The Relationship Between Corporate Governance And Performance

2507 Words Dec 4th, 2014 11 Pages
1. This article focuses on the Gompers, Ishii, and Metrick (GIM, 2003) study which found that strong shareholder rights lead to higher stock price returns and thus value. This is a great indicator that good governance has a direct effect on the performance of the firm. The article finds the correlation of corporate governance and the positive impact it has on the firm, management, and shareholders. However the article provides a subjective view, is good governance the correct metric of evaluation. The primary finding of the article is a comprehensive and economic analysis defending the relation between corporate governance and performance. This article examines the inter-relationships among corporate governance,
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This study was based on three non-mutually exclusive testable hypotheses. Overall the article, came to a conclusion that board size/composition vary across all firms and remains unexplained. Firms that issue IPO start off with small board sizes and add .13 members every year for the first 10 years. Board of firms issuing IPO’s usually are comprised of 56% outside members and 44 inside members. This study identified the following characteristics within them: larger firms have seasoned and diverse independent boards and firms in which managers have substantial influence have less independent boards.
4. The article supports the idea of good corporate board of governance leads to increased firm performance. For example with increased operating performance based on better governance, firm performance is increased. Various positive indicators are examined for which firm performance can be measured which include: Tobin Q’s (a proxy for firm value), and paying out more cash to shareholders in the firm of dividends. The readings are important because the points identified can assist investors, regulators, and academics with identifying businesses for which they can have confidence in.
5. This article focuses on past research on board sizes and the value of them to the firm. Furthermore the article outlines the effect that outside board members have on
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