Corporate governance and financial performance

  • What is the relationship between corporate governance and financial performance?

    In general, corporate governance is considered to be a significant variable influencing growth prospects of an economy because best governance practices reduce risk for investors, improve financial performance and help in attracting investors (Spanos, 2005).Sep 4, 2022.

  • It also focuses on the structure, composition, performance and the CEO and board's payment structure.
    Thus, corporate governance can increase the transparency of financial reporting and increase the company's value.
  • The five independent variables that affect financial performance are firm size, net working capital, firm performance, liquidity and financial leverage.

Are corporate governance mechanisms statistically significant?

The statistics so obtained provide mixed results, depending on the Model.
There are corporate governance mechanisms that have no statistical significance; some have positive, and others have a negative statistical significance on estimating financial performance, we stress, using ROA or Tobin's Q.

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Is operating profit a good measure of corporate governance?

According to Core, Guay, and Rusticus ( 2006 ), operating profit measured by ROA is a better measure when examining the relationship between financial performance and corporate governance.
For example, ROA is not affected by leverage, extraordinary items, and other discretionary items.

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Is there a relationship between corporate governance and financial performance?

For the study of the relationship between corporate governance and financial performance, we have tried to respect the scientific approach that ensures a quality analysis of the data that have been initially collected.
It is a matter of following a positivist epistemological posture according to a hypothetical-deductive approach.

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Why is corporate governance important?

In summary, agency theory shows that corporate governance is essential for aligning stakeholder interests and improving the financial performance of the firm.
By putting in place appropriate control and oversight mechanisms, corporate governance can help reduce conflicts of interest and improve shareholder value.


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