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Title: Impact of Corporate Governance and Financial Performance of Selected Companies

The document discusses the relationship between corporate governance and financial performance of companies. It provides definitions of corporate governance and financial performance. It also discusses how corporate governance can impact the financial performance and efficiency of companies.

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28 views3 pages

Title: Impact of Corporate Governance and Financial Performance of Selected Companies

The document discusses the relationship between corporate governance and financial performance of companies. It provides definitions of corporate governance and financial performance. It also discusses how corporate governance can impact the financial performance and efficiency of companies.

Uploaded by

Suraj Apex
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Title: Impact of corporate governance and financial

performance of selected companies

Chapter 1. Introduction
1.1. Corporate Governance: Corporate Governance in simple words means the extent to
which companies are run in an open and honest manner. The Cadbury Committee of U.K.
in 2002 defined corporate governance as – the system by which companies are directed
and controlled. The essence of the corporate world lies in promoting transparency and
accountability and in fulfilling the fair expectations of all the stakeholders. Corporate
governance is one such tool to achieve this goal and to safeguard the interests of various
stakeholder groups. It involves promoting the compliance of law in letter and spirit, and
demonstrating ethical conduct. The framework of corporate governance encourages
efficient use of resources and also requires accountability for the stewardship of those
resources. The three key constituents of corporate governance are - Shareholders, Board
of Directors and Management. The area of corporate governance has acquired heightened
attention in the last decade because of various notable corporate scandals and collapses,
such as Enron, WorldCom, Satyam, etc. which involved unethical business practices. It is
often said that corporate governance and value creation go hand in hand. Unless a
corporation embraces and demonstrates ethical conduct, it will not be able to succeed.
Various researches have been conducted to investigate the relationship between corporate
governance and financial performance, but the results have been mixed and inconclusive.
In this paper, we examine and analyse the impact of corporate governance on financial
performance of firm in an Indian context. Corporate governance is an active area of
research and public debate. The recent generalization of 'shareholder value' ideas and
institutional investment, the establishment of codes of best practice for boards of
directors, and the controversy about whether market oriented or bank-relations oriented
systems are better for economic performance provide cogent examples. The outcome of
the debate is important for industrialized nations, developing countries, and transition
economies. The volume takes stock of research in the topic, criticizes the standard agency
view, and presents ideas and analysis about the role of competition, the political economy
of corporate governance, the effects of different systems on growth and performance, the
governance system by venture capital in the Silicon Valley, and human capital and
control in the new corporation. Corporate governance is the combination of rules,
processes or laws by which businesses are operated, regulated or controlled. The term
encompasses the internal and external factors that affect the interests of a company’s
stakeholders, including shareholders, customers, suppliers, government regulators and
management. The board of directors is responsible for creating the framework for
corporate governance that best aligns business conduct with objectives.
1.2. Financial Performance: Financial performance is a subjective measure of how well a
firm can use assets from its primary mode of business and generate revenues. The term is
also used as a general measure of a firm's overall financial health over a given period.
Analysts and investors use financial performance to compare similar firms across the
same industry or to compare industries or sectors in aggregate.
1.3. Companies: The economic success of an organization is not only dependent on
efficiency, innovation and quality management but also on compliance of corporate
governance principles. Implementation of corporate governance standards improves
financial performance of the company as well as positively impacts internal efficiency of
the firms (Tadesse, 2004) in developed economies. However, lack of transparency and
poor disclosure practices reduce effectiveness of corporate governance mechanism.
Though, global financial crisis and major corporate scandals have reinforced the merit of
good corporate governance structures in enhancing firms’ performance and sustainability
in the long run (Ehikioya, 2009).
References:

1. Tadesse S (2004) The allocation and monitoring role of capital markets: theory and
international evidence. J Financ Quant Anal 39(4):701–730.
2. Ehikioya BI (2009) Corporate governance structure and firm performance in
developing economies: evidence from Nigeria. Corporate Governance: The
international journal of business in society 9(3):231–243

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