Exploring the relationship between corporate governance and stock price performance: Evidence from Indian publicly listed companies

Abstract

This research paper investigates the relationship between corporate governance and stock price performance in the context of Indian publicly listed companies, spanning the period from 2018 to 2022. With the dual objectives of analyzing the impact of corporate governance practices on stock price performance and exploring sectoral variations in this relationship, the study employs a quantitative methodology, focusing on a dataset sourced from 30 sensex companies of the Bombay Stock Exchange (BSE). Through the application of linear regression models, the research analyzes the correlation between corporate governance scores and stock prices, while ensuring model validity through rigorous diagnostic tests.The key findings reveal a significant positive correlation between robust corporate governance practices and enhanced stock price performance. Specifically, higher corporate governance scores are associated with increased stock prices, indicating that the market places a premium on strong governance mechanisms. These results are robust to various model validation checks, including tests for multicollinearity, autocorrelation, and heteroscedasticity.The implications of this study are significant for investors, regulators, and companies within the Indian market. For investors, the findings underscore the importance of incorporating governance assessments into investment decisions. For regulators, the results support the ongoing efforts to strengthen corporate governance frameworks. For companies, the research highlights the financial benefits of adhering to high governance standards. Overall, this study contributes to the broader discourse on corporate governance, offering empirical evidence from an emerging market perspective and underlining the crucial role of governance in enhancing stock market performance.