Does Managerial Behaviour Matter? Evidence from Emerging Economies

Abstract

The study aims to pinpoint the moderating role of an aspect of corporate governance, that is, Board Structure, in the relationship between managerial behaviour and firm performance. Using data envelopment analysis (DEA), firm efficiency is measured, and afterward, this firm efficiency is regressed on firm size, market share of the company, business segment and foreign currency translation. The residual values are the measurements of managerial behaviour. The data for 11 years (2009–2019) was collected from 492 non-financial firms listed on the stock exchanges of Pakistan, Bangladesh and India. The results are obtained by applying the system dynamic generalized method of moments (GMM) to address the problem of endogeneity. The study’s main findings prove that corporate governance, measured by the board structure index, positively modifies the relationship of managerial behaviour with firm performance in all three emerging economies. Secondly, the results show positive influence of managerial behaviour on both measures of firm performance (Tobin’s Q and return on assets (ROA)) in Bangladesh and Pakistan scenarios, but negative impact on ROA and inconclusive on Tobin’s Q in the Indian context. The study is helpful for creditors and loan providers to scrutinize managerial behaviour and firm performance.