Does good governance lead to better financial performance?
by Supriti Mishra; Pitabas Mohanty
International Journal of Corporate Governance (IJCG), Vol. 9, No. 4, 2018

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.

Online publication date: Wed, 21-Nov-2018

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