The effect of corporate governance on financial performance

Abstract

The study underscores the importance of effective corporate governance frameworks in promoting financial stability and sustainable growth, and offers valuable insights for policymakers, regulators, and corporate managers aiming to strengthen governance standards. Corporate governance plays a crucial role in enhancing organizational accountability, transparency, and long-term sustainability, thereby influencing financial performance. This study examines the effect of corporate governance mechanisms on the financial performance of firms. Key governance variables such as board size, board independence, ownership structure, audit committee effectiveness, and CEO duality are analyzed to understand their impact on financial indicators including return on assets (ROA), return on equity (ROE), and market-based measures like Tobin’s Q. Using secondary data drawn from annual reports and financial statements over a specified period, the study employs quantitative techniques such as correlation and regression analysis to establish relationships between governance practices and firm performance. The findings reveal that strong corporate governance mechanisms positively influence financial performance by reducing agency problems, improving decision-making efficiency, and enhancing investor confidence. However, certain governance attributes may exhibit mixed or context-specific effects depending on firm size, industry, and regulatory environment.