Pakistan, in this to

understand the assess the efficacy of the regulation policy of SECP and dynamics of public

decision making. There are some reservations and constraints about the way it was implemented

and drafted. The gearing themselves up to adopt the Code in the listed companies.

According to Ghani (2002) described that there are great impact on the corporate

governance in Pakistan business groups for non financial firm listed on the KSE of Pakistan for

1998 to 2002. Financial performance gives result of the business group in Pakistan that are

efficient economic arrangements that substitute for missing or inefficient outside institutes and

markets. The investors view the business group as a mechanism to expropriate minority

shareholder.

According to Cheema (2003) described that to attract foreign direct investment

corporate governance play a significant role for Pakistan, this mobilize the great saving through

capital provided. The corporate governance system is compatible with the objective of raising

external equity capital through the capital market. The corporate structure of Pakistan is

characterized pyramids structures, as concentrated family control, cross shareholdings and


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interlocking directorships. They said that a crucial challenge for policy makers is to maintence of

profit increasing incentives and optimize the dual objectives of minority shareholder protection

for family controllers. . If this happens the reform may end up creating sub optimal incentives for

profit maximization by families. The concern is that reforms whose main objective is minority

shareholder protection may dampen profit maximizing incentives for families without providing

offsetting benefits in the form of equally efficient monitoring by minority shareholders.

According to Sufian, F. et al (2009) describe that financial institutions and size

with the high operational expenses tended have positive profitability ration and loan intensity or

credit risk negatively related with the performance. According to Berger (1995) examine that

capital asset ratio has positive relationship with the performance. He examines the impact of

capital asset ratio on return on equity. According to Anghozo (1997) describe that bank interest

margin positively related to the management efficiency, leverage, default risk and opportunity

cost. There are great impacts of firm level characteristics on US bank net interest margin.

According to Ben Nacecur and Goaied (2001) describe that a bank who tried to improve their

capital, improve labor productivity, and high deposits are performed well. According to

Kosmidou (2008) describe that stock market capitalization and GDP have significant relation

with the ROA and money supply growth has insignificant impact on profitability.

3:Theoretical Framework:

Nature of research

Corporate governance play very important role in the success of an organization. It helps to

discourage fraud and achieving great transparency and fairness. It provides long term strategic
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objective of the organization and protects the rights of shareholders. An organization provides

the careful management because it has many important decisions which could give the benefit to

the social welfare, directors and shareholders etc. Stability of the stock price is the important

factors its give the future prediction about the investor. Training of director because it is very

difficult to find the right people for job. Involvement of stakeholder also important to increase

the productivity and efficiency. Improved the shareholder communication also important because

shareholder communication refers to the ability of investors to vote their shares. Through this

investor communicate with the company in which they want to invest. Talented workforce also

important because its an ability of the organization to attract and hold good people and attract

to imperative for its success. Organization should have proper checks and balance. In this they

have three important disciplines: self discipline, market discipline, and regulatory discipline.

Goodwill and reputation are also imported because it can be improved the organization success

through different tricks: strong relationship with the stakeholder, corporate social responsibility

and marketing etc.

Hypotheses:

In this research we have corporate governance as a independent variable and level of

performance as a depended variable because good performance depend on good corporate

governance. Good thinking for the performance of an organization to have strong and

independent board of directors, CEO, including investment in people, good environment for

investment, and leads to higher income, provides better social indicators to reduce poverty. To
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increase the performance of an organization it includes two factors long-term performance and

short-term performance".

Long-term performance: social responsibilities, cost reduction, improvement of employee

capabilities, taking the technological innovations and knowledge, employee satisfaction;

Short-term performance: market value, market share, profitability, capacity usage, customer

satisfaction, and borrowing.

Model and Variable:

We use the Balance Scorecard model to measures of the performance of the organization.

Through BSC model we measure the financial and non financial performance of the

organization. It has four perspectives: learning and growth, costumer, financial, and internal

process. Im obtaining two organizations data PEL and Shell and analysis the performance of the

organization. These four factor analysis with varimax rotation which was performed on the BSC

perspectives in order to extract the dimensions underling the construct. The finance variable

describes the two dimensions and has different elements of these dimensions. These elements

explain the finance variable of two companys 20% and 5.46% of total variance. The factors

were labeled profitability (fin1) and financial operations (fin2):

Profitability (fin1) includes operating income, return on total assets, economic value

added and return on equity.


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Financial operation (fin2) includes percentage change in sale revenue debt to total asset

ratio and cost reductions in key area, average payment period for payables, account

receivable turnover.

The custom relationship variable has four dimensions and 15 other elements which explaining

the customer relationship about the two companies 7% and 4.2% of total variance. The factor

labeled customer relationship (cus1), volume (cus2), marketing cost (cus3), market share

(cus4):

Customer relationship (cus1): customer complaints, response time per customer

request, number of new customers, and number of customers lost, customer loyalty,

complaints resolved on first contact, customer satisfaction.

Sale volume (cus2): total sale volume in quantities, sale volume in each channel.

Market cost (cus3): rate of sale revenue, marketing costs as a percentage of sales,

advertisement cost as a percentage of sales.

Market share (cus4): brand recognition, market share of each product, total market

share of the company.

The process variable contains three dimensions which have 15 elements that explaining the

two companys performance 6.3% and 3.5% of total variance. The factors were labeled

resource utilization (pro1), innovation (pro2) and operational activities (pro3):

Resources utilization (pro1): labor utilization rate, capacity usage rate.


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Innovation (pro2): warranty claims number of new product and services R&D costs as

a percentage, ratio of new product/services to all orders, number of new patents,

internal rate of return on new project

Operational activities (pro3): average producing time of orders, time to replace or

repaired the defected products, quantity of defected units, number of on-time delivery,

reworked units, purchase return frequency and set-up time.

The variable of learning and growth has three dimensions and these dimensions have 13

elements which explaining the two companies performance 6% and 2.5% of the total variance.

The factors were labeled employee capability (gro1), employee relations (gro2), and

work environment (gro3):

Employee capability (gro1): number of cross-trained employees, , time spent to

employee training, average years of service.

Employee relations (gro2): employee productivity, employee suggestions and

implemented, number of employee suggestion, employee satisfaction, and leadership

development.

Work environment (gro3): ethic violations in the work place, communication among

employee and departments, information system investments, quality of work

environment, outstanding number of applications for employment.

4: Research Methodology:.

Data Collection and Sample:


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Im using the sample of two companies PEL and Sell Company which are listed in the

KSE, using the sample of four year from 2007 to 2010. The numbers of total firm were two, for

the years 2007, 2008, 2009 and 2010 respectively.

Table 1
Sample Screening Criteria

Firm Performance: Four-Year Time Horizon (2007-2010)

Years

Sample Selection Screening 2007 2008 2009 2010 Total

______________________________________________________________________________________

PEL company limited 0.5 0.6 0.5 0.5 2.1

Sell company limited 0.3 0.5 0.4 0.3 1.5

______________________________________________________________________________________

The data covers the period 2007 to 2010. The period is chose because of data available and

complete. In Table one we define the firm performance which are changed in every year. The

PEL company performance in 2007 is 0.5 in 2008 is 0.6 in 2009 is 0.5 in 2010 is 0.5. The total

performance in four year is 2.1. The Sell company performance in 2007(0.3) in 2008(0.5) in

2009(0.4) and in 2010(0.3). The total performance of Sell Company is 1.5.

Measures of Financial Characteristics


Table 2
FINANCIAL CHARACTERISTICS
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Variables Definition

Short-term Liquidity Ratio


a. Current Ratio = Current Assets/Current Liabilities

Financial leverage
b. Debt to Assets = (ST Debt + LT Debt)/Assets
c. Debt Leverage= Total Debt to Equity

Stock Market Performance Measures


d. Dividend to Net Profit = Dividend/Net Profit
e. Dividend per Share = No change; value as entered by VISTA

Accounting Performance Measures


f. Gross Profit Margin = Gross Profit/Revenues
g. Operating Profit/Sales = Operating Profits/Sales
h. ROA = Operating Profits/Total Assets
i. Revenue Growth = Year-Over-Year Growth in Revenues (five-years)
j. Total Asset Growth = Year-Over-Year Growth in Total Assets (five-years)

In the Table 2 we examine the financial measure which is listed, that can used to compare and

examine the financial characteristics of the companys. Table 2 also provides the definition of the

accounting measure of firms financial performance (ROA).


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Results

Descriptive Analysis of Financial Characteristics


TABLE 3
Selective Summary Statistics
The summary statistics present the cross-sectional/time-series statistics for
2 firms during 2007-2010. These firms were listed on the Karachi stock
exchange.
Panel A: PEL Company of Pakistan
_______________________________________________________________________
All years 2007 2008 2009 2010

Variables Mean Mean Mean Mean Mean


Current Ratio 1.77 0.30 0.68 1.40 1.17
Debt-to-Assets 0.79 0.38 0.39 0.38 0.43
Debt Leverage 2.16 1.34 0.73 1.02 1.24

Dividend/Net Profits 26.5 10.46 9.84 17.47 15.32


Dividend Per share 3.62 0.84 1.89 2.4 2.10

Gross Profit Margin 0.45 0.21 0.22 0.25 0.21


Operating Profit/Sales 0.25 0.13 0.13 0.13 0.11

ROA (%) 20.00 13.60 10.36 8.29 7.76

4Yr Revenue Growth 0.42


4Yr Total Assets Growth 0.32

Panel B: shell Company of Pakistan


_______________________________________________________________________
All years 2007 2008 2009 2010

Variables Mean Mean Mean Mean Mean


Current Ratio 0.13 0.10 0.04 0.05 0.07
Debt-to-Assets 0.56 0.26 0.42 0.18 0.26
Debt Leverage 2.69 0.79 2.61 0.72 1.26

Dividend/Net Profits 31.52 10.17 13.76 26.41 12.70


Dividend Per share 3.34 1.06 1.34 2.29 1.99

Gross Profit Margin (%) 0.26 0.02 0.06 0.27 0.18


Operating Profit/Sales 0.02 0.06 (0.07) 0.03 0.02

ROA (%) 5.46 0.36 (32.60) 16.65 10.13

4Yr-Revenue Growth 0.36


4Yr-Assets Growth 0.20
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In the Table 3, we examine the financial characteristics of two organizations PEL

Company and Shell Company which show means of different selective financial

measures of firms. We examine that a four year average is a better measurement

for the firm performance because it is significant uncertainties for emerging

economy.

Liquidity Ratio:
In the Table3 we examine that the four year current ratio of the PEL company

mean value 1.77 is higher than the Shell company current ratio, mean value 0.13.

The difference of this current ratio is 1.64%. This is suggested that PEL Company

have short-term solvency and have higher liquidity as compared to Sell Company.

Financial Leverage Ratio:

In the Table 3, we examine the leverage ratio of the two companies from

2007 to 2010. The Shell Company have mean debt/equity ratio of four year is

(0.56), and the PEL Company have the mean debt/equity ratio is (0.79). The result

shows that PEL have 45% more leverage as compared to Sell.

Performance Measures - Gross Profit Margin and Operating Profit Margin:

In the table3, gross profit margin of PEL Company is (0.45), which is more

than the Sell Company gross margin (0.26). Similarly operating profit margin mean

of PEL 0.25 is higher than the Shell Company operating profit margin (0.02). The

result shows that PEL is more profitable as compeered to Sell Company.


Thesis25

ROA:
ROA is basically used to determine the performance of an organization. In

the Table3 the ratio is measure through the accounting based performance. In this

table ROA of PEL company average mean (20.00) are more than the Sell company

average mean value (5.46). The result shows the difference about 78%, this

difference tell clearly that PEL have more level of financial performance as

compared to Sell.

Dividend Payout Ratio:

In the Table 3, which provides comparative four-year average values of dividend as a

percentage of net profits for both, the PEL and Sell Company? The dividend payout ratio of Sell

Company is higher than the PEL Company. In this the difference is 68%.

Four-Year Revenue Growth and Asset Growth:


In the last we examine the four year revenue growth and asset growth of

both the companys. The average four year revenue of the PEL Company is 0.42 is

greater than the Sell Company. The difference is 18%. The average mean value of

the assets growth of the PEL Company 0.32 is greater than the Sell Company assets

growth 0.20. The difference of this is 12%. This is show that PEL Company play

impotent role in the economic growth of Pakistan.

Limitation:

In this research there is the following limitation which I face:

Energy crisis
Data availability
Time constrain
Thesis26

Force on specific topic

Energy crisis:

There is shortage of electricity. In Pakistan there is a biggest problem of electricity so

shortage of electricity is facing in this research.

Data availability:

Finding of data are really tuff because obtaining primary data it is difficult. Secondary data are

available easily from the various sources like internet.

Time constrains:

There are shortages of time which are given. This research are really big and time are short so

lots of thing are not discuses because shortage of time.

Force on specific topic:

We are just focus on specific topic which are given. We should see another way to learn more

things and increase our knowledge.

Finding and conclusion:

In this research we are finding the crisis of the Pakistan, and how corporate governance resolve

the crisis of our country which are facing. We are focusing the effect of the corporate governance

on the level of performance. To see the crisis of our country Im focus the role of corporate

governance in an organization. Im seeing the performance of an organization, using the BSC

model. In the financial measure Im using ROA model explains the ratios and describes the

dimensions of BSC and elements of the variable. Im selecting two companies PEL and Shell
Thesis27

Company find the rations and explain BSC model to communicate with the member of the

organization.

We are finding that corporate governance play very important role to resolve the crisis of the

country. Strong corporate governance practice give strong result in the level of organization

because good corporate governance increase the size, leverage, tangibility, profit etc. proper

governance expand our economic growth, invite the investor to invest in this company, stay in

this country. Corporate governance play very important role in the success of an organization. It

helps to discourage fraud and achieving great transparency and fairness. It provides long term

strategic objective of the organization and protects the rights of shareholders. An organization

provides the careful management because it has many important decisions which could give the

benefit to the social welfare, directors and shareholders etc. Stability of the stock price is the

important factors its give the future prediction about the investor. Training of director because it

is very difficult to find the right people for job. Involvement of stakeholder also important to

increase the productivity and efficiency. Improved the shareholder communication also important

because shareholder communication refers to the ability of investors to vote their shares.

Through this investor communicate with the company in which they want to invest. Talented

workforce also important because its an ability of the organization to attract and hold good

people and attract to imperative for its success. Organization should have proper checks and

balance. In this they have three important disciplines: self discipline, market discipline, and

regulatory discipline. Goodwill and reputation are also imported because it can be improved the

organization success through different tricks: strong relationship with the stakeholder, corporate

social responsibility and marketing etc.


Thesis28

Corporate governance is the matters for development. It has an important role in helping to

increase the flow and decrease the financial capital cost that firms want to finance their

investment activity. The importance of this role is likely to continue to grow, has grown

considerably in recent years, when the capacity of traditional sources of such finance to supply

those needs of corporations for extra firm finance has grown precisely at a time as the needs has

greatly diminished.

The growth of portfolio equity flows from OECD emerging markets to contribute to the stability

of international financial markets, points to the potential for improved corporate governance in

developing countries and especially by institutional investors. The potential benefits are also

significant of such stability. There are equally important benefits of improved corporate

governance for achieving productivity growth in the real economy and on the potential benefits

of many developing countries. Volatility compared huge wastage of real investment resources

and with excessive rigidities, reflects the actions of distributional cartels, both human and

material in many under develop countries. Reflected rent seeking and in ubiquitous self dealing

behavior by corporate insiders in a clientelistic context relationship based systems of local

governance and reflected in ubiquitous selfdealing, those actions to sustained productivity

growth and widely constitute a serious obstacle. Improved corporate governance has play

important role to overcome the obstacles to productivity growth and in helping to limit that

behavior.
Thesis29

Reference:

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firm value: A case study of Karachi Stock Exchange. Pakistan Institute of Development

Economics, (Issue 14 (2007)), 8-13. Retrieved from

http://www.eaber.org.intranet/documents.htm.

Oman, C. P. (2001) . Corporate Governance and National Development. Corporate Governance

in developing countries and Emerging Economics, (Issue 13 (2001)), 12-40. Retrieved from

http://www.google scholar.com.pk.

Carmichael, J., Kaufmann, D. (2001) . Policy for the Financial Sector in Context of

Globalization. Public Sector Governance and the Finance Sector, (Issue June (2001)), 4-13.

Retrieved from http://www.google scholar.com.pk.

Marck, R., K., Steier, L. (2005) . The global history of corporate governance on introduction.

National Bursar of economic research, (issue January (2005)), 6-30. Retrieved from

http://www.nber.org/paper/w11062.
Thesis30

Rehman, R., Mangla, I. (2005) . Corporate governance and performance of financial Institutions

in Pakistan. A comparison between conventional and Islamic banks in Pakistan, (issue

Feb(2005)), 2-10. Retrieved from http:// www.googlescholer.com.pk.

Chaudhry, I., S., Malik, S., Khan, N., K., Rasool, S. (2009) . Factors affecting good governance

in Pakistan. An empirical analysis, (issue Dec(2009)), 6-30. Retrieved from

http://www.eurojournal.com/ejsr.htm.

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