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Does good governance lead to better financial performance?

Author

Listed:
  • Supriti Mishra
  • Pitabas Mohanty

Abstract

The relationship between corporate governance and financial performance of firms has been a widely debated topic. More particularly, the direction of the relationship, whether better corporate governance leads to better financial performance or the vice versa has often been debated. More often, firms decide whether to have better governance standards within the company and this self-selection gives biased OLS regression results. In this paper, using data for Indian companies, we adjust for this endogeneity and find that corporate governance is positively related to financial performance. We finally find that the average ROA of well-governed firms would have decreased by almost 40% if they were poorly-governed.

Suggested Citation

  • Supriti Mishra & Pitabas Mohanty, 2018. "Does good governance lead to better financial performance?," International Journal of Corporate Governance, Inderscience Enterprises Ltd, vol. 9(4), pages 462-480.
    • Handle: RePEc:ids:ijcgov:v:9:y:2018:i:4:p:462-480
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    Citations

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    Cited by:

    1. Khleef A. Alkhawaldeh, 2021. "Institutional Governance Practices in Jordan Government Units," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 52-65.
    2. Tatiana DANESCU & Maria-Alexandra POPA, 2020. "The Inter-conditioning between Corporate Governance and Financial Performance," The Audit Financiar journal, Chamber of Financial Auditors of Romania, vol. 18(159), pages 578-578.
    3. Faozi A. Almaqtari & Hamood Mohd. Al-Hattami & Khalid M. E. Al-Nuzaili & Mohammed A. Al-Bukhrani, 2020. "Corporate governance in India: A systematic review and synthesis for future research," Cogent Business & Management, Taylor & Francis Journals, vol. 7(1), pages 1803579-180, January.

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