Corporate Governance and Firm Financial Performance: A Conceptual Framework and Research Propositions

Abstract

The intention of this conceptual paper is to evaluate the consequences of corporate governance (CG) on firm's financial performance (FFP). This paper studies the effect of corporate governance mechanism (CGM) i.e. Board size (BS), CEO duality (CD), insider Shareholder (IS), board independence (BI), audit committees (AC), board diligence (BD) and the role of women on board (RWB) on FFP via Return on Assets (ROA), Earning per share (EPS) and Tobin's Q. I've incorporated stewardship theory, agency theory and stakeholder theory and consider the leverage, industry and firm size as controllable variables. This study explored that a well-organized structured corporate governance mechanism influences the FFP positively. Increases the investor trust as well as enhances the sustained advancement along with financial strength of the firm. This study additionally explains the well-structured CG considers shareholder priorities, managers besides stakeholders. Furthermore, CGM enhances effective strategic decision making and improves risk management and oversight the managers’ affairs efficiently.

Keywords: Stewardship Theory, corporate governance, Stakeholder Theory, Board composition, Firm's financial performance, Agency Theory.