Corporate Governance and financial performance Evidence from selected countries

26

Corporate Governance and financial performance Evidence from selected countries

introduction

Corporate governance has become an important topic in developed countries after some events such as frauds and company collapses. In recent years, it has also attracted a great attention in developing countries. Many stock exchanges and regulatory bodies issued directives regarding corporate governance mechanisms and disclosures about them. The Cadbury report (1992) simply defines corporate governance as ‘the system by which companies are directed and controlled’. In a report written for OECD, Iu and Batten (2001) defined corporate governance as follows; “Corporate governance refers to the private and public institutions, including laws, regulations and accepted business practices, which together govern the relationship, in a market economy, between corporate managers and entrepreneurs (corporate insiders) on one hand, and those who invest resources in corporations, on the other”. Corporate governance is especially important for publicly held companies with a large shareholders group who are not engaged in the day-to-day operations and have no direct access to inside information. Corporate governance is a framework which specifies the responsibilities and rewards of the parties involved. Although some authors cite different theories as the background of corporate governance, agency theory (Jensen, Meckling 1979) is regarded as the theoretical base of the concept of corporate governance. There is an agency relationship between shareholders (owners) and board of directors, corporate governance refers to the mechanisms designed to resolve the problems arising in this relationship. The term ‘governance’ is different from ‘management’ and its root is ‘to govern’, which means the administration of the State. However, management refers to the day-to-day and long-term decisions in the fields of finance, operations, marketing and so on. Therefore, governance is like bureaucratic administration of the company. Although both of these concepts refer to different aspects of the company, the common point is that they have a great importance on the success or failure of the company. In the literature, there are many studies about the relationship between different fields of management and performance of the company. Similarly, the question of whether corporate governance has any positive or negative effects on the performance of the company has been a concern in the literature.

______________________________________

==>Disclaimer