The Relationship Between Corporate Governance And Performance

Best Essays
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,
…show more content…
Yermack, 1996). This article argues against the findings of Jensen (1993) and Lipton and Lorsch (1992), which stated that larger boards have a negative effect on firm value; in fact the study suggests that having a large diverse board enables the firm to have more experience and expertise to contribute to firm value and boost firm performance.
3. This article notes advocates for shareholders have requested that corporations have smaller board sizes with more outside representation. Despite the importance of corporate boards and the call to action for them to reform, economists have not been able to conclude what drives the composition and size of boards. 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
Get Access