The impact of corporate governance on financial performance: a cross-sector study

Abstract

Corporate governance remains the focus of current research and a concept that continues to evolve to meet the needs of business managers. Faced with the need for companies to cope with a world characterized by perpetual change and successive economic crises (Prowse in Revue d'économie financière 31:119–158, 1994), the identification of the results of the implementation of good governance mechanisms in the structure of the management of companies on financial performance remains a necessity that helps managers and researchers specialized in management sciences and financial accounting to have a better visibility on the importance of corporate governance. It should be mentioned that the economic environment and the characteristics of the sectors of activity of the companies remain a relevant criterion in the study of the relation between the governance of the companies and their financial performance. In this sense, we have tried through this research work to study the impact of the implementation of effective corporate governance on the financial performance of 160 companies in the UK between 2005 and 2018 while taking into account the specificity of the business sectors. Through our study, we used multivariate regressions based on FGLS models while dividing our sample to several clusters. As a result, we found that the implementation of good corporate governance leads to the improvement of the financial performance of companies measured by the return on equity. As a motivation, it must be said that this study can be of major importance for future studies that want to make comparisons on the sectoral and temporal level. Indeed, this study gives the possibility for future research work to make comparative studies based on comparisons for different sectors of activity in the UK before and after the Brexit and also after the COVID 19 period.

Corporate Governance Practices and Performance of Deposit Money Banks in Nigeria

“…The findings of the study are consistent with that of Affes and Jarboui (2023), Olokoyo, et al, (2019), Umar and Sanni (2021) and Olani and Berhanu (2015). However, findings from the studies separately conducted by Musa, et, al.…”

“…In Olani and Berhanu (2015) and Firehiwot (2015), it was found that frequency of Board meetings shares a positive relationship with Return on Assets. This finding is contrary to the findings of some researchers such as Affes and Jarboui (2023) and Salim, et al (2016). For this set of researchers, they strongly believe, through their separate results/findings, that just an increase in membership of Board of Directors cannot lead to an improvement in financial performance.…”

Shareholders in the Driver’s Seat: Unraveling the Impact on Financial Performance in Latvian Fintech Companies

“…The close relationship between shareholders and managers in these small firms fosters a culture of stewardship, enabling managers to align their goals with the long-term success of the company (Davis et al 1997), unlike in large public companies where the separation of ownership and control is more pronounced (Bonazzi and Islam 2007). The presence of shareholders as directors and managers may not have a significant impact on financial performance because both groups of managers (with and without shareholder presence) are intrinsically motivated to act responsibly and in the best interest of the company (Affes and Jarboui 2023;Caselli et al 2023). They prioritize the long-term success of the company over personal gains, leading to similar financial performance outcomes regardless of whether shareholders are directly involved in the management roles.…”

“…This hypothesis is based on the assumption that partial shareholder-manager alignment in the DM3 group may lead to similar financial performance outcomes as in the DM2 group. Affes and Jarboui (2023) suggest that both groups of managers, regardless of the presence of shareholders, may be intrinsically motivated to act responsibly and in the best interest of the firm, thus minimizing the potential impact of conflicts of interest on financial performance. Consequently, we expect the financial performance of firms in the DM2 group to be comparable to that of firms in the DM3 group.…”

Ethics Redefined: A Comparative Study on Women on Boards vs. Attributes of Corporate Governance in the Light of Firm Performance

“…To restore investor's confidence, the governance mechanism is systematized to ensure returns on investments. Resulting, some researchers find a positive effect of the internal governance mechanism on a firm's performance (Puni and Anlesinya, 2019), while some find a negative (Affes and Jarboui, 2023). Although, there are numerous studies based on the relationship between governance attributes and their impact on a firm's performance empirical findings and arguments have gone both ways (Sheikh et al, 2013), leading towards different conclusions.…”