Author: Sanyam Gupta, Student at Amity University, Noida
INTRODUCTION
The significance of corporate governance (CG) in today’s business landscape cannot be overstated. It plays a pivotal role in shaping corporate ethics and societal expectations. Despite an understanding of its ethical implications, the empirical evidence linking CG to an enhancement in corporate value remains ambiguous. This analysis attempts to delve into the intricate yet crucial linkage between CG and corporate performance.
Defined by the Institute of Company Secretaries of India, exemplary CG embodies the deployment of optimal management practices, rigorous adherence to laws both in spirit and letter, and a commitment to uphold ethical standards. These practices are fundamental for effective management, equitable wealth distribution, and the fulfilment of social responsibilities, which collectively foster the sustainable advancement of all stakeholders. Noted scholar Byrne categorizes the essentials of effective CG into three primary aspects: board independence, board accountability, and board quality.
The relationship between CG and firm performance has been extensively studied across diverse market scenarios. However, these studies have yet to converge on a unified stance regarding CG’s impact, primarily due to the variability in contextual influences that modify CG’s effectiveness. Previous research suggests that both internal and external factors such as regulatory environments and specific corporate attributes significantly sway the efficiency of board oversight. Ownership structures and unique corporate characteristics are also key in defining the scope of board monitoring. Furthermore, it has been observed that external market conditions exert a substantial influence on the internal mechanisms of CG, thereby affecting firm performance. Despite extensive research, the interplay between CG mechanisms and corporate performance, moderated by managerial overconfidence, remains underexplored.
