Exploring the Relationship between Corporate Governance Practices and Financial Performance: A Global Perspective

https://doi.org/10.5281/zenodo.20094367

Abstract

Background: Corporate governance is a focal point key to enhancing transparency, accountability and strategic control in companies that are conducting business in more complicated global markets. Even though the previous literature has indicated that there is a relationship between the quality of governance and firm performance, there is a mixed evidence on the relationship based on the institutional and regulatory differences between different countries.

Objective: This research attempts to investigate the connection between the corporate governance practices on a global basis and to evaluate the extent to which the governance structures including the independence of the board and the duality of the CEOs play a significant role in the profitability and market valuation.

Procedure: The quantitative explanatory approach is used and the panel data was used with 420 publicly listed companies in various countries over ten years (20152024). The measurement of corporate governance included a composite Governance Index, and the specific structure measure, whereas financial performance was measured in terms of Return on Assets (ROA) and Tribunals Q. Fixed effects regression and system GMM dynamic panel estimation were used to eliminate the unobserved heterogeneity and endo-geneity.

Findings: The results show that, there is a positive and statistically significant correlation between accounting and market-based performance and the quality of governance. Independence of the board improves the performance of firms, whilst the duality of the CEO has a negative influence on performance in terms of profitability and valuation. The findings are also strong under dynamic estimation.

Conclusion: Good corporate governance practices play a major role in enhancing financial performance especially in enabling institutional environments.