“The influence of corporate governance characteristics on profitability of Indian firms: An empirical investigation of firms listed on Bombay Stock Exchange”

This article aims to empirically examine corporate governance features and their asso- ciation with Indian listed companies’ profitability. Thirty-three listed firms are selected from the top 100 companies in India. Corporate governance is defined by two parts: board of directors (size, structure, diligence) and audit committee (size, structure, dili-gence). In contrast, the profitability of Indian listed firms is calculated by two indica- tors: return on assets (ROA) and earnings per share (EPS). The outcomes concerning ROA reveal that board diligence, size of audit committee, audit committee composi- tion, diligence of audit committee, and size of a company has a significant relationship with ROA. In contrast, board size and board composition have an insignificant associa- tion with ROA. Concerning earnings per share (EPS) model, the results show that size of audit committee, audit committee composition, diligence of audit committee, and firm size have a significant relationship with EPS. In contrast, board size, board composition, and board diligence have an insignificant association with EPS. The results may be of benefit to those scholarly researchers, practitioners, and governors who are interested in exploring the quality of corporate governance practices in an emerging market such as India and its effect on firms’ profitability


INTRODUCTION
The main motivation of this study is to empirically investigate the association between corporate governance features and companies' profitability in a developing country, India. Specifically, this study checks the effect of corporate governance characteristics on firms' profitability (ROA and EPS) by Indian listed firms. The study strives to contribute to the discussion on whether excellent corporate governance can be seen as a prerequisite for a good firm (Haat et al., 2008) by reducing earnings management. Over the past two centuries, corporate governance is becoming a hot issue primarily created by corporate rumors and scams like Enron and WorldCom that have shaken both the corporate atmosphere and the confidence of investors. These reporting frauds are connected to poor accounts financial regulation (Berkman et al., 2009). There is a need to induce such norms that can minimize the scope of these scams. There is continuing discussion about whether excellent corporate governance leads to better company results. In this context, Black, Jang, and Kim (2006) reported that "high-governance companies have a high market value. In anticipation of improvement in companies' performance, the stock price could also react instantly to news suggesting better corporate governance. Companies with weak governance structures face more agency problems. Those companies' executives get more personal advantages due to weak governance structures" (Core, Holthausen, & Larcker, 1999). There is no "unambiguous proof to suggest that better corporate governance increases firm profitability" (Klein et al., 2005). As a result, "investors are still skeptical about the presence of the link between good governance and profitability indices. For many professionals and scholars in the field of corporate governance, this remains their quest for the Holy Grail, the quest for the link between yields and governance" (Bradley, 2004).
Corporate Governance (CG) in India was originally controlled by the firms' Act of 1956, but recently the Indian Securities Exchange Board (SEBI) has to award the 2013 Companies Act and Clause 49 of the stock exchange listing as the main sources of Indian CG laws (Larson & Pierce, 2015). Both laws have a huge effect on regulating CG issues in India (Agarwal, 2013;Jha & Mehra, 2015;PwC, 2013;Sangwan, 2015). The amended clause 49 involves "(11) clauses on (1) shareholder rights, (2) board of directors (BOD), (3) audit committee, (4) appointment and remuneration committee, (5) subsidiary firms, (6) risk management, (7) associated party transaction, (8) disclosure, (9) CEO/CFO certification, (10) corporate governance report, (11) compliance report". Additionally, it has 4 annexes dedicated to "(1) data to be put before BOD, (2) quarterly compliance report format on CG, (3) proposed list of things to be included in the company's annual CG report, and (4) non-compulsory regulations. Regarding CG regulations on board size, structure, diligence, audit committee size, composition Clause 49 has distinct criteria for diligence".
Good corporate governance is a move that enables modus operandi to be developed and adhered to, resulting in corporate responsibility, structured ethical practices, and organizational accountability that heralds the handling of sufficient resources. The fact that CG is directly linked to a company's performance is not overemphasized. This realization has led to a range of empirical research into the relationship between corporate governance in ensuring enhanced organizational efficiency.
This investigation aims to seek the correlation between enterprise governance characteristics and profitability of 33 Indian listed companies during four years from 2011 to 2014. The study achieves the main aim by two sub-objectives: first, to evaluate the influence of board of directors' effectiveness on profitability of Indian listed firms, second, to test the influence of audit committee effectiveness on profitability of Indian listed companies during the period of the study. However, it explores the influence of two corporate governance features as board of directors (size, structure, and diligence) and audit committee (size, structure, and diligence). This investigation is classified into two regression models from prior studies; ROA and EPS are indicators for measuring the profitability of Indian listed companies.  (2009) demonstrated that only two factors were related to the scope of disclosure, explicitly public property ownership and audit working group. Group of the register of government management and audit is favorably and suggestively link with the rate of disclosure of corporate social obligation. Uchida, Ahmed, and Aabed (2011) indicated that governance has a beneficial but non-material connection with strong execution (return on assets). However, Cheema and Din (2013) revealed a beneficial connection between enterprise governance and company exe-cution had been identified. Adekunle and Maurice (2014) found a favorable and important connection between the structure of the board member and size of the board as autonomous factors and strong execution. The CEO position also has a beneficial connection with the firm's execution, but it is unimportant at p < 0.05. Nevertheless, attention to ownership has a poor relationship with ROA but a beneficial connection with a profit margin (PM). The associations are not important at 5%. Dabor et al. (2015) examined the effect of enterprise governance features on profitability of the textile industry in Pakistan. The facts are set from the annual reports of the specific textile industry from 2005 to 2014. The report's after-effects explain that enterprise governance and profitability demonstrate a beneficial connection with each other. This means that in the textile area. Shahwan (2015) stated a beneficial connection between CG practices and profitability. Haque and Arun (2016) recorded a favorable connection between the corporate governance quality of a firm and its valuation, although the relationship between corporate governance at the enterprise level and operational execution seems dubious. Herdjiono and Sari (2017) reported that board of directors' size has a favorable profitability result, while "the size of the audit committee, institutional proprietorship, and managerial proprietorship has no result on the profitability". According to Dzingai and Fakoya (2017), "outcomes designate a weak negative relationship between return on equity and board size and a weak but positive correlation between return on equity and board independence". Furthermore, there is a favorable but low association between equity returns and sales development, but an unfavorable and low connection between equity returns and company size. In contrast, Kapoor and Goel (2017) revealed that profitability is a significant variable, "as it moderates the connection between audit committee independence and the management of income". Managers of a profit-making business would have little need to change their income. Further, Arora (2012) suggested that enterprise governance has an important effect on company profitability. Mohan and Chandramohan (2018) indicated that the CG factor is the duality of the managing director and team composition, which had a substantial adverse effect on firms' profitability, whereas board structure disclosed no important effect on firms' profitability.

LITERATURE REVIEW
However, G.C (2016) demonstrated the size of the team, promoter control, and leverage a negative correlation with profitability. Kumar (2016) revealed a favorable connection for both factors. Similarly, Ahmad and Al-Homaidi (2018) revealed that the "audit group size and board size" had the largest disclosed proxies, whereas public ownership was the smallest exposure indicator for tourism companies. Jackling and Johl (2009) suggested that bigger board sizes have a beneficial influence on profitability, thus bolstering the opinion that increased display to the outside setting increases evaluate to multiple resources and has a favorable impact on profitability. Consistently, Raithatha and Bapat (2014) found that the average disclosure score was discovered to be 73%, max and min are 100% and 46%, respectively. The results "support agency theory in terms of tracking board function since board size is discovered to be important, but the research does not find any impact of board independence on disclosure". However, Ghosh (2006) revealed that, after managing various company-specific variables, larger boards tend to be dampened the effect on company profitability. Appendix A. presents summary of previous studies examined in different sectors in India.
Accordingly, this article aims to examine the impact of corporate governance mechanisms on firms' profitability of Indian listed firms. The research achieves the main objective by two sub-objectives:

Sample selection and model specification
The data of the current study are collected from 33 Indian listed companies for a period of four years from 2011 to 2014 based on the following criteria: firstly, accessibility and availability of data for the period of research; secondly, non-financial firms; thirdly, there is a lack of studies that examined corporate governance and profitability from 2011 to 2015 in India. This investigation is based on secondary information collected from the published annual reports of Indian listed firms. This paper examines two elements of the features of "corporate governance: the board of directors (size, independence, and diligence) and the audit committee (size, independence, and diligence)". Firms' profitability is measured by two indicators (ROA and EPS).
Multiple regression was applied to identify the effect of corporate governance features on Indian listed firms' profitability.
where Profitability = ROA and EPS; i relates to an individual firm; t relates to year; 18 : αα are the determining coefficients of factors and ε is term of mistake, and all other indicators as described in Table 1 and presented in Figure 1.

Measurement of dependent variable
Return on assets (ROA) is a ratio assessed by ("profit after tax to total assets") as a first indicator for measuring the firms' profitability used in previous investigations, e.g.

Measurement of independent variables
Corporate governance features measured by two parts, board of directors (size, independence, and diligence) and audit committee (size, independence, and diligence), were taken as important determinants of corporate governance. Table 1 summarizes the measurements of variables.

Controlling variables
Firm size FSIZE The logarithm of total assets Annual reports

Dependent variables (profitability)
Return on assets ROA Net profit after tax to total assets Annual reports Earnings per share EPS Net profit after tax to numbers of equity shareholders Annual reports All VIF values are below 5, which indicates that "multicollinearity problem among the independent variables is not present in this research" (see Table 3, panel B).   Hausman test has been used to determine the correct method of analysis (fixed-or random-effects models). Regarding the ROA model, the Hausman test outcomes showed that since the p-value is less than 5% (p-value < 0.05), and the fixed-effects model is better than the random-effects model. In the case of the EPS experiment, however, the Hausman test results showed that the random-effects model experiment is more appropriate than the fixed-effects model because the p-value is more than 5% (p-value > 0.05).

CONCLUSION
This article explores the association between corporate governance features and profitability of Indian listed companies. This investigation is based on secondary information collected from the published annual reports of Indian listed firms. Concerning ROA, the outcomes show that board's diligence, size of the audit committee, structure of the audit committee, audit committee's diligence, and size of the company have an important relationship with ROA. In contrast, the size of the board and the composition of the board have an insignificant association with return on assets (ROA). Concerning the EPS model, the results show that the size of the audit committee, the structure of the audit committee, the diligence of the audit committee, and the size of the company have an important relationship with EPS. In contrast, the size of the board, the composition of the board and the diligence of the board have an insignificant relationship with EPS. This investigation expands current literature, particularly in the Indian context, by examining companies' profitability concerning corporate governance characteristics adopted.

AUTHOR CONTRIBUTIONS
Conceptualization: Ebrahim Mohammed Al-Matari. Data curation: Ebrahim Mohammed Al-Matari, Amgad S.D. Khaled. To examine the connection between the characteristics of committees, audit committee and the executive committee and firm results in Oman Tobin's Q, board size, board composition, board meeting, CEO tenure, Ceo compensation, board change, the secretary on the board, the legal counsel, audit committee size, audit committee independence, audit committee meeting, the executive committee size, the executive committee independence, the executive committee meeting, firm size and leverage