Importance of Corporate Governance: Impact on Firm's Performance and Best Practices

In this document we will discuss about Importance of Corporate Governance and below are the summary points of this document:- Corporate governance encompasses various aspects that impact firm performance, such as shareholder rights and management structure. Effective corporate governance enhances profitability and prevents business collapses caused by poor governance practices. Research objectives include measuring the impact of corporate governance on financial performance and identifying best practices for improved governance.

Running head: IMPORTANCE OF CORPORATE GOVERNANCE ON FIRM'S
PERFORMANCE
Importance of Corporate Governance on Firm's Performance
Name of the Student
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Author’s Note

1IMPORTANCE OF CORPORATE GOVERNANCE ON FIRM'S PERFORMANCE
Table of Contents
Title............................................................................................................................................2
Rationale....................................................................................................................................2
Research Objectives...................................................................................................................2
Research Questions....................................................................................................................3
Literature Review.......................................................................................................................3
Research Methods......................................................................................................................5
Conclusion..................................................................................................................................5
References..................................................................................................................................6

2IMPORTANCE OF CORPORATE GOVERNANCE ON FIRM'S PERFORMANCE
Title
Importance of Corporate Governance on Firm's Performance
Rationale
Corporate Governance can be considered as an important concept that includes many
aspects like rights of the shareholders, internal control, social responsibility of the businesses,
role and structure of the management and others (Francis Hasan and Wu 2015). More
precisely, corporate governance includes corporate practices to meet the objectives of the
companies. It needs to be mentioned that effective corporate governance improves the
profitability of the companies by ensuring the investments in profitable projects. However,
after the occurrence of certain high-profile corporate scandals, it has become proved that poor
corporate governance can lead towards the collapse of the businesses. On the other hand, the
presence of better government helps in implementing effective internal control which can
lead to the development and implementation of effective financial reporting (Vo and Nguyen
2014). For this reason, this research will shed light on the fact that how corporate governance
can be helpful in accelerating the performance of the companies. At the same time, this
research will also shows that how the better utilization of corporate governance assists the
companies in performing at a consistent level (Vo and Nguyen 2014).
Research Objectives
It needs to be mentioned that this research will be conducted for the achievement of
certain objectives and these objectives are mentioned below:
 To measure the impact or importance of corporate governance practices on the
financial performance of the companies
 To measure the fact that to which degree corporate governance influences the
performance of the business organizations

3IMPORTANCE OF CORPORATE GOVERNANCE ON FIRM'S PERFORMANCE
 To determine the time when the aspects of corporate governance impacts the financial
performance of the business organizations
 To take into consideration the best practice in the aspect of corporate governance
within the business organizations that can impact the performance of the firms
Research Questions
The research will be developed with the aim to answer certain research questions.
These research questions are mentioned below:
 How do the different aspects of corporate governance create positive impact on the
performance of the companies?
 What are the reasons for which corporate governance influences firm’s performance?
 When do the aspects of corporate governance influence the performance of the firms?
 Why it is essential for the firms to develop and implement effective corporate
governance mechanism for their effective performance?
These are the major research questions for this research program.
Literature Review
The concept of corporate governance provides a deep insight about the various code
of conducts that the business organizations are needed to follow. For this reason, corporate
governance can be considered as the processes that govern the business activities of the firms
(Arora and Sharma 2016). Thus, corporate governance can be regarded as the whole system
to manage and control the business organizations. According to many views, corporate
governance can be considered as one of the major means for the long-run value creation of
the business organizations. It needs to be mentioned that there are certain principles of
corporate governance that help in directing as well as controlling different operation of the
companies (Obradovich and Gill 2013). There are certain elements of corporate governance

4IMPORTANCE OF CORPORATE GOVERNANCE ON FIRM'S PERFORMANCE
that need to be taken into consideration in priority basis; they are the rights of the
shareholders, the equitable treatment of the shareholders, the role of the stakeholders in
corporate governance, disclosure of various information for maintaining the required
transparency, the responsibility of the members of the board of directors and others. The
managements of the companies are needed to take into consideration all of these aspects at
the time of the development of corporate governance mechanism of them (El-Chaarani 2014).
In this context, it should be mentioned that the presence of effective corporate governance
helps the managements of the firms to establish an effective internal control around their
financial and accounting related tasks. In the presence of strong internal control within the
organizations, the possibility of corporate failure due to errors and corporate frauds decreases
(Obradovich and Gill 2013).
Different aspects of corporate governance within the companies have major
importance in the performance of those firms (Azeez 2015). Within the business
organizations, the mechanism of corporate governance has the outhit for bringing any change
or modification in any essential financial decisions; such as alteration in the accounting
policies, changes in the investment decisions, policies in management’s compensation,
decision of the boards related to different financial aspects and others. For this reason, it
becomes easier for the companies for monitoring as well as implementing different aspects of
the financial performance of them (Krafft et al. 2013). At the same time, it needs to be
mentioned that the presence of effective corporate governance mechanism assists the
companies in establishing certain committees for monitoring the financial performance of the
companies; such as audit committee, remuneration committee and others. Effective corporate
governance assists the firm’s management in making the correct investment decisions about
the financial projects so that the firm become beneficial as well as profitable from them. The
members of these companies have the responsibility to review the implemented financial

5IMPORTANCE OF CORPORATE GOVERNANCE ON FIRM'S PERFORMANCE
reporting mechanism with the aim to accelerate their financial performance. In addition, all
these aspects ensure the effective return to the shareholders (Fanta, Kemal and Waka 2013).
Thus, on the basis of the above discussion, it can be said that the presence of effective
corporate governance mechanism majorly influence the firms to improve their overall
performance.
Research Methods
In order to fulfil the objectives of this research, qualitative analysis will be taken into
consideration. Under this, secondary and thematic analysis will be taken into consideration.
Under this explanatory research design, the study will involve in the analysis of the previous
works done on the same research topic. After this, the outcome of this analysis of the prior
research will be combined with the current research questions in order to reach to a proper
conclusion. It needs to be mentioned that authentic prior researches will be considered for
this particular study.
Conclusion
As per the above discussion, the aim of the research is to measure the overall impact
of corporate governance on the performance of the companies. To infer, it can be anticipated
that the outcome of this research will be able in establishing the positive impact of robust
corporate governance mechanism on the firm’s performance. At the same time, the outcome
of this research will be majorly useful in providing certain deep insight on this particular
topic and the future researchers will be helpful in using this study as a reference.

6IMPORTANCE OF CORPORATE GOVERNANCE ON FIRM'S PERFORMANCE
References
Arora, A. and Sharma, C., 2016. Corporate governance and firm performance in developing
countries: evidence from India. Corporate Governance, 16(2), pp.420-436.
Azeez, A.A., 2015. Corporate governance and firm performance: evidence from Sri
Lanka. Journal of Finance, 3(1), pp.180-189.
El-Chaarani, H., 2014. The impact of corporate governance on the performance of Lebanese
banks. The International Journal of Business and Finance Research, 8(5), pp.35-46.
Fanta, A.B., Kemal, K. and Waka, Y., 2013. Corporate governance and impact on bank
performance. Journal of Finance and Accounting, 1(1), pp.19-26.
Francis, B., Hasan, I. and Wu, Q., 2015. Professors in the boardroom and their impact on
corporate governance and firm performance. Financial management, 44(3), pp.547-581.
Krafft, J., Qu, Y., Quatraro, F. and Ravix, J.L., 2013. Corporate governance, value and
performance of firms: New empirical results on convergence from a large international
database. Industrial and Corporate Change, 23(2), pp.361-397.
Obradovich, J. and Gill, A., 2013. The impact of corporate governance and financial leverage
on the value of American firms.
Vo, D.H. and Nguyen, T.M., 2014. The impact of corporate governance on firm performance:
Empirical study in Vietnam. International Journal of Economics and Finance, 6(6), pp.1-13.