The impact of corporate governance on financial performance: a cross-sector study (2024)

The impact of corporate governance on financial performance: a cross-sector study (1) https://doi.org/10.1057/s41310-023-00182-8

Journal: International Journal of Disclosure and Governance, 2023, №4, p.374-394

Publisher: Springer Science and Business Media LLC

Authors: Wajdi Affes, Anis Jarboui

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The impact of corporate governance on financial performance: a cross-sector study (2024)

FAQs

What is the impact of corporate governance on financial performance? ›

By establishing appropriate incentives and controls, corporate governance can help reduce conflicts of interest and improve the company's financial performance by increasing the value of the company and the return on investment for shareholders.

Does corporate governance impact the efficiency of financial markets? ›

The results show that good corporate governance practices have a positive impact on firm performance, and that capital structure can strengthen this relationship.

What are the impacts of corporate governance? ›

Corporate governance that calls for upstanding, transparent behavior can lead a company to make ethical decisions that will benefit all of its stakeholders, including investors. Bad corporate governance can lead to the breakdown of a company, often resulting in scandal and bankruptcy.

What is the impact of corporate governance on financial distress? ›

The findings imply that financial distress is influenced by corporate governance variables (board independence, auditor independence, auditor opinion, sponsor directors ownership, and foreign shareholders), and firm-level variables (sales growth, performance, liquidity, firm size)).

Why is corporate governance important in financial management? ›

Importance of Corporate Governance

Fostering trust amongst employees and stakeholders. Allowing organizations to adapt to changing market conditions. Enhancing a company's reputation. Mitigating financial and reputational risks.

What is the relationship between finance and corporate governance? ›

A strong relationship between finance and corporate governance brings several benefits to an organization. Enhanced decision-making processes, improved risk management, and increased transparency and accountability are just a few of these advantages.

What are the 4 P's of corporate governance? ›

Governance specialists sum up corporate governance in four words: people, purpose, process, and performance. These four Ps serve as the foundational principles for both the existence and operation of governance.

What is the relationship between good corporate governance and financial reporting? ›

The principles of corporate governance, including in regard to finance, build trust and integrity in the relationship between a corporation and its stakeholders. Requirements of transparency and disclosure call on companies to share—openly and accurately—all relevant financial and operational information.

Does ESG impact financial performance? ›

According to McKinsey, studies show that strong ESG performance is positively correlated with higher equity returns and reduction in downside risk.

What are the pros and cons of corporate governance? ›

It ensures compliance with laws, better management, and strong reputation. However, disadvantages include high compliance costs, maintenance of segregation, and conflicts between shareholders and managers.

How can corporate governance help increase the performance of a corporation? ›

Good corporate governance improves the decision-making process by defining clear responsibilities and roles. Organisations with clear corporate governance empower executives and managers to make smart decisions and ensure that decision-making is efficient and responsive.

What is corporate governance and how does it affect an organization? ›

ICSA: The Governance Institute defines corporate governance as "the way in which companies are governed and to what purpose." To elaborate, corporate governance impacts all aspects of an organization, from communication to leadership and strategic decision-making, but it primarily involves the board of directors, how ...

How does corporate governance affect financial performance? ›

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.

How does corporate governance affect financial management decisions? ›

Most organisations displayed a preference for internal and debt financing over equity funding. Aligning governance with financial decisions enhances firms' cost of capital. Governance quality affects capital market access, debt and equity costs. Effective governance leads to favourable financing terms.

What are the problems with financial governance? ›

The risks of poor financial governance include fraud, misappropriation, material errors, regulatory penalties, poor decision making and reduced stakeholder confidence.

What is the role of corporate governance in the financial performance and valuation of a company? ›

It creates accountability: Good corporate governance ensures the company has the proper rules, policies and practices to create long-term shareholder value. When the company's performance is down, shareholders have every right to begin asking questions.

What is the role of governance in finance? ›

Financial governance refers to the way a company collects, manages, monitors and controls financial information. Financial governance includes how companies track financial transactions, manage performance and control data, compliance, operations, and disclosures.

How does corporate governance affect stock performance? ›

Among the dominant factors are corporate governance and capital structure which can affect a company's market performance. Corporate governance leads the company to have high liquidity value which may attract investors to buy the company's shares listed on the stock market (IDX).

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