Value relevance of firm specific corporate governance and macroeconomic variables : evidence from Karachi stock exchange

This study examines the value relevance of firm specific corporate governance and macroeconomic variables of public listed non-financial companies in Karachi stock exchange (KSE) and also answers how a firm can increase its value relevance by incorporating most value relevant drivers in their financial management systems. The sample of the study is drawn by stratified systematic sampling technique to capture most representative sample on the basis of market capitalization. A total 12 years secondary data from 2000 to 2011 is used as the study period. This time frame is chosen because the Securities and Exchange Commission of Pakistan (SECP) issued corporate governance code in year 2002; moreover this time frame also covers the mandatory adoption of International Financial Reporting Standards (IFRSs) in 2005. The results of the study found that book value, earnings per share; quality corporate governance and real gross domestic product growth rate significantly determine the stock price. But the regression coefficients of inflation and money supply are statistically insignificant. The study also found that there is a positive and significant impact of the issuance of code of corporate governance and mandatory adoption of IFRSs on the value relevance of book value and earnings. This implies that the relevance of published financial statement has been increased for the investors.