Impacts of Corporate Governance on Financial Performance : Assignment

Running head: Impacts of Corporate Governance on Financial Performance 1
Impacts of Corporate Governance on Financial Performance
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12 October 2017

Impacts of Corporate Governance on Financial Performance 2
Table of Contents
LIST OF ABBREVIATIONS....................................................................................................3
STUDY RATIONALE...............................................................................................................4
RESEARCH OBJECTIVES......................................................................................................5
RESEARCH QUESTIONS........................................................................................................5
LITERATURE REVIEW...........................................................................................................6
2.1 Corporate governance.......................................................................................................7
2.2 Financial performance......................................................................................................8
2.3 Components of Corporate Governance..........................................................................10
2.3.1 CEO duality.............................................................................................................10
2.3.2 Board size................................................................................................................10
2.3.3 Board Meetings........................................................................................................11
2.3.4 Composition of the Board........................................................................................11
2.3.5 Committees of the Board.........................................................................................11
2.3.6 Share Ownership by the Insider...............................................................................12
2.3.7 Staggered Boards.....................................................................................................12
2.4 The connection between Corporate Governance and business Financial yield.............13
2.5 Impact of Company Governance on the Financial Yield of Business Organizations....16
Conclusion................................................................................................................................20
Recommendations for further research....................................................................................21
References................................................................................................................................22

Impacts of Corporate Governance on Financial Performance 3
LIST OF ABBREVIATIONS
ROA Return on Assets
CMA Capital Markets Authority
SACCO Savings and Credit Cooperative Organization
ROE Return on Equity
(ROC) Return on Capital

Impacts of Corporate Governance on Financial Performance 4
STUDY RATIONALE
Many types of research have been done on the topic of corporate governance practices in
response to the onslaught of significant scandals on international organizations (Andreasson,
2011). The collapse of Enron, Arthur Anderson’s verdict, and insolvency of WorldCom have
all been described as expressions of momentous corporate greed, exceptional scams,
gatekeeping let-down, and managerial failure (Winter, 2011; Okpara, 2011; and Crothers &
Aras, 2013). For instance, regarding the global financial crisis of 2008, Adams (2012)
suggests that it was due to the failure and flaws of the corporate governance structures. The
researcher further asserts that most of the corporate governance machinery was unable to
defend most of the risky decisions made by the financial services companies such as
accountability of the board and supervision of the disclosure of the firm on predictable threats
and evaluation of the compensation systems. As a means of looking for precautionary
measures of such financial losses, investors are in the search for strategies to prevent the re-
occurrence of such scenarios in the future (Dallas, 2011). As a result, most of the developing
and developed countries have appreciated the necessity for sound corporate governance
because the global investors are unwilling to loan or acquire shares in corporations that do
not ascribe to the principles of good corporate governance (Aebi, Sabato & Schmid, 2012).
Thus, corporate governance is a significant aspect of the financial performance of firms
(Trificker&Tricker, 2015). This research proposal is significant because it explores the
existing research gap on the impacts of corporate governance on the performance of
organizations from the perspective of finance. The study will benefit the accounting industry
to a great extent.

Impacts of Corporate Governance on Financial Performance 5
RESEARCH OBJECTIVES
This research aims at examining the impacts of corporate governance on the organization's
performance from the finance perspective, and the following aspects are considered to
accomplish this objective:
• To discuss the various components of corporate governance
• To discuss the connection among corporate governance and financial performance
• To find out the effect of CEO duality, board size, and board composition on the
performance of the business organizations regarding finance.
RESEARCH QUESTIONS
In alignment with the aims of this research proposal, this research will aim to respond to the
questions below:
1. What are the different fundamental elements of corporate governance?
2. What association exists between the aspects of corporate governance and performance of
the companies about finance?
3. In which way do CEO duality, board size, and board composition impact on the business
financial performance of corporations?

Impacts of Corporate Governance on Financial Performance 6
LITERATURE REVIEW
Several studies on the association between corporate governance and business financial
output have been carried out. The results of most of the research depict a progressive
correlation between the contribution of the right corporate governance to the efficient
financial performance of firms (Aebi, Sabato&Schmid,2012). Conversely, there are instances
when excellent corporate governance does not always lead to good financial performance.
The board structure of the managing directors is the most crucial aspect of company
governance. The positive relation has Been found between corporate governance and various
financial factors like return on shareholders, Dividend payout and yield, profitability and
many others (Pechlaner, Volgger&Herntrei,2012).There Are many pieces of evidence of the
excellent connection between corporate governance and organizational financial productivity,
but there is a lack of concrete proof of enough positive relationship between these two. In this
regard, it needs to be mentioned that the business firms that have a strong structure of
corporate governance along with the shareholders’ right enjoy the higher level value of the
businesses, profits, sales and growth (Eccles, Ioannouents & Serafeim, 2014).
Studies have found out that businesses with a healthy relationship between corporate
governance and financial performance have increased (ROE), (ROA), (ROC), etc. Apart from
this, corporations with advanced corporate governance can generate a higher level of risk-
adjusted returns. However, according to several accountants worldwide, no connection exists
amongst corporate governance and the yield of the business regarding finance (Erkens,
Hung& Matos, 2012). Some organizational governance mechanisms impact the financial
Performance positively and also, some corporate governance mechanisms are there that hurt
the financial performance of the companies. Thus, based on the above statement, there exists
no vital connection between corporate governance and financial performance (Jo&Harjoto,

Impacts of Corporate Governance on Financial Performance 7
2012). Hence, from the above discussion, it can be observed that some studies indicate the
existence of a functional association concerning corporate governance and financial
productivity; and some analyses suggest not any connection between the two. Thus, there is
the necessity for further examination to arrive at the conclusive results. This research process
will be crucial in determining that whether a positive association amid corporate governance
and organization’s financial yield.
2.1 Corporate governance
The understanding of corporate governance has advanced with time. The general definition is
from the perspective of the security of the interests of the shareholders (Brealey et al., 2012))
and is founded on the subject of separation between control and management. According to
Van den Berghe (2012), corporate governance primarily considers the relationship between
most of the participants who are influential in the process of decision making and
organizational performance. Мазоренко (2015) maintains that corporate governance is a
collective term that defines the manner in which rights and responsibilities of the corporate
members are shared, more so among the shareholder and the management. Therefore,
corporate governance is a concept that is above the management since it is linked to the
determination of the objectives of the company and ensuring that the conduct of the
administration is as expected. Мазоренко (2015) reasons that to have a clear view of the
concept of corporate governance then its major characteristic features should be studied
alongside the reasons for its existence. Corporate governance restricts the responsibilities of
the stockholders thus rendering non-managers. This is a safeguard since it prevents any
possible vested interest between the shareholders and the management, between the owners
themselves, and the awareness of the weak events that may take place in the company.
Because of this, the governance system is usually faced with the difficulty of the criteria to be
adopted during the appointment of the organizations management; the responsibilities of the

Impacts of Corporate Governance on Financial Performance 8
nominating team of the administration; the selection of the people that supervise the
management; the method to be adopted while promoting individuals to the docket of
management and the procedure of dismissal Мазоренко (2015).
The outlook of Brown & Marsden (2013) in defining corporate governance is that based on
business operations and thus encompasses various perspectives. He argues that corporate
governance is related to the inside control within companies and organizations of a similar
kind. His definition raises complicated matters. The idea of corporate governance is founded
on many theories namely the stakeholder theory, stewardship theory, resource-based theory,
and agency theory. However, for this research, the definition of Fernando, (2012) is adopted,
which views corporate governance as the mixture of the relationships among the management
of the corporation, its board, owners and other financiers. It outlines the structure upon which
determines the firm’s goals and the way of achievement of those goals and monitoring
performance. This definition is significant to this research because it integrates the idea of
corporate governance with a financial performance which is the primary focus of this study.
2.2 Financial performance
The financial yield of the business is the degree to which a company efficiently utilizes its
assets from its principal operations and makes a profit for a specific period. The measurement
of financial performance can be done regarding profitability, liquidity, creditworthiness,
financial effectiveness and repayment ability (Parrino, Kidwell & Bates, (2011). Profitability
is the amount of revenue created by a company through the utilization of its productive
assets; an organization is creditworthy if it can meet its obligations as at when they become
due; a group is said to be solvent if it can fulfill all its financial requirements if it disposes of
all its assets. Thus, the financial performance of a corporation can be determined using the
net income, performance of its assets or its cash flows.

Impacts of Corporate Governance on Financial Performance 9
Niven, (2011) emphasizes that accountability is essential to the achievement of the desired
level of organizational performance which also attains the objectives of the company. He
further asserts that most organizations have for a long time used financial performance to
measure performance. Conversely, organizations have recently found out that the use of
financial performance alone as the ingredient for measuring and monitoring performance as
inadequate. Financial reports best measure the past performance and are limited when it
comes to the creation of long-term value. Niven, (2011) invented the application of the
balanced scorecard to aid in the measurement of the performance of the organizations in the
private sector. Their method did not discard the use of financial measurements but
incorporated three additional measures based on the standpoint of the clients, organizational
process, and education and progress.
Mahzan & Yan share the thought of measuring performance from the perspective of finance
(2014). However, with time they have proved ineffective by themselves. The most forceful
issue is that financial reporting less often encourages investment in new technologies and
markets which are necessary for the development of the business. Company balances
measure the past but are inadequate in determining the potential output of the future
opportunities regarding technology and commerce. Additionally, during the creation of the
financial measures, there was over simplicity in the products and business markets compared
to today. Lastly, the use of the finance to ascertain performance is inadequate because it
focuses on the short term of the employment period of the senior managers and their habit of
manipulating figure to strengthen the short-lived prospects.
An efficient and effective performance system must, therefore, be in agreement with the
company policies and steadily applicable to attain strategy. Furthermore, it ought to be

Impacts of Corporate Governance on Financial Performance 10
multidimensional, to take care of the most of the sectors within the corporation, its services,
and products.
2.3 Components of Corporate Governance
2.3.1 CEO duality
The duality of the CEO-Chairman is the situation in which the CEO besides serves as the
chair of the board of directors. Yang & Zhao (2014) relates this as a hindrance to the
accountability of the management and limits the ability of the board in carrying out its roles
independently because the fundamental duty of the board chair is to oversee the activities of
the senior executives. A survey research on 452 firms ranked as the 500 most significant
public firms in the US in the Forbes Magazine’s was conducted by Fauzi & Locke (2012), the
outcomes revealed that company value is higher when the CEO and the board chair positions
are distinct.
2.3.2 Board size
The board size should be moderate, neither too larger nor too small. Most of the Companies
Act does not provide for the exact board size but the upper and lower limits. For instance, the
guidelines on corporate governance by the Capital Markets Authority (CMA, 2002 cited by
Waweru, (2014) suggests that the board size should not be overly broad for this will
complicate an active deliberation of the board meetings or excessively small because it will
exclude the broader skills and expertise that are needed for the adequate board performance.
A small board size will suffer the scarcity of knowledge, whereas a significant board size will
increase conflicts (Guillaume et al., 2012); and it may weaken the process of decision making
through the frequent interruptions or difficulty in coordination (Claessens & Yurtoglu,
(2013). Kumar & Singh (2013) revisits similar arguments that a board size that is larger ins
size has a complex process of decision making. The board size and the Topic Q of the

Impacts of Corporate Governance on Financial Performance 11
corporation have an inverse relationship and that a board that is small in size is more effective
in monitoring the senior management than a larger one (Masulis, Wang & Xie, 2012).
2.3.3 Board Meetings
The incidence of the meetings of the board is a subject most of the Companies Act and
guidelines on corporate governance are silent about. However, the regularity of the meetings
of the board should be subject to the nature of the present need (Greco, 2011). Some studies
provide for the balance of the costs and benefits of frequency to determine how often the
board meetings should be. Ntim, & Oseit, (2011) suggests that an organization that
experiences poor performance can decide to increase the rate of occurrence of its board
meetings.
2.3.4 Composition of the Board
The business leadership is also affected by the percentage of the executive and non-executive
directors. The executive management are also known as inside directors are involved in the
process of decision making and thus have access to the inside information. These can easily
be influenced in the decision process by the CEO by their position. A balanced board
according to Saunders, & Cornett, (2012) guidelines on corporate governance is that which is
useful. Thus every board of directors of corporations should strike equilibrium in the number
of independent inside directors and the non-executive directors. To ensure that a single
minority or individuals do not dominate in the process of decision making on the board, the
board members are supposed be made up of a minimum of a third of the executive and non-
executive directors. Goergen (2012) highlights that the board’s independence is increased
with the increase in the ratio of the outside directors.
2.3.5 Committees of the Board
The members of the board committee are to be sovereign, experienced and proficient. The
empirical studies of Allegrini & Greco, (2013) reveal a good connection amongst the

Impacts of Corporate Governance on Financial Performance 12
existence of monitoring committees and the aspects of the advantages of monitoring.
Examples of such committees include the auditing, nomination and compensation
committees. However, Conyon, & He, (2011) attributes the likelihood of the insiders in the
compensation committee to make decisions that are aligned with the interests of the CEO.
Furthermore, the presence of the CEO in the nominating committee or during its sittings
influences the committee to nominate more outside directors with a vested interest and fewer
independent outside directors (Saunders, & Cornett, 2012). One of the effects of the
independent audit committees is that they are more likely to lower the earnings of the
management, thereby improving transparency (Samaha, Khlif & Hussainey, 2015). On the
other hand, when the role of the nominating committee is entirely that of the CEO, then the
audit team will probably be composed of few executive directors (Samaha, Khlif &
Hussainey, 2015). Knechel et al. (2013) elucidate that the audit committee members should
have some knowledge of financial competence because one of their chief roles is to monitor
financial reporting and internal control.
2.3.6 Share Ownership by the Insider
This is the ratio of shares owned by the internal directors plus the CEO. Insider ownership
implies the equity fraction owned by insiders. Saunders, & Cornett (2012) demonstrates that
if board operations are substitutes for active monitoring by the directors of the board, then the
board operations should be a proxy for improved ownership levels for disciplining the
administration.
2.3.7 Staggered Boards
Also termed as a classified board is one where the directors are elected to serve for two
consecutive years and only some percentage of the directors are in a particular year instead of
the traditional one where elections of directors are done annually (Arora, & Dharwadkar,
2011). This method has massively been opposed by shareholders and emphasis has since

Impacts of Corporate Governance on Financial Performance 13
been directed towards de-staggering company boards and replacing them with the election of
all directors on a yearly basis, underscored by the fact that staggered boards weaken the
management and limits the effectiveness of the directors, thus hurting the value of the firm.
On the contrary Ahn, & Shrestha, (2013), argues that staggered boards are often supported
by the management on the notion that they uphold board stability, independence of the
directors and an environment of long-term strategic planning. Arora, & Dharwadkar, (2011)
also adds that the staggered boards are perceived as the means of safeguarding the
management from takeovers. Further empirical research shows that the staggered boards are
of benefit to the administration but at the expense of the shareholders, leading to the fall in
corporation value (Bebchuk, Cohen, & Wang, 2010; Arora, & Dharwadkar, (2011).
Therefore, it is expected that when corporations de-stagger and implement the election of all
directors yearly, the firm’s value should appreciate Arora, & Dharwadkar, (2011)
2.4 The connection between Corporate Governance and business Financial yield.
Many scholars have researched to analyze the correlation among corporate governance and
company financial yield.
The investigation on the effect of corporate governance on organization financial yield by
Abbasi, Kalantari & Abbasi, (2012) depicted a positive relationship in the first hypothesis of
no substantial connection between the board size and CEO duality, whereas the second
hypothesis of the association between board independence and the CEO-Chairman proved
decisive. The implication of this is that all members will much welcome the resolutions and
composition of the director’s board and there is the possibility of cooperation towards the
achievement of the organization’s objectives. The research by Nazir, Aslam, & Nawaz,
(2012) on the effect of corporate governance on the structure of capital found out a definite
relationship of corporate governance with perceptibility, risk, and size except for profitability

Impacts of Corporate Governance on Financial Performance 14
which had a negative correlation. Another study which examined the companies of Jordan
industries on the consequence of corporate governance on firm output depicted a significant
association between Return on Assets, Dividend per Share influence and organizational
performance. Amran & Ahmad, (2011) revealed that the performance of the family company
was influenced by some of the board mechanisms. The study demonstrates that the family
companies whose board size is large, with minimal professionals and duality leadership
experience higher performance. However, Shukeri, Shin & Shaari, (2012) found out that the
companies in which the CEO –chairman duality was practiced to be too few (10.3%). Most of
the companies (89.7%) had differentiated the functionalities of the two positions and assigned
different persons. The corporations in the private sector are less likely to incorporate
corporate governance practices due to the high confidentiality on themselves compared to
value creation and liability of the established value due to the simple structure of ownership
identical of most of the private corporations.
The findings of Abbasi, Kalantari & Abbasi, (2012), prove the absence of non-linear
association of organizational ownership with business productivity. The results of the third
hypothesis test of the research show a significant link between company governance and
corporate output, which then validates the hypothesis of active monitoring. Dalton & Dalton,
(2011) elucidates that CEO duality as a component of corporate governance does not affect
the pay of the CEO. Additionally, the outcomes prove a positive connection between
corporate governance and the model under study which incorporates the aspect of
performance measures and is in agreement with the necessary foundations for the stewardship
theory.
Singh (2012) highlights that a board of directors which is small in size, have CEO duality and
a higher number of external directors is lucrative for the funds of corporate class from the

Impacts of Corporate Governance on Financial Performance 15
perspective of the investors and the output allied to the influence of business governance are
in alignment with stewardship theory. The findings of Hussin & Othman, (2012) challenge
the trend of the positive association of company governance with productivity. The outcomes
of their research point out that firms that practiced excellent business governance practice
were less likely to outperform the rest. Conversely, there was a definite influence on firm
performance where a company had an independent chairperson. This means that if the
general performance is monitored by an outsider, then there is the likelihood of the increase
of shareholders’ wealth. In other words, the active role of monitoring by an independent
chairman will improve the performance. Dung (2011) demonstrated that the position of CEO
duality has a positive effect on the financial yield of the firm but doesn’t influence the Return
on Assets from Vietnam’s perspective. The somewhat uncommon results are because of the
former senior manager and a board chair and as well as a significant shareholder in the
equalized firms. Thus, the CEO-chairman is most influential in the processes of decision
making and administration, consequently on the business financial output, however positively
connected to inequity to mean that CEOs that are more powerful enjoy higher inequality in
reward (Grogan, 2012).
A study by Joe Duke & Kankpang (2011) was done to establish the connection between
company governance and the productivity regarding finance of Nigerian companies. The
survey sampled listed firms in Nigeria addition to microfinance organizations. The outcomes
of the research showed that big sized and independent boards promote the organizational
value and that CEO duality negatively affects the performance. The results also indicated that
the profitability of a company is increased in scenarios where the tenure of the CEO in office
whereas the firm’s profitability is influenced by the intensity of board activity. The audit
group positively affects the market-based performance measures and extent of shareholding

Impacts of Corporate Governance on Financial Performance 16
regarding its size and the frequency of their meetings. This has a rewarding ripple effect on
the potential investors thus improving the firm’s market valuation. The existence of
regulatory mechanisms within the organizations in the finance sector facilitated the
companies to adopt fewer outside directors and small board sizes. Additionally, the outcomes
indicated that the wealth of the shareholders was enhanced by extensive boards. The
companies in the mining sector were profound in the exploitation of the shareholder value
regarding the dividend yield. The findings also revealed that companies with the development
prospects adopted large boards, extensive CEO contract and were even profitable and that the
degree of development was dependent on the governance structures which were further
affected by both the nation and sector-related issues.
Ongore & Owoko, (2011) carried out studies on the connection between features of the
manager and the board and ownership about the performance of the firm. The research
sampled 54 corporations itemized on the Nairobi Stock Exchange and discovered that a
negative association existed on the ownership focus and the performance of the company.
They recommended the diversification of shareholding as a means of tapping additional skills
and professionals into the existing shareholders for purposes of enhancing the performance of
the business. Insider ownership is positively linked with the performance of the firm because
this means that the manages will have shares within the employer firm, and as a result, they
are likely to engage themselves in the business fully because they have a share in the initial
firm income, and realise the consequences of mismanagement, thus improving performance.
2.5 Impact of Company Governance on the Financial Yield of Business Organizations
The influence of corporate governance components on the financial performance yield of
business organizations has been studied a lot, and because of this, some research has been

Impacts of Corporate Governance on Financial Performance 17
carried out globally. The objective of this section is to review the sampled studies relevant to
this investigation.
A study by Alfaraih, Alanezi, & Almujamed (2012) examined the effects of the structure of
government and institutional ownership on the profitability of Kuwait Stock Exchange (KSE)
firms. The study considered 134 licensed KSE firms in 2010, and simple linear regression
was used for analysis. The Tobin’s Q mean was used to measure the market-based
performance and it was 1.8 ranging from 0.40 to 4.41, whereas the ROA was 0.03 with -0.20
to 0.31 ranges. The investors owned a minimum of 5% of the 55% of the mean shares of the
firm in institutional ownership. On the other hand, the government had only 3% of the mean
shares in the companies under state ownership. The outcomes of the research showed that
state ownership negatively affected the financial performance of the firms whereas
institutional ownership positively affected firms’ profitability. Thus, the research resolved
that increased state ownership results in the fall of the financial performance of the firms
whereas increased institutional ownership of leads to the increase in financial performance.
Table 1:Descriptive Statistics of Variables

Impacts of Corporate Governance on Financial Performance 18
Another study by Nyarige, (2012) on the influence of the structures of business governance
of commercial banks from the Kenyan perspective was analyzed. The study sampled nine
commercial banks under the Nairobi Stock Exchange, and the significant variables of
governance considered included board size, committee meetings, and boards’ independence
and compensation of senior administration. Tobin Q ratio was used to measure the market
value of the firm, and the calculated Tobin Q of all the banks was less than 1, which implied
that the market value is less than the book value of the company assets, an indication of
undervaluation of the banks by the market. The regression outcomes show that all the
measures of corporate governance (board composition, size, and managerial meetings) were
zero, and a 19% ratio of the market values of the assets to their book values. The R2 was
0.95, an indication of a strong relationship as depicted by the model. But the f significance
was 0.33 which makes the model insignificant for prediction. Overall, the results depicted an
inverse bearing on the size of the board on the market productivity of the bank whereas the
freedom of the board had a positive impact on the market performance of the banks.
Table 2: Tobin’s Q of Commercial Banks in Kenya

Impacts of Corporate Governance on Financial Performance 19
Table 3: Model Summary
Fanta, Kemal & Waka, (2013) investigated the mechanisms of corporate governance and
their corresponding effect on the financial yield of public banks in situations of the non-
existence of a stock exchange that is structured. The analysis considered the ROA, and ROE
as the measure of productivity and their connection with the internal corporate mechanisms
such as the board of directors in terms of size and structure, presence of audit committee, size
of the banks and type of ownership and external organizational governance mechanisms
(state procedures and monitoring, provision allowance of loan loss and capital adequacy
ratio). The bank's sample included nine commercial banks both from the public and private
sector. The F-statistic of 14.57 and R2 of 0.68 and adjusted R2 of 0.63 from the regression
findings show that the F statistic is significant with P-value of zero. The results of the
analysis revealed a significant effect on the board size and presence of audit board on the
performance of the bank regarding ROA and ROE. Likewise, there was a substantial positive
impact on the external company governance on the productivity of the bank (ROE and ROA)
and the non-existence of a structured stock exchange, government infiltration, and ignorance
on corporate governance, with capital adequacy ratio as the basis of measurement.
Table 4: Descriptive Statistics of regression variables

Impacts of Corporate Governance on Financial Performance 20
Table 5: Regression results for Model 1
The study of Mohamed & Atheru (2017) on the impacts of company governance on the
financial performance of telecom industry in Kenya with Airtel as a case study. The research
used a correlation analysis to examine components of business governance on the financial
yield of Kenya’s Saccos such as the experience of the board members, their academic status
and ethnic diversity of the board. The study outcomes showed that the board size and
financial performance of Airtel Kenya Ltd had a significant negative relationship (r = - 0.421,
p = 0.000). Also, a positive and significant association existed between the gender and ethnic
diversity of the board and the firm’s financial performance (r = - 0.363, p = - 0.003) and (r =
0.376, p = 0.000) respectively. The experience and academic qualifications of the members of

Impacts of Corporate Governance on Financial Performance 21
the board were also positive and significantly associated (r = 0.560, p = 0.000). Thus, the
outcomes reveal a direct relationship between the variables under study and the financial
performance of the company except the board size which has an inverse relationship.
Table 6: Correlation Matrix
Siddiqui, (2015) observed the effect of company governance features on the productivity of
corporations using over twenty previous researchers. The study focused on three significant
aspects that are the impacts of legal and governance structures and financial performance
measures. The meta-analytic results included 25 studies, and the total mean correlation was
0.0811 and a 95% CI of -0.0627 and 0.2249. Zero is included in the confidence interval, and
this means that the relationship between the two variables (corporate governance and firm
performance) is insignificant. However, the research outcomes revealed a positive market
value of business performance using Tobin’s Q as a standard of measurement with a mean

Impacts of Corporate Governance on Financial Performance 22
correlation of 0.1149 and a positive CI between 0.0103 and 0.2195. The analysis likewise
found out that this relation had the market to book ration as the central value.
Table 7: Meta-analysis results of explanatory results
Similar research was carried out by Gupta & Sharma (2014) on the Indian and South Korea
companies and to investigate the influence of commercial governance aspects on the fiscal
yield. The ROA and ROE of the Indian companies under study were used to measure their
financial performance in relation to corporate governance respectively. Infosys is known to
have the best corporate governance model worldwide, whereas TM and L &T do not have
independent directors in the board. However, Bharti Airtel and Videocon seem to abide by
the corporate governance practices but only on paper. Infosys was leading financially
(ROA=23.9%, ROE=27.70%) trailed by L & T (ROA=5.55%, ROE=16.53%), then Bharti
Airtel (ROA=3.64%, ROE=5.14%); TM (ROA= 2.29%, ROE=6.32%) and lastly Videocon
with ROA=1.18%, ROE=0.65%. From the analysis, the financial performance of both
Infosys and Videocon seems to depend on the practices of corporate governance except
Bharti Airtel. In the case of the South Korean companies, the financial performance of the
companies was barely dependent on the corporate practices. For instance, POSCO (ROA =
2.90%, ROE = 5.74%) was recorded to be in possession of the best corporate governance
practices in the country but with no reflection in its share price. Contrariwise, KIA motors

Impacts of Corporate Governance on Financial Performance 23
experienced lucrative financial performance but were wanting in governance practices. The
outcomes demonstrate that the impact of company governance on the share price and
monetary output of the companies were minimal.
Table 8: Average Financial performance of South-Korean Companies
Table 9: Average Financial performance of Indian Companies
Conclusion
There is a general agreement of the significant effect of company governance on the fiscal
yield of corporations (Kaplan, & Minton, 2012, Kumar, & Singh, 2012, and Beltratti & Stulz,
2012). Excellent corporate governance practices can be viewed as a way of risk management
more so in situations where there are no quantitative approaches to measure risk and thus
enhancing the financial performance of firms (Beltratti & Stulz 2012). The evidence from
extant literature review shows an existence of the association between company governance
actions and the financial output of corporations. Conversely, the degree of the relationship
differs depending on nature of the organization and the sector. Various components of
corporate governance depict different levels of connection or effect on the monetary yield of
the corporation.

Impacts of Corporate Governance on Financial Performance 24
As observed from the extant literature there are different outcomes concerning the connection
between corporate governance and financial output. Some researchers have found a negative
association, others a positive relationship and others no correlation at all. Therefore, there is
the necessity to conduct further studies to arrive at outcomes.

Impacts of Corporate Governance on Financial Performance 25
Recommendations for further research
There is a general belief that no particular study is an end in itself. There should be new
research on the same problem but conducted over an extended span of time to evaluate
whether there exist any significant variations in the outcomes when data is gathered for a
long time.
This study did not examine all the necessary variables regarding corporate governance.
Future studies could be done to investigate the intangible elements including the process of
board appointment, development of directors, various board functions and remuneration of
the directors. Anonymous surveys can be to conduct the research.

Impacts of Corporate Governance on Financial Performance 26
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