topics for corporate governance research paper

Corporate Governance Research Paper Topics

This guide provides a comprehensive list of corporate governance research paper topics divided into 10 categories, expert advice on choosing a relevant and feasible topic, and tips on how to write a successful corporate governance research paper. Corporate governance is a critical aspect of modern business that has a significant impact on the success of organizations. As a result, students who study corporate governance are often assigned to write research papers that explore various aspects of the topic. In addition, iResearchNet offers custom writing services that provide expert degree-holding writers, customized solutions, and timely delivery. By using this guide and iResearchNet’s writing services, students can ensure that their corporate governance research papers meet the highest academic standards.

Corporate Governance Research

Corporate governance is a critical aspect of modern business that encompasses the practices, processes, and systems by which organizations are directed, controlled, and managed. As a result, students who study corporate governance are often assigned to write research papers that explore various aspects of the topic, ranging from board structures and executive compensation to shareholder activism and stakeholder engagement.

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In this guide, we provide a comprehensive list of corporate governance research paper topics divided into 10 categories, expert advice on how to choose a relevant and feasible topic, and tips on how to write a successful corporate governance research paper. In addition, we offer custom writing services through iResearchNet that provide expert degree-holding writers, customized solutions, and timely delivery.

By using this guide and iResearchNet’s writing services, students can ensure that their corporate governance research papers are well-researched, well-written, and meet the highest academic standards.

100 Corporate Governance Research Paper Topics

Corporate governance is a broad and complex topic that encompasses a wide range of issues and challenges facing modern organizations. To help students choose a relevant and feasible corporate governance research paper topic, we have divided our comprehensive list of topics into 10 categories, each with 10 topics.

Board of Directors

• Board independence and effectiveness
• Board diversity and gender equality
• CEO duality and separation of roles
• Board composition and characteristics
• Board oversight and accountability
• Board nominations and elections
• Board leadership and culture
• Board committees and responsibilities
• Board evaluation and performance
• Board compensation and incentives

Executive Compensation

• Executive pay and performance
• Executive pay and firm performance
• Pay-for-performance and pay-for-skill
• CEO pay ratios and pay equity
• Stock options and equity-based compensation
• Executive severance and golden parachutes
• Executive perquisites and benefits
• Executive retirement and pensions
• Say-on-pay and shareholder activism
• Institutional investors and executive pay

Shareholder Activism

• Shareholder rights and activism
• Shareholder proposals and proxy access
• Shareholder engagement and communication
• Shareholder activism and corporate social responsibility
• Institutional investors and shareholder activism
• Hedge funds and shareholder activism
• Shareholder activism and executive compensation
• Shareholder activism and board independence
• Shareholder activism and corporate governance reforms
• Shareholder activism and CEO turnover

Stakeholder Engagement

• Stakeholder identification and analysis
• Stakeholder mapping and prioritization
• Stakeholder communication and dialogue
• Stakeholder participation and empowerment
• Stakeholder consultation and feedback
• Stakeholder engagement and corporate social responsibility
• Stakeholder engagement and sustainability reporting
• Stakeholder engagement and risk management
• Stakeholder engagement and corporate reputation
• Stakeholder engagement and value creation

Corporate Culture and Ethics

• Corporate values and ethics
• Ethical leadership and decision-making
• Corporate social responsibility and sustainability
• Business ethics and compliance
• Corporate citizenship and philanthropy
• Corporate culture and values alignment
• Corporate culture and employee behavior
• Corporate culture and organizational performance
• Corporate culture and innovation
• Corporate culture and risk management

Board-Shareholder Relations

• Board-shareholder communication and engagement
• Board-shareholder conflict resolution
• Board-shareholder cooperation and collaboration
• Board-shareholder activism and response
• Board-shareholder rights and responsibilities
• Board-shareholder agreements and charters
• Board-shareholder engagement and corporate social responsibility
• Board-shareholder relations and institutional investors
• Board-shareholder relations and minority shareholders
• Board-shareholder relations and corporate governance reforms

Regulatory and Legal Environment

• Corporate governance regulations and compliance
• Corporate governance laws and policies
• Corporate governance codes and standards
• Corporate governance enforcement and penalties
• Corporate governance and public policy
• Corporate governance and the role of regulators
• Corporate governance and antitrust laws
• Corporate governance and securities laws
• Corporate governance and data privacy laws
• Corporate governance and intellectual property laws

Risk Management and Disclosure

• Enterprise risk management and oversight
• Risk management and strategic planning
• Risk management and financial reporting
• Risk management and sustainability reporting
• Risk management and cybersecurity
• Risk management and climate change
• Risk management and supply chain management
• Risk management and crisis management
• Risk management and stakeholder engagement
• Risk management and disclosure requirements

International Corporate Governance

• Cross-border mergers and acquisitions and corporate governance
• Corporate governance and foreign direct investment
• Corporate governance and multinational corporations
• Corporate governance and global supply chains
• Corporate governance and global financial markets
• Corporate governance and emerging markets
• Corporate governance and corruption
• Corporate governance and cultural diversity
• Corporate governance and the United Nations Sustainable Development Goals
• Corporate governance and global challenges

Corporate Governance Reform

• Corporate governance failures and scandals
• Corporate governance reforms and their impact
• Corporate governance and shareholder activism
• Corporate governance and executive compensation reform
• Corporate governance and board independence reform
• Corporate governance and stakeholder engagement reform
• Corporate governance and diversity and inclusion reform
• Corporate governance and sustainability reform
• Corporate governance and regulatory reform
• Corporate governance and future trends

By organizing the corporate governance research paper topics into categories, students can easily identify areas of interest and develop research questions that align with their academic goals and interests. The categories cover a wide range of issues and challenges facing modern organizations, from board structures and executive compensation to stakeholder engagement and international corporate governance.

Choosing a Topic in Corporate Governance

Choosing a relevant and feasible corporate governance research paper topic is critical for success in academia. The following are expert tips on how to choose a corporate governance research paper topic:

• Consider your interests : Choose a topic that you are interested in and passionate about. Your enthusiasm for the topic will help you stay motivated throughout the research and writing process.
• Identify a research gap : Choose a topic that fills a research gap or addresses a new research question. This will help you contribute new knowledge to the field and make a meaningful contribution to academic scholarship.
• Consult with your instructor : Discuss potential topics with your instructor and seek feedback on your ideas. Your instructor can help you refine your research question and suggest relevant literature and sources.
• Conduct a literature review : Conduct a literature review to identify gaps and areas of interest within the field. This will help you develop research questions and identify key concepts and themes.
• Consider feasibility : Choose a topic that is feasible given the time and resources available to you. Be realistic about your research scope and the data sources that are available to you.
• Stay current : Choose a topic that is current and relevant to the field. This will help you stay up-to-date on the latest trends and developments in corporate governance.
• Identify a manageable scope : Choose a topic that has a manageable scope. Narrow down your research question to a specific aspect of corporate governance that can be explored in-depth within the scope of a research paper.
• Brainstorm potential topics : Brainstorm a list of potential topics based on your interests, literature review, and discussions with your instructor. Evaluate each topic based on its relevance, feasibility, and potential impact.

By following these expert tips, students can choose a relevant and feasible corporate governance research paper topic that aligns with their academic interests and goals. In the next section, we provide tips on how to write a successful corporate governance research paper.

How to Write a Corporate Governance Research Paper

Writing a successful corporate governance research paper requires careful planning and attention to detail. The following are expert tips on how to write a corporate governance research paper:

• Develop a clear research question : Develop a clear and concise research question that addresses a gap or new research question within the field of corporate governance. The research question should be specific and focused to ensure a manageable scope for the research paper.
• Conduct a literature review : Conduct a comprehensive literature review to identify key concepts and themes within the field of corporate governance. This will help you develop a theoretical framework and provide a foundation for your research paper.
• Select appropriate research methods : Select appropriate research methods that align with your research question and objectives. This may include qualitative, quantitative, or mixed-methods research approaches.
• Collect and analyze data : Collect and analyze data using appropriate research methods. This may include conducting interviews, surveys, or analyzing financial data. Ensure that your data collection and analysis is rigorous and aligns with the research question and objectives.
• Develop a clear and structured outline : Develop a clear and structured outline for your research paper. This will help you organize your thoughts and ideas and ensure a logical flow of information.
• Write a clear and concise introduction : Write a clear and concise introduction that provides background information and context for the research question. The introduction should also clearly state the research question and objectives.
• Develop a comprehensive literature review : Develop a comprehensive literature review that provides a theoretical framework for the research question. The literature review should be organized thematically and include key concepts and themes within the field of corporate governance.
• Analyze and interpret findings : Analyze and interpret the findings of the research. Ensure that your analysis and interpretation aligns with the research question and objectives.
• Develop a clear and concise conclusion : Develop a clear and concise conclusion that summarizes the key findings of the research and provides implications for practice and future research.
• Ensure proper formatting and citation : Ensure that your research paper is properly formatted and cited. Follow the guidelines of the citation style required by your instructor, such as APA, MLA, or Chicago.

By following these expert tips, students can write a successful corporate governance research paper that contributes new knowledge to the field and makes a meaningful contribution to academic scholarship. In the next section, we provide information on how students can benefit from the iResearchNet writing services for corporate governance research papers.

iResearchNet Writing Services for Corporate Governance Research Papers

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• Expert degree-holding writers : Our writers are experts in corporate governance with advanced degrees in the field. They have the knowledge and expertise to produce high-quality research papers that meet the academic standards of students.
• Custom written works : We provide custom written works that are tailored to the specific needs and requirements of each student. Our writers work closely with students to ensure that their research papers meet their expectations and academic standards.
• In-depth research : Our writers conduct in-depth research to ensure that the research papers are well-supported with relevant and reliable sources.
• Custom formatting : Our writers are well-versed in various citation styles, including APA, MLA, Chicago/Turabian, and Harvard. We ensure that the research papers are properly formatted and cited according to the required citation style.
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Writing a successful corporate governance research paper requires careful planning and attention to detail. By choosing a relevant and feasible research paper topic, conducting a comprehensive literature review, and following the tips outlined in this article, students can produce high-quality research papers that make meaningful contributions to the field of corporate governance. Additionally, iResearchNet writing services offer students a valuable resource for producing high-quality research papers that meet the academic standards of their instructors. With expert degree-holding writers, customized solutions, and a range of support features, iResearchNet can help students achieve academic success and excel in their studies. Contact us today to learn more about our writing services and how we can assist you in your corporate governance research paper writing needs.

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Corporate Governance Dissertation Topics (28 Examples) For Research

Mark Aug 21, 2021 Aug 12, 2021 Corporate Governance No Comments

Corporate governance refers to the code of conduct for global business corporations. It is important for businesses to act responsibly and contribute to the betterment of society and people. As the concept of corporate governance has emerged, the scope and area for research have increased. We provide you with a list of corporate governance dissertation […]

Corporate governance refers to the code of conduct for global business corporations. It is important for businesses to act responsibly and contribute to the betterment of society and people. As the concept of corporate governance has emerged, the scope and area for research have increased. We provide you with a list of corporate governance dissertation topics.

The research topics on corporate governance and project topic on corporate governance are listed to help students in selecting a topic for their research and thesis. We have sorted down some of the most interesting corporate governance dissertation topics and can provide you with a brief on the selected topic.

A list Of Corporate Governance Dissertation Topics

A comparison of corporate governance policies and practices in the years 2010 to 2020.

Studying the impact of corporate governance practices on the management and leadership styles.

Identifying the most effective corporate governance strategies and its impact on organizational reputation.

An integrated analysis of the corporate governance practices in developing countries.

To investigate the impact of corporate governance policies and their implementation on the monetary success of large businesses.

Analysing the competence of corporate governance in a state-owned enterprise in the UK.

Comparing the policies of corporate social responsibility and its causes and effects.

Can effective corporate governance contribute to dealing with the global recession?

Studying the role of audit practices in corporate governance.

Evaluation of corporate governance regulations in the US and the UK.

Studying the importance of ethics in corporate governance taking a real-life case example.

A literature review on the corporate governance in a family-based business.

To study the impact of corporate governance on earning management in SMEs.

How does corporate governance affect the financial performance and financial stability of a business?

Studying the board attributes and corporate social responsibility disclosure.

Investigating the relationship between corporate governance and operating cash flow.

How does effective corporate governance help in building and maintaining relationships with the strategic partners?

To study the impact of ownership structure and corporate governance on the success of a business.

Does effective internal audit help in developing corporate governance policies and regulations?

To investigate the effect of accounting conservatism and corporate governance on tax avoidance.

Studying the impact of corporate governance on voluntary risk disclosure in large businesses in the UK.

The relationship between corporate governance and enterprise risks in the banking industry.

The contribution of innovation in enhancing corporate governance in organisations.

The importance of developing a code of conduct to manage organisational behaviour.

A literature review on corporate governance and its growing importance.

Studying and comparing the laws and policies related to corporate governance in the UK and the United States.

What is the role of corporate governance in the case of blockchain technology?

The role of corporate governance in long-term competitiveness based on value-added measures.

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• Published: 01 November 2021

The impact of corporate governance measures on firm performance: the influences of managerial overconfidence

• Tolossa Fufa Guluma   ORCID: orcid.org/0000-0002-1608-5622 1  

Future Business Journal volume  7 , Article number:  50 ( 2021 ) Cite this article

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The paper aims to investigate the impact of corporate governance (CG) measures on firm performance and the role of managerial behavior on the relationship of corporate governance mechanisms and firm performance using a Chinese listed firm. This study used CG mechanisms measures internal and external corporate governance, which is represented by independent board, dual board leadership, ownership concentration as measure of internal CG and debt financing and product market competition as an external CG measures. Managerial overconfidence was measured by the corporate earnings forecasts. Firm performance is measured by ROA and TQ. To address the study objective, the researcher used panel data of 11,634 samples of Chinese listed firms from 2010 to 2018. To analyze the proposed hypotheses, the study employed system Generalized Method of Moments estimation model. The study findings showed that ownership concentration and product market competition have a positive significant relationship with firm performance measured by ROA and TQ. Dual leadership has negative relationship with TQ, and debt financing also has a negative significant association’s with both measures of firm performance ROA and TQ. Moreover, the empirical results also showed managerial overconfidence negatively influences the relationship of board independence, dual leadership, and ownership concentration with firm performance. However, managerial overconfidence positively moderates the impact of debt financing on firm performance measured by Tobin’s Q and negative influence on debt financing and operational firm performance relationship. These findings have several contributions: first, the study extends the literature on the relationship between CG and a firm’s performance by using the Chinese CG structure. Second, this study provides evidence that how managerial behavioral bias interacts with CG mechanisms to affect firm performance, which has not been studied in previous literature. Therefore, the results of this study contribute to the theoretical perspective by providing an insight into the influencing role of managerial behavior in the relationship between CG practices and firm performance in an emerging markets economy. Hence, the empirical result of the study provides important managerial implications for the practice and is important for policy-makers seeking to improve corporate governance in the emerging market economy.

Introduction

Corporate governance and its relation with firm performance, keep on to be an essential area of empirical and theoretical study in corporate study. Corporate governance has got attention and developed as an important mechanism over the last decades. The fast growth of privatizations, the recent global financial crises, and financial institutions development have reinforced the improvement of corporate governance practices. Well-managed corporate governance mechanisms play an important role in improving corporate performance. Good corporate governance is fundamental for a firm in different ways; it improves company image, increases shareholders’ confidence, and reduces the risk of fraudulent activities [ 67 ]. It is put together on a number of consistent mechanisms; internal control systems and external environments that contribute to the business corporations’ increase successfully as a complete to bring about good corporate governance. The basic rationale of corporate governance is to increase the performance of firms by structuring and sustaining initiatives that motivate corporate insiders to maximize firm’s operational and market efficiency, and long-term firm growth through limiting insiders’ power that can abuse over corporate resources.

Several studies are contributed to the effect of CG on firm performance using different market developments. However, there is no consensus on the role CG on firm performance, due to different contextual factors. The role of CG mechanisms is affected by different factors. Prior studies provided different empirical evidence such as [ 14 ], suggested that the monitoring efficiency of the board of directors is affected by internal and external factors like government regulation and internal firm-specific factors; the role of board monitoring is determined by ownership structure and firm-specific characters Boone et al. [ 8 ], and Liu et al. [ 57 ] and Bozec [ 10 ] also reported that external market discipline affects the internal CG role on firm performance. Moreover, several studies studied the moderation role of different variables in between CG and firm value. Mcdonald et al. [ 63 ] studied CEO experience moderating the board monitoring effectiveness, and [ 60 ] studied the moderating role of product market competition in between internal CG and firm performance. Bozec [ 10 ] studied market disciple as a moderator between the board of directors and firm performance. As to the knowledge of the researcher, no study considered the influencing role of managerial overconfidence in between CG mechanisms and firm corporate performance. Thus, this study aims to investigate the influence of managerial overconfidence in the relationship between CG mechanisms and firm performance by using Chinese listed firms.

Managers (CEOs) were able to valuable contributions to the monitoring of strategic decision making [ 13 ]. Behavioral decision theory [ 94 ] suggests that overconfidence, as one type of cognitive bias, encourages decision-makers to overestimate their information and problem-solving capabilities and underestimates the uncertainties facing their firms and the potential losses from litigation associated with claims against them. Several prior studies reported different results of the manager's role in corporate governance in different ways. Previous studies claimed that overconfidence is a dysfunctional behavior of managers that deals with unfavorable consequences for the firm outcome, such as value distraction through unprofitable mergers and suboptimal investment behavior [ 61 ], and unlawful activities (Mishina et al. [ 64 ]). Oliver [ 68 ] argued the human character of individual managers affects the effectiveness of corporate governance. Top managers' behaviors and experience are primary determinants of directors' ability to effectively evaluate their managerial decision-making [ 45 ]. In another way, [ 47 , 58 ] noted managerial overconfidence can encourage some risk and make up for managerial risk aversion, which leads to suboptimal investment decisions. Jensen [ 41 ] suggested in the presence of free cash flow, the manager may overinvest and they can accept a negative net present value project. Therefore, the existence of CG mechanisms aims to eliminate or reduce the effect of agency and asymmetric information on the CEO’s decisions [ 62 ]. This means that the objectives of CG mechanisms are to counterbalance the effect of such problems in the corporate organization that may affect the value of the firms in the long run. Even with the absence of agency conflicts and asymmetric information problems, there is evidence documented for distortions such as the case of corporate investment. Managers will over- or under-invest regarding their optimism level and the availability of internal cash flow.

Agency theory by Jensen and Meckling [ 42 ] has a very clear vision of the problems that exist in the company to know the disagreement of interests between shareholders and managers. Irrational behavior of management resulting from behavioral biases of executive managers is a great challenge in corporate governance [ 44 ]. Overconfidence may create more agency conflict than normal managers. It may lead internal and external CG mechanisms to decisions which damage firm value. The role of CG mechanisms mitigating corporate governance results from agency costs, information asymmetry, and their impact on corporate decisions. This means the behavior of overconfident executives may affect controlling and monitoring role of internal/external CG mechanisms. According to Baccar et al. [ 5 ], suggestion is that one of the roles of corporate governance is controlling such managerial behavioral bias and limiting their potential effects on the company’s strategies. These discussions lead to the conclusion that CEO overconfidence will negatively or positively influence the relationships of CG on firm performance. The majority of studies in the corporate governance field deal with internal problems associated with managerial opportunism, misalignment of objectives of managers and stakeholders. To deal with these problems, the firm may organize internal governance mechanisms, and in this section, the study provides a review of research focused on this specific aspect of corporate governance.

Internal CG includes the controlling mechanism between various actors inside the firm: that is, the company management, its board, and shareholders. The shareholders delegate the controlling function to internal mechanisms such as the board or supervisory board. Effective internal CG is essential in accomplishing company strategic goals. Gillan [ 30 ] described internal mechanisms by dividing them into boards, managers, shareholders, debt holders, employees, suppliers, and customers. These internal mechanisms of CG work to check and balance the power of managers, shareholders, directors, and stakeholders. Accordingly, independent board, CEO duality, and ownership concentration are the main internal corporate governance controlling mechanisms suggested by various researchers in the literature. Thus, the study considered these three internal corporate structures in this study as internal control mechanisms that affect firm performance. Concurrently, external CG mechanisms are mechanisms that are not from the inside of the firm, which is from the outside of the firms and includes: market competition, take over provision, external audit, regulations, and debt finance. There are a lot of studies that examine and investigate the effect of external CG practices on the financial performance of a company, especially in developed nations. In this study, product market competition and debt financing have been taken as representatives of external CG mechanisms. Thus, the study used internal CG measures; independent board, dual leadership, ownership concentration, and product-market competition, and debt financing as a proxy of external CG measures.

Literature review and hypothesis building

Corporate governance and firm performance.

Corporate governance has got attention and developed as a significant mechanism more than in the last decades. The recent financial crises, the fast growth of privatizations, and financial institutions have reinforced the improvement of corporate governance practices in numerous institutions of different countries. As many studies revealed, well-managed corporate governance mechanisms play an important role in providing corporate performance. Good corporate governance is fundamental for a firm in several ways: OECD [ 67 ] indicates the good corporate governance increases the company image, reduces the risks, and boosts shareholders' confidence. Furthermore, good corporate governance develops a number of consistent mechanisms, internal control systems and external environments that contribute to the business corporations’ increase effectively as a whole to bring about good corporate governance.

The basic rationale of corporate governance is to increase the performance of companies by structuring and sustaining incentives that initiate corporate managers to maximize firm’s operational efficiency, return on assets, and long-term firm growth through limiting managers’ abuse of power over corporate resources.

Corporate governance mechanisms are divided into two broad categories: internal corporate governance and external corporate governance mechanisms. Supporting this concept, Keasey and Wright [ 43 ] indicated corporate governance as a framework for effective monitoring, regulation, and control of firms which permits alternative internal and external mechanisms for achieving the proposed company’s objectives. The achievement of corporate governance relies on the mechanism effectiveness of both internal and external governance structures. Gillan [ 30 ] suggested that corporate governance can be divided into two: the internal and external mechanisms. Gillan [ 30 ] described internal mechanisms by dividing into boards, managers, shareholders, debt holders, employees, suppliers, and customers, and also explain external corporate governance mechanisms by incorporating the community in which companies operate, the social and political environment, laws and regulations that corporations and governments involved in.

The internal mechanisms are derived from ownership structure, board structure, and audit committee, and the external mechanisms are derived from the capital market corporate control market, labor market, state status, and investors activate [ 26 ]. The balance and effectiveness of the internal and external corporate governance practices can enhance a better corporate operational performance [ 21 ]. Literature argued that integrated and complete governance mechanisms are better with multi-dimensional theoretical view [ 87 ]. Thus, the study includes both internal and external CG mechanisms to broadly show the connection of these components. Filatotchev and Nakajima [ 26 ] suggest that an integrated approach bringing external and internal mechanisms jointly enhances to build up a more general view on the effectiveness and efficiency of different corporate governance mechanisms. Thus, the study includes both internal and external CG mechanisms to broadly show the connection of these three components.

Board of directors and ownership concentration are the main internal corporate governance mechanisms and product market competition and debt finance also the main representative of external corporate governance suggested by many researchers in the literature that were used in this study. Therefore, the following sections provide a brief discussion of internal and external corporate governance from different angles.

Independent board and firm performance

Board of directors monitoring has been centrally important in corporate governance. Jensen [ 41 ] board of directors is described as the peak of the internal control system. The board represents a firm’s owners and is responsible for ensuring that the firm is managed effectively. Thus, the board is responsible for adopting control mechanisms to ensure that management’s behavior and actions are consistent with the interest of the owners. Mainly the responsibility of the board of directors is selection, evaluation, and removal of poorly performing CEO and top management, the determination of managerial incentives and monitoring, and assessment of firm performance [ 93 ]. The board of directors has the formal authority to endorse management initiatives, evaluate managerial performance, and allocate rewards and penalties to management on the basis of criteria that reflect shareholders’ interests.

According to the agency theory board of directors, the divergence of interests between shareholders and managers is addressed by adopting a controlling role over managers. The board of directors is one of the key governance mechanisms; the board plays a pivotal role in monitoring managers to reduce the problems associated with the separation of ownership and management in corporations [ 24 ]. According to Chen et al. [ 16 ], the strategic role of the board became increasingly important and going beyond the mere approval of strategic management decisions. The board of directors must serve to reconcile management decisions with the objectives of shareholders and stakeholders, which can at times influence strategic decisions (Uribe-Bohorquez [ 85 ]). Therefore, the board's responsibilities extend beyond controlling and monitoring management, ensuring that it takes decisions that are reliable with the corporations [ 29 ]. In the perspective of resource dependence theory, an independent director is often linked firm to outside environments, who are non-management members of the board. Independent boards of directors are more believed to be effective in protecting shareholders' interests resulting in high performance [ 26 ]. This focus on board independence is grounded in agency theory, which addresses inefficiencies that arise from the separation of ownership and control [ 24 ]. As agency theory perspective boards of directors, particularly independent boards are put in place to monitor managers on behalf of shareholders [ 59 ].

A large number of empirical studies are undertaken to verify whether independent directors perform their governance functions effectively or not, but their results are still inconclusive. Studies [ 2 , 50 , 52 , 56 , 85 ], reported the supportive arguments that independent board of directors and firm performance have a positive relationship; in other ways, a large number of studies [ 6 , 17 , 65 91 ], and findings indicated the independent director has a negative relation with firm performance. The positive relationship of independent board and firm performance argued that firms which empower outside directors may lead to their more effective monitoring and therefore higher firm performance. The negative relationship of independent board and firm performance results are based on the argument that external directors have no access to information about the internal business of the firms and their relation with internal management does not allow them to have a sufficient understanding of the firm’s day-to-day business activities or it may arise from the lack of knowledge of the business or the ability to monitor management actions [ 28 ].

Specifically in China, the corporate governance regulation code was approved in 2001 and required that the board of all Chinese listed domestic companies must include at least one-third of independent directors on their board by June 2003. Following this direction, many listed firms had appointed more independent directors, with a view to increase the independence of the board [ 54 ]. This proclamation is staying stable till now, and the number of independent directors in Chinese listed firms is increasing from time to time due to its importance. Thus, the following hypothesis is proposed.

Hypothesis 1

The proportion of independent directors in board members is positively related to firm performance.

Dual leadership and firm performance

CEO duality is one of the important board control mechanisms of internal CG mechanisms. It refers to a situation where the firm’s chief executive officer serves as chairman of the board of directors, which means a person who holds both the positions of CEO and the chair. Regarding leadership and firm performance relation, there are different arguments; there is not consistent conclusion among different researchers. There are two competitive views about dual leadership in corporate governance literature. Agency theory view proposed that duality could minimize the board’s effectiveness of its monitoring function, which leads to further agency problems and enhance poor performance [ 41 , 83 ]. As a result, dual leadership enhances CEO entrenchment and reduces board independence. In this condition, these two roles in one person made a concentration of power and responsibility, and this may result in busyness of CEO which affects the normal duties of a company. This means the CEO is responsible to execute a company’s strategies, monitoring and evaluating the managerial activities of a company. Thus, separating these two roles is better to avoid concentration of authority and power in one individual and separate leadership of board from the ruling of the business [ 72 ].

On the other hand, stewardship theory suggests that managers are good stewards of company resources, which could benefit a firm [ 9 ]. This theory advocates that there is no conflict of interest between shareholders and managers, if the role of CEO and chairman vests on one person, rather CEO duality would promote a clear sense of strategic direction by unifying and strengthening leadership.

In the Chinese firm context, there are different conflicting conclusions about the relationship between CEO duality and firm performance.

Hypothesis 2

CEO duality is negatively associated with firm performance.

Ownership concentration and firm performance

The ownership structure is which has a profound effect on business strategy and performance. Agency theory [ 81 ] argued that concentrated ownership can monitor corporate operating management effectively, alleviate information problems and agency costs, consequently, improve firm performance. The concentration of ownership as a large number of studies grounded in agency theory suggests that it has both the incentive and influence to assure that managers and directors operate in the interests of shareholders [ 19 ]. Concentrated ownership presence among the firm’s investors provides an important driver of good CG that should lead to efficiency gains and improvement in performance [ 81 ].

Due to shareholder concentrated economic risk, these shareholders have a strong encouragement to watch strictly over management, making sure that management does not engage in activities that are damaging the wealth of shareholders. Similarly, Shleifer and Vishny [ 80 ] argue that large share blocks reduce managerial opportunism, resulting in lower agency conflicts between management and shareholders.

In other ways, some researchers have indicated, block shareholders harmfully on the value of the firm, especially when majority shareholders can abuse their position of dominant control at the expense of minority shareholders [ 25 ]. As a result, at some level of ownership concentration the distinction between insiders and outsiders becomes unclear, and block-holders, no matter what their identity is, may have strong incentives to switch resources to the ways that make them better off at the cost of other shareholders. However, concentrated shareholding may create a new set of agency conflicts that may provide a negative impact on firm performance.

In the emerging market context, studies [ 77 , 90 ] find a positive association between ownership concentration and accounting profit for Chinese public companies. As Yu and Wen [ 92 ] argued, Chinese companies have a concentrated ownership structure, limited disclosure, poor investor protection, and reliance on the banking system. As this study argues, this concentration is more controlled by the state, institution, and private shareholders. Thus, ownership concentration in Chinese firms may be an alternative governance tool to reduce agency problems and enhance efficiency.

Hypothesis 3

The ownership concentration is positively related to firm performance.

Product market competition and firm performance

Theoretical models have argued that competition in product markets is a powerful force for overcoming the agency problem between shareholders and managers [ 78 ]. Competition in product markets plays the role of a takeover [ 3 ], and well-managed firms take over the market from poorly managed firms. According to this study finding, competition helps to build the best management team. Competition acts as a substitute for internal governance mechanisms, practically the market for corporate control [ 3 ]. Chou et al. [ 18 ] provided evidence that product market competition has a substantial impact on corporate governance and that it substitutes for corporate governance quality, and they provide evidence that the disciplinary force of competition on the management of the firm is from the fear of insolvency. For instance, Ibrahim [ 39 ] reported firms to operate in competitive industries record more returns of share compared with the concentrated industries. Hart [ 33 ] stated that competition inspires managers to work harder and, thus, reduces managerial slack. This study suggests that in high competition, the selling prices of products or services are more likely to fall because managers are concerned with their economic interest, which may tie up with firm performance. Managers are more focused on enhancing productivity that is more likely to reduce cost and increase firm performance. Thus, competition in product market can reduce agency problems between owners and managers and can enhance performance.

Hypothesis 4

Product market competition is positively associated with firm performance.

Debt financing and firm performance

Debt financing is one of the important governance mechanisms in aligning the incentives of corporate managers with those of shareholders. According to agency theory, debt financing can increase the level of monitoring over self-serving managers and that can be used as an alternative corporate governance mechanism [ 40 ]. This theory argues two ways through debt finance can minimize the agency cost: first the potential positive impact of debt comes from the discipline imposed by the obligation to continually earn sufficient cash to meet the principal and interest payment. It is a commitment device for executives. Second leverage reduces free cash flows available for managers’ discretionary expenses. Literature suggests that when leverage increases, managers may invest in high-risk projects in order to meet interest payments; this action leads lenders to monitor more closely the manager’s action and decision to reduce the agency cost. Koke and Renneboog [ 48 ] have found empirical support that a positive impact of bank debt on productivity growth in German firms. Also, studies like [ 77 , 86 ] examine empirically the effect of debt on firm investment decisions and firm value; reveal that debt finance is a negative effect on corporate investment and firm values [ 69 ] find that there is a significant and negative relationship between debt intensity and firm productivity in the case of Indian firms.

In the Chinese financial sectors, banks play a great role and use more commercial judgment and consideration in their leading decision, and even they monitor corporate activities [ 82 ]. In China listed company [ 77 , 82 ] found that an increase in bank loans increases the size of managerial perks and free cash flows and decreases corporate efficiency, especially in state control firms. The main source of debts is state-owned banks for Chinese listed companies [ 82 ]. This shows debt financing can act as a governance mechanism in limiting managers’ misuse of resources, thus reducing agency costs and enhance firm values. However, in China still government plays a great role in public listed company management, and most banks in China are also governed by the central government. However, the government is both a creditor and a debtor, especially in state-controlled firms. Meanwhile, the government as the owner has multiple objectives such as social welfare and some national (political) issues. Therefore, when such an issue is considerable, debt financing may not properly play its governance role in Chinese listed firms.

Hypothesis 5

Debt financing has a negative association with firm performance

Influence of managerial overconfidence on the relationship of corporate governance and firm performance

Corporate governance mechanisms are assumed to be an appropriate solution to solve agency problems that may derive from the potential conflict of interest between managers and officers, on the one hand, and shareholders, on the other hand [ 42 ].

Overconfidence is an overestimation of one’s own abilities and outcomes related to one’s own personal situation [ 74 ]. This study proposed from the behavioral finance view that overconfidence is typical irrational behavior and that a corporate manager tends to show it when they make business decisions. Overconfident CEOs tend to think they have more accurate knowledge about future events than they have and that they are more likely to experience favorable future outcomes than they are [ 35 ]. Behavioral finance theory incorporates managerial psychological biases and emotions into their decision-making process. This approach assumes that managers are not fully rational. Concurrently, several reasons in the literature show managerial irrationality. This means that the observed distortions in CG decisions are not only the result of traditional factors. Even with the absence of agency conflicts and asymmetric information problems, there is evidence documented for distortions such as the case of corporate investment. Managers will over- or under-invest regarding their optimism level and the availability of internal cash flow. Such a result push managers to make sub-optimal decisions and increase observed corporate distortions as a result. The view of behavioral decision theory [ 94 ] suggests that overconfidence, as one type of cognitive bias, encourages decision-makers to overestimate their own information and problem-solving capabilities and underestimates the uncertainties facing their firms and the potential losses from proceedings related with maintains against them.

Researchers [ 34 ,  61 ] discussed the managerial behavioral bias has a great impact on firm corporate governance practices. These studies carefully analyzed and clarified that managerial overconfidence is a major source of corporate distortions and suggested good CG practices can mitigate such problems.

In line with the above argument and empirical evidence of several researchers, therefore, the current study tried to investigate how the managerial behavioral bias (overconfidence) positively or negatively influences the effect of CG on firm performance using Chinese listed firms.

The boards of directors as central internal CG mechanisms have the responsibility to monitor, control, and supervise the managerial activities of firms. Thus, the board of directors has the responsibility to monitor and initiate managers in the company to increase the wealth of ownership and firm value. The capability of the board composition and diversity may be important to control and monitor the internal managers' based on the nature of internal executives behaviors, managerial behavior bias that may hinder or smooth the progress of corporate decisions of the board of directors. Accordingly, several studies suggested different arguments; Delton et al. [ 20 ] argued managerial behavior is influencing the allocation of board attention to monitoring. According to this argument, board of directors or concentrated ownership is not activated all the time continuously, and board members do not keep up a constant level of attention to supervise CEOs. They execute their activities according to firm and CEO status. While the current performance of the firm desirable the success confers celebrity status on CEOs and board will be liable to trust the CEOs and became idle. In other ways, overconfidence managers are irrational behaviors that tend to consider themselves better than others on different attributes. They do not always form beliefs logically [ 73 ]. They blame the external advice and supervision, due to overestimating their skills and abilities, underestimate their risks [ 61 ]. Similarly, CEOs are the most decision-makers in the firm strategies. While managers are highly overconfident, board members (especially external) face information limitations on a day-to-day activities of internal managers. In other way, CEOs have a strong aspiration to increase the performance of their firm; however, if they achieve their goals, they may build their empire. This situation will pronounce where the market for corporate control is not matured enough like China [ 27 ]. So, this fact affects the effectiveness of board activities in strategic decision-making. In contrast, as the study [ 7 ] indicated, as the number of the internal board increases, the impact of managerial overconfidence in the firm became increasing and positively correlated with the leadership duality. In other ways, agency theory, many opponents suggest that CEO duality reduces the monitoring role of the board of directors over the executive manager, and this, in turn, may harm corporate performance. In line with this Khajavi and Dehghani, [ 44 ] found that as the number of internal board increases, the managerial overconfidence bias will increase in Tehran Stock Exchange during 2006–2012.

This shows us the controlling and supervising role of independent directors are less likely in the firms managed by overconfident managers than normal managers; conversely, the power of CEO duality is more salient in the case of overconfident managers than normal managers.

Hypothesis 2a

Managerial overconfidence negatively influences the relationship of independent board and firm performance.

Hypothesis 2b

Managerial overconfidence strengthens the negative relationships of CEO duality and firm performance.

An internal control mechanism ownership concentration believes in the existence of strong control against the managers’ decisions and choices. Ownership concentration can reduce managerial behaviors such as overconfidence and optimism since it contributes to the installation of a powerful control system [ 7 ]. They documented that managerial behavior affects the monitoring activities of ownership concentration on firm performance. Ownership can affect the managerial behavioral bias in different ways, for instance, when CEOs of the firm become overconfident for a certain time, the block ownership controlling attention is weakened [ 20 ], and owners trust the internal managers that may damage the performance of the firms in an emerging market where external market control is weak. Overconfidence CEOs have the quality that expresses their behavior up on their company [ 36 ]. In line with this fact, the researcher can predict that the impact of concentrated ownership on firm performance is affected by overconfident managers.

Hypothesis 2c

Managerial overconfidence negatively influences the impact of ownership concentration on firm performance.

Theoretical literature has argued that product market competition forces management to improve firm performance and to make the best decisions for the future. In high competition, managers try their best due to fear of takeover [ 3 ], well-managed firms take over the market from poorly managed firms, and thus, competition helps to build the best management team. In the case of firms operating in the competitive industry, overconfidence CEO has advantages, due to its too simple to motivate overconfident managerial behaviors due to being overconfident managers assume his/her selves better than others. Overconfident CEOs are better at investing for future investments like research and development, so it plays a strategic role in the competition. Englmaier [ 23 ] argues firms in a more competitive industry better hire a manager who strongly believes in better future market outcomes.

Therefore, the following hypothesis was proposed:

Hypothesis 2d

Managerial overconfidence moderates the effect of product market competition on firm performance.

Regarding debt financing, existing empirical evidence shows no specific pattern in the relation of managerial overconfidence and debt finance. Huang et al. [ 38 ] noted that overconfident managers normally overestimate the profitability of investment projects and underestimate the related risks. So, this study believes that firms with overconfident managers will have lower debt. Then, creditors refuse to provide debt finance when firms are facing high liquidity risks. Abdullah [ 1 ] also argues that debt financers may refuse to provide debt when a firm is having a low credit rating. Low credit rating occurs when bankers believe firms are overestimating the investment projects. Therefore, creditors may refuse to provide debt when managers are overconfident, due to under-estimating the related risk which provides a low credit rating.

However, in China, the main source of debt financers for companies is state banks [ 82 ], and most overconfidence CEOs in Chinese firms have political connections [ 96 ] with the state and have a better relationship with external financial institutions and public banks. Hence, overconfident managers have better in accessing debt rather than rational managers in the context of China that leads creditors to allow to follow and influence the firm investments through collecting information about the firm and supervise the firms directly or indirectly. Thus, managerial overconfidence could have a positive influence on relationships between debt finance and firm performance; thus, the following hypothesis is proposed:

Hypothesis 2e

Managerial overconfidence moderates the relationship between debt financing and firm performance.

To explore the impact of CG on firm performance and whether managerial behavior (managerial overconfidence) influences the relationships of CG and firm performance, the following research model framework was developed based on theoretical suggestions and empirical evidence.

Data sources and sample selection

The data for this study required are accessible from different sources of secondary data, namely China Stock Market and Accounting Research (CSMAR) database and firm annual reports. The original data are obtained from the CSMAR, and the data are collected manually to supplement the missing value. CSMAR database is designed and developed by the China Accounting and Financial Research Center (CAFC) of Honk Kong Polytechnic University and by Shenzhen GTA Information Technology Limited company. All listed companies (Shanghai and Shenzhen stock Exchange) financial statements are included in this database from 1990 and 1991, respectively. All financial data, firm profile data, ownership structure, board structure, composition data of listed companies are included in the CSMAR database. The research employed nine consecutive years from 2010 to 2018 that met the condition that financial statements are available from the CSMAR database. This study sample was limited to only listed firms on the stock market, due to hard to access reliable financial and corporate governance data of unlisted firms. All data collected from Chinese listed firms only issued on A shares in domestic stoke market exchange of Shanghai and Shenzhen. The researcher also used only non-financial listed firms’ because financial firms have special regulations. The study sample data were unbalanced panel data for nine consecutive years from 2010 to 2018. To match firms with industries, we require firms with non-missing CSRC top-level industry codes in the CSMAR database. After applying all the above criteria, the study's final observations are 11,634 firm-year observations.

Measurement of variables

Dependent variable.

• Firm performance

To measure firm performance, prior studies have been used different proxies, by classifying them into two groups: accounting-based and market-based performance measures. Accordingly, this study measures firm performance in terms of accounting base (return on asset) and market-based measures (Tobin’s Q). The ROA is measured as the ratio of net income or operating benefit before depreciation and provisions to total assets, while Tobin’s Q is measured as the sum of the market value of equity and book value of debt, divided by book value of assets.

Independent Variables

Board independent (bind).

Independent is calculated as the ratio of the number of independent directors divided by the total number of directors on boards. In the case of the Chinese Security Regulatory Commission (2002), independent directors are defined as the “directors who hold no position in the company other than the position of director, and no maintain relation with the listed company and its major shareholders that might prevent them from making objective judgment independently.” In line with this definition, many previous studies used a proportion of independent directors to measure board independence [ 56 , 79 ].

CEO Duality

CEO duality refers to a position where the same person serves the role of chief executive officer of the form and as the chairperson of the board. CEO duality is a dummy variable, which equals 1 if the CEO is also the chairman of the board of directors, and 0 otherwise.

Ownership concentration (OWCON)

The most common way to measure ownership concentration is in terms of the percentage of shareholdings held by shareholders. The percentage of shares is usually calculated as each shareholder’s shareholdings held in the total outstanding shares of a company either by volume or by value in a stock exchange. Thus, the distribution of control power can be measured by calculating the ownership concentration indices, which are used to measure the degree of control or the power of influence in corporations [ 88 ]. These indices are calculated based on the percentages of a number of top shareholders’ shareholdings in a company, usually the top ten or twenty shareholders. Following the previous studies [ 22 ], Wei Hu et al. [ 37 ], ownership concentration is measured through the total percentage of the 10 top block holders' ownership.

Product market competition (PMC)

Previous studies measure it through different methods, such as market concentration, product substitutability and market size. Following the previous work in developed and emerging markets [product substitutability [ 31 , 57 ], the current study measured using proxies of market concentration (Herfindahl–Hirschman Index (HHI)). The market share of every firm is calculated by dividing the firm's net sale by the total net sale of the industry, which is calculated for each industry separately every year. This index measures the degree of concentration by industry. The bigger this index is, the more the concentration and the less the competition in that industry will be, vice versa.

Debt Financing (DF)

The debt financing proxy in this study is measured by the percentage of a total asset over the total debt of the firm following the past studies [ 69 , 95 ].

Interaction variable

Managerial overconfidence (moc).

To measure MOC, several researchers attempt to use different proxies, for instance CEO’s shareholdings [ 61 ] and [ 46 ]; mass media comments [ 11 ], corporate earnings forecast [ 36 ], executive compensation [ 38 ], and managers individual characteristics index [ 53 ]. Among these, the researcher decided to follow a study conducted in emerging markets [ 55 ] and used corporate earnings forecasts as a better indicator of managerial overconfidence. If a company’s actual earnings are lower than the earnings expected by managers, the managers are defined as overconfident with a dummy variable of (1), and as not overconfident (0) otherwise.

Control variables

The study contains three control variables: firm size, firm age, and firm growth opportunities. Firm size is an important component while dealing with firm performance because larger firms have more agency issues and need strong CG. Many studies confirmed that a large firm has a large board of directors, which increases the monitoring costs and affects a firm’s value (Choi et al., 2007). In other ways, large firms are easier to generate funds internally and to gain access to funds from an external source. Therefore, firm size affects the performance of firms. Firm size can be measured in many ways; common measures are market capitalization, revenue volume, number of employments, and size of total assets. In this study, firm size is measured by the logarithm of total assets following a previous study. Firm age is the number of years that a firm has operated; it was calculated from the time that the company first appeared on the Chinese exchange. It indicates how long a firm in the market and indicates firms with long age have long history accumulate experience and this may help them to incur better performance [ 8 ]. Firm age is a measure of a natural logarithm of the number of years listed from the time that company first listed on the Chinese exchange market. Growth opportunity is measured as the ratio of current year sales minus prior year sales divided by prior year sales. Sales growth enhances the capacity utilization rate, which spreads fixed costs over revenue resulting in higher profitability [ 49 ].

Data analysis methods

Empirical model estimations.

Most of the previous corporate governance studies used OLS, FE, or RE estimation methods. However, these estimations are better when the explanatory variables are exogenous. Otherwise, a system generalized moment method (GMM) approach is more efficient and consistent. Arellano and Bond [ 4 ] suggested that system GMM is a better estimation method to address the problem of autocorrelation and unobservable fixed effect problems for the dynamic panel data. Therefore, to test the endogeneity issue in the model, the Durbin–Wu–Hausman test was applied. The result of the Hausman test indicated that the null hypothesis was rejected ( p  = 000), so there was an endogeneity problem among the study variables. Therefore, OLS and fixed effects approaches could not provide unbiased estimations, and the GMM model was utilized.

The system GMM is the econometric analysis of dynamic economic relationships in panel data, meaning the economic relationships in which variables adjust over time. Econometric analysis of dynamic panel data means that researchers observe many different individuals over time. A typical characteristic of such dynamic panel data is a large observation, small-time, i.e., that there are many observed individuals, but few observations over time. This is because the bias raised in the dynamic panel model could be small when time becomes large [ 75 ]. GMM is considered more appropriate to estimate panel data because it removes the contamination through an identified finite-sample corrected set of equations, which are robust to panel-specific autocorrelation and heteroscedasticity [ 12 ]. It is also a useful estimation tool to tackle the endogeneity and fixed-effect problems [ 4 ].

A dynamic panel data model is written as follows:

where y it is the current year firm performance, α is representing the constant, y it−1 is the one-year lag performance, i is the individual firms, and t is periods. β is a vector of independent variable. X is the independent variable. The error terms contain two components, the fixed effect μi and idiosyncratic shocks v it .

Accordingly, to test the impact of corporate governance mechanisms on firm performance and influencing role of the overconfident executive on the relationship between corporate governance mechanisms and firm performance, the following base models were used:

ROA / TQ i ,t  =  α  + yROA /TQ i,t−1  + β 1 INDBRD + β 2 DUAL + β 3 OWCON +  β 4 DF +  β 5 PMC +  β 6 MOC +  β 7 FSIZE + β 8 FAGE + β 9 SGTH + β 10–14 MOC * (INDBRD, DUAL, OWCON, DF, and PMC) + year dummies + industry Dummies + ή +  Ɛ it .

where i and t represent firm i at time t, respectively, α represents the constant, and β 1-9 is the slope of the independent and control variables which reflects a partial or prediction for the value of dependent variable, ή represents the unobserved time-invariant firm effects, and Ɛ it is a random error term.

Descriptive statistics

Descriptive statistics of all variables included in the model are described in Table 1 . Accordingly, the value of ROA ranges from −0.17 to 0.23, and the average value of ROA of the sample is 0.05 (5.4%). Tobin Q’s value ranges from 0.88 to 10.06, with an average value of 2.62. The ratio of the independent board ranges from 0.33 to 0.57. The average value of the independent board of directors’ ratio was 0.374. The proportion of the CEO serving as chairperson of the board is 0.292 or 29.23% over the nine years. Top 10 ownership concentration of the study ranged from 22.59% to 90.3%, and the mean value is 58.71%. Product market competition ranges from 0.85% to 40.5%, with a mean value of 5.63%. The debt financing also has a mean value of 40.5%, with a minimum value of 4.90% and a maximum value of 87%. The mean value of managerial overconfidence is 0.589, which indicates more than 50% of Chinese top managers are overconfident.

The study sample has an average of 22.15 million RMB in total book assets with the smallest firms asset 20 million RMB and the biggest owned 26 million RMB. Study sample average firms’ age was 8.61 years old. The growth opportunities of sample firms have an average value of 9.8%.

Table 2 presents the correlation matrix among variables in the regression analysis in the study. As a basic check for multicollinearity, a correlation of 0.7 or higher in absolute value may indicate a multicollinearity issue [ 32 ]. According to Table 2 results, there is no multicollinearity problem among variables. Additionally, the variance inflation factor (VIF) test also shows all explanatory variables are below the threshold value of 10, [ 32 ] which indicates that no multicollinearity issue exists.

Main results and discussion

Impact of cg on firm performance.

Accordingly, Tables 3 and 4 indicate the results of two-step system GMM employing the xtabond2 command introduced by Roodman [ 75 ]. In this, the two-step system GMM results indicated the CG and performance relationship, with the interaction of managerial overconfidence. One-year lag of performance has been included in the model and two to three periods lagged independent variables were used  as an instrument in the dynamic model, to correct for simultaneity, control for the fixed effect, and to tackle the endogeneity problem of independent variables. In this model, all variables are taken as endogenous except control variables.

Tables 3 and 4 report the results of three model specification tests to determine whether an appropriate estimation model was applied. These tests are: 1) the Arellano–Bond test for the first-order (AR (1)) and second-order correlation (AR (2)). This test indicates the result of AR (1) and AR (2) is tested for the first-order and second-order serial correlation in the first-differenced residuals, AR (2) test accepted under the null of no serial correlation. The model results show AR (2) test yields a p-value of 0.511 and 0.334, respectively, for ROA and TQ firm performance measurement, which indicates that the models cannot reject the null hypothesis of no second-order serial correlation. 2) Hansen test over-identification is to detect the validity of the instrument in the models. The Hansen test of over-identification is accepted under the null that all instruments are valid. Tables 3 and 4 indicate the p-value of Hansen test over-identification 0.139 and 0.132 for ROA and TQ measurement of firm performance, respectively, so that these models cannot reject the hypothesis of the validity of instruments. 3) In the difference-in-Hansen test of exogeneity, it is acceptable under the null that instruments used for the equations in levels are exogenous. Table 3 shows p-values of 0.313 and 0.151, respectively, for ROA and TQ. These two models cannot reject the hypothesis that the equations in levels are exogenous.

Tables 3 and 4 report the results of the one-year lag values of ROA and TQ are positive (0.398, 0.658) and significant at less than 1% level. This indicates that the previous year's performance of a Chinese firm has a significant impact on the current firm's performance. This study finding is consistent with the previous studies: Shao [ 79 ], Nguyen [ 66 ] and Wintoki et al. [ 89 ], which considered previous year performance as one of the significant independent variables in the case of corporate governance mechanisms and firm performance relationships.

The results indicate board independence has no relation with firm performance measured by ROA and TQ. However, hypothesis 1 indicated that there is a positive and significant relationship between independent board and firm performance, which is not supported. The results are conflicting with the assumption that high independent board on board room should better supervise managers, alleviate the information asymmetry between agents and owners, and improve the firm performance by their proficiency. This result is consistent with several previous studies [ 56 , 79 ], which confirms no relation between board independence and firm performance.

This result is consistent with the argument that those outside directors are inefficient because of the lack of enough information concerning the daily activities of internal managers. Specifically, Chinese listed companies may simply include the minimum number of independent directors on board to fulfill the institutional requirement and that independent boards are only obligatory and fail to perform their responsibilities [ 56 , 79 ]. In this study sample, the average of independent board of all firms included in this study has only 37 percent, and this is one of concurrent evidence as to the independent board in Chinese listed firm simple assigned to fulfill the institutional obligation of one-third ratio.

CEO duality has a negative significant relationship with firm performance measured by TQ ( β  = 0.103, p  < 0.000), but has no significant relationship with accounting-based firm performance (ROA). Therefore, this result supports our hypothesis 2, which proposed there is a negative relationship between dual leadership and firm performance. This finding is also in line with the agency theory assumption that suggests CEO duality could reduce the board’s effectiveness of its monitoring functions, leading to further agency problems and ultimately leads poor firm performance [ 41 , 83 ]. This finding consistent with prior studies [ 15 , 56 ] that indicated a negative relationship between CEO dual and firm performance, against to this result the studies [ 70 ] and [ 15 ] found that duality positively related to firm performance.

Hypothesis 3 is supported, which proposes there is a positive relationship between ownership concentration and firm performance. Table 3 result shows that there is a positive and significant relationship between the top ten concentrated ownership and ROA and TQ (0.00046 & 0.06) at 1% and 5% significance level, respectively. These findings are consistent with agency theory, which suggests that the shareholders who hold large ownership alleviate agency costs and information problems, monitor managers effectively, consequently enhance firm performance [ 81 ]. This finding is in line with Wu and Cui [ 90 ], and Pant et al. [ 69 ]. Concentrated shareholders have a strong encouragement to watch strictly over management, making sure that management does not engage in activities that are damaging to the wealth of shareholders [ 80 ].

The result indicated in Table 3 PMC and firm performance (ROA) relationship was positive, but statistically insignificant. However, PMC has positive ( β  = 2.777) and significant relationships with TQ’s at 1% significance level. Therefore, this result does not support hypothesis 4, which predicts product market competition has a positive relationship with firm performance in Chinese listed firms. In this study, PMC is measured by the percentage of market concentration, and a highly concentrated product market means less competition. Though this finding shows high product market concentration positively contributed to market-based firm performance, this result is consistent with the previous study; Liu et al. [ 57 ] reported high product market competition associated with poor firm performance measured by TQ in Chinese listed firms. The study finding is against the theoretical model argument that competition in product markets is a powerful force for overcoming the agency problem between shareholders and managers, and enhances better firm performance (Scharfstein and [ 78 ]).

Regarding debt finance and firm performance relationship, the impact of debt finance was found to be negative on both firm performances as expected. Thus, this hypothesis is supported. Table 3 shows a negative relationship with both firm performance measurements (0.059 and 0.712) at 1% and 5% significance level. Thus, hypothesis 5, which predicts a negative relationship between debt financing and firm performance, has been supported. This finding is consistent with studies ([ 86 ]; Pant et al., [ 69 ]; [ 77 , 82 ]) that noted that debt financing has a negative effect on firm values.

This could be explained by the fact that as debt financing increases in external loans, the size of managerial perks and free cash flows increase and corporate efficiency decrease. In another way, because the main source of debt financers is state-owned banks for Chinese listed firms, these banks are mostly governed by the government, and meanwhile, the government as the owner has multiple objectives such as social welfare and some national issues. Therefore, debt financing fails to play its governance role in Chinese listed firms.

Regarding control variables, firm age has a positive and significant relationship with both TQ and ROA. This finding supported by the notion indicates firms with long age have long history accumulate experience, and this may help them to incur better performance (Boone et al. [ 8 ]). Firm size has a significant positive relationship with firm performance ROA and negative significant relation with TQ. The positive result supported the suggestion that large firms get a higher market valuation from the markets, while the negative finding indicates large firms are more complex; they may have several agency problems and need additional monitoring, which results in higher operating costs [ 84 ]. Growth opportunity was found to be in positive and significant association with ROA; this indicates that a firm high growth opportunity can increase its performance.

Influences of managerial overconfidence in the relationship between CG measures and firm performance

It predicts that managerial overconfidence negatively influences the relationship of independent board and firm performance. The study findings indicate a negative significant influence of managerial overconfidence when the firm is measure by Tobin’s Q ( β  = −4.624, p  < 0.10), but a negative relationship is insignificant when the firm is measured by ROA. Therefore, hypothesis 2a is supported when firm value is measured by TQ. This indicates that the independent directors in Chinese firms are not strong enough to monitor internal CEOs properly, due to most Chinese firms merely include the minimum number of independent directors on a board to meet the institutional requirement and that independent directors on boards are only perfunctory. Therefore, the impact of independent board on internal directors is very weak, in this situation overconfident CEO becoming more powerful than others, and they can enact their own will and avoid compromises with the external board or independent board. In another way, the weakness of independent board monitoring ability allows CEOs overconfident that may damage firm value.

The interaction of managerial overconfidence and CEO duality has a significant negative effect on operational firm performance (0.0202, p  > 0.05) and a negative insignificant effect on TQ. Thus, Hypothesis 2b predicts that the existence of overconfident managers strengthens the negative relationships of dual leadership and firm performance has been supported. This finding indicates the negative effect of CEO duality amplified when interacting with overconfident CEOs. According to Legendre et al. [ 51 ], argument misbehaviors of chief executive officers affect the effectiveness of external directors and strengthen the internal CEO's power. When the CEOs are getting more powerful, boards will be inefficient and this situation will result in poor performance, due to high agency problems created between managers and ownerships.

Hypothesis 2c is supported

It predicts the managerial overconfidence decreases the positive impact of ownership concentration on firm performance. The results of Tables 3 and 4 indicated that the interaction effect of managerial overconfidence with concentrated ownership has a negative significant impact on both ROA and TQ firm performance (0.000404 and 0.0156, respectively). This finding is supported by the suggestion that CEO overconfidence weakens the monitoring and controlling role of concentrated shareholders. This finding is explained by the fact that when CEOs of the firm become overconfident for a certain time, the concentrated ownership controlling attention is weakened [ 20 ], owners trust the internal managers that may damage the performance of the firms in an emerging market where external market control is weak. Overconfident managers gain much more power than rational managers that they are able to use the firm to further their own interests rather than the interests of shareholders and managerial overconfidence is a behavioral biased that managers follow to meet their goals and reduce the wealth of shareholders. This situation resulted in increasing agency costs in the firm and damages the firm profitability over time.

It predicts that managerial overconfidence moderates the relation of product market competition and firm performance. However, the result indicated there is no significant moderating role of managerial overconfidence in the relationship between product market competition and firm performance in Chinese listed firms.

It proposed that overconfidence managers moderate the relationship of debt financing and performance in Chinese listed firm: The study finding is unobvious; it negatively influenced the relation of debt financing with accounting-based firm performance measure ( β  = −0.059, p  < 0.01) and positively significant market base firm performance ( β  = 0.735, p  < 0.05). The negative interaction results could be explained by the fact that overconfident leads managers to have lower debt due to overestimate the profitability of investment projects and underestimate the related risks. This finding is consistent with [ 38 ] finding that overconfident CEOs have lower debt, because of overestimating the investment projects. In another perspective, the result indicated a positive moderating role of overconfidence managers in the relationship of debt financing and market-based firm performance. This result is also supported by the suggestion that overconfident managers have better in accessing debt rather than rational managers in the context of China because in Chinese listed firms most of the senior CEOs have a better connection with the external finance institutions and state banks to access debt, due to their political participation than rational managers.

The main objectives of the study were to examine the impact of basic corporate governance mechanisms on firm performance and to explore the influence of managerial overconfidence on the relationship of CGMs and firm performance using Chinese listed firms. The study incorporated different important internal and external corporate governance control mechanisms that can affect firm performance, based on different theoretical assumptions and literature. To address these objectives, many hypotheses were developed and explained by a proposing multi-theoretical approach.

The study makes several important contributions to the literature. While several kinds of research have been conducted on the relationships of corporate governance and firm performance, the study basically extends previous researches based on panel data of emerging markets. Several studies have investigated in developed economies. Thus, this study contributed to the emerging market by providing comprehensive empirical evidence to the corporate governance literature using unique characteristics of Chinese publicity listed firms covering nine years (2010–2018). The study also extends the developing stream of corporate governance and firm performance literature in emerging economies that most studies in emerging (Chinese) listed companies give less attention to the external governance mechanisms. External corporate governance mechanisms like product market competition and debt financing are limited from emerging market CG literature; therefore, this study provided comprehensive empirical evidence.

Furthermore, this study briefly indicated how managerial behavioral bias can influence the monitoring, controlling, and corporate decisions of corporate firms in Chinese listed firms. Therefore, as to the best knowledge of the researcher, no study investigated the interaction effect of managerial overconfidence and CG measures to influence firm performance. Thus, the current study provides an insight into how a managerial behavioral bias (overconfidence) influences/moderates the relationship between corporate governance mechanisms and firm performance, in an emerging market. Hence, the study will help managers and owners in which situation managerial behavior helps more for firm’s value and protecting shareholders' wealth (Fig. 1 ).

Generally, the previous findings also support the current study's overall findings: Phua et al. [ 71 ] concluded that managerial overconfidence can significantly affect corporate activities and outcomes. Russo and Schoemaker [ 76 ] found that there is opposite relationship between overconfidence managers and quality of decision making, because overconfident behavioral bias reduces the ability to make a rational decision. Therefore, the primary conclusion of the study is that it attempts to understand the strength of the effect of corporate governance mechanisms on firm performance, and managerial behavioral bias must be taken into consideration as one of the influential moderators.

Proposed research model framework

Availability of data and material

I declare that all data and materials are available.

Abbreviations

China accounting and finance center

Chief executive officer

• Corporate governance

Corporate governance mechanisms

China Stock Market and Accounting Research

China Securities Regulatory Commission

Generalized method of moments

• Managerial overconfidence

Research and development

Return on asset

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Guluma, T.F. The impact of corporate governance measures on firm performance: the influences of managerial overconfidence. Futur Bus J 7 , 50 (2021). https://doi.org/10.1186/s43093-021-00093-6

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Corporate Governance

ISSN : 1472-0701

Article publication date: 23 August 2022

Issue publication date: 26 January 2023

This study aims to highlight the current trends in the literature on corporate governance by applying a bibliometric review of papers on corporate governance topics published in the journal of Corporate Governance: The International Journal of Business Society (Bingley) .

Design/methodology/approach

Bibliometric analysis is a quantitative and qualitative approach applied to bibliographic materials that highlights the core theoretical and empirical contributions to a specific research field. This analysis was based on keyword cartography, bibliometric authors’ citation analysis, bibliometric papers’ co-citation analysis, bibliometric references’ co-citation analysis, journals’ co-citation cartography and qualitative content analysis. It reviews 353 articles on corporate governance published in the journal of Corporate Governance (Bingley) . Bibliometric analysis was performed using VOSviewer, and content analysis was performed using WordStat.

The results identify three major clusters: corporate governance; board of directors; and firm performance. In addition, the results reveal that the journal Corporate Governance (Bingley) has experienced increasingly important growth in research papers on corporate governance topics and citations, reflecting its significant contribution to the corporate governance research field. This study also presents recommendations for future research in this field.

Practical implications

The findings of this study have implications for corporate governance research, such as the impact of ownership structure and the board of directors on environmental, social and governance disclosure. To the best of the authors’ knowledge, this study is the only one to review the key corporate governance research topics on which papers published in the journal of Corporate Governance (Bingley) are focused and can be largely used for corporate governance practices.

Originality/value

This study provides an overview of how the literature on corporate governance research has developed, as well as a summary of the most influential authors, along with countries, organizations and journal sources. This offers an opportunity for future research to focus on this topic.

• Bibliometric analysis
• Corporate governance
• Content analysis

Acknowledgements

The author thanks the anonymous reviewers for their insightful comments.

Ellili, N.O.D. (2023), "Bibliometric analysis on corporate governance topics published in the journal of Corporate Governance: The International Journal of Business in Society ", Corporate Governance , Vol. 23 No. 1, pp. 262-286. https://doi.org/10.1108/CG-03-2022-0135

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The impact of corporate governance on financial performance: a cross-sector study

• Original Article
• Published: 30 May 2023
• Volume 20 , pages 374–394, ( 2023 )

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• Wajdi Affes   ORCID: orcid.org/0000-0001-5261-8935 1 &
• Anis Jarboui 2  

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Corporate governance remains the focus of current research and a concept that continues to evolve to meet the needs of business managers. Faced with the need for companies to cope with a world characterized by perpetual change and successive economic crises (Prowse in Revue d'économie financière 31:119–158, 1994), the identification of the results of the implementation of good governance mechanisms in the structure of the management of companies on financial performance remains a necessity that helps managers and researchers specialized in management sciences and financial accounting to have a better visibility on the importance of corporate governance. It should be mentioned that the economic environment and the characteristics of the sectors of activity of the companies remain a relevant criterion in the study of the relation between the governance of the companies and their financial performance. In this sense, we have tried through this research work to study the impact of the implementation of effective corporate governance on the financial performance of 160 companies in the UK between 2005 and 2018 while taking into account the specificity of the business sectors. Through our study, we used multivariate regressions based on FGLS models while dividing our sample to several clusters. As a result, we found that the implementation of good corporate governance leads to the improvement of the financial performance of companies measured by the return on equity. As a motivation, it must be said that this study can be of major importance for future studies that want to make comparisons on the sectoral and temporal level. Indeed, this study gives the possibility for future research work to make comparative studies based on comparisons for different sectors of activity in the UK before and after the Brexit and also after the COVID 19 period.

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Introduction

There has been much research on the relationship between corporate governance and financial performance. Referring to the literature on the role of corporate governance, we can cite the work of Shleifer and Vishny ( 1997 ) who consider corporate governance as the set of mechanisms by which capital providers guarantee shareholder profitability. Denis and McConnell ( 2003 ) have emphasized the importance of distinguishing between the notion of internal and external mechanisms of governance and their importance for the providers of funds on all points of value creation.

The study of the relationship between governance expressed by the corporate governance score and the improvement of the performance of the latter remains a vast field of study and research that has inspired researchers in the field of accounting, finance, and taxation (Louizi 2007 ).

The existence of such a relationship has led us to wonder about the factors that can impact this relationship in a direct or indirect way. Considering this fact, we note that managers who behave in a discretionary manner will exert a major influence on the fate of the accounting and tax manipulation of companies and will try to increase their discretionary power.

Within this framework, agency theory has explained this behavior by focusing on the interests of the funders and decision makers in a way that reflects the interest of each party (Jensen and Meckling 1976 ).

From an accounting perspective, the manager often has the power to manipulate earnings while using the accounting estimates and manipulation techniques available to him (Ahadiat and Hefzi 2013 ).

The practices of corporate governance have not stopped evolving. This is presented via the succession of guides to good governance practices that seek to counter the failures detected over time and which manifest themselves at the level of financial scandals, sometimes inducing a harmful imbalance for the global economic fabric. Based on the "FTSE 350 corporate governance review (2013), for the UK, the evolution of good governance guidelines as well as institutions in the field of corporate governance has developed to respond to the panoply of problems that may be directly related to corporate governance.

In the same context, it is important to emphasize that the study of corporate governance must take into account the specificity of each sector of activity since each sector has its own regulations, key success factors, and compliance rules. In our research paper, as our focus is on UK companies, we have chosen to use the 2 digit ICB industry code, which is relevant to the context of our study. In addition, it should be noted that previous research has studied the relationship between corporate governance and financial performance while focusing only on a particular governance mechanism or a particular specificity related to the strengthening of these mechanisms. Again, it must be emphasized that the majority of research studies have examined the relationship between corporate governance and financial performance without giving much importance to the sectoral specificity of the companies studied.

To give a clearer idea of the orientation of our research work and based on previous developments, we can form the following research question:

What relationship can exist between the governance score and financial performance, taking into account the characteristics of the different business sectors in the United Kingdom economy?

It follows that the objective of the research is to examine the relationship between governance score and financial performance while taking into account the characteristics of the business sectors.

This research paper contributes to the existing literature on several levels. Indeed, it consolidates previous research that tried to show the importance of corporate governance in improving financial performance. Moreover, it focuses on the effect of changes in the business sectors of UK firms so that we can identify the effect of the quality of corporate governance on the performance of firms related to a particular business sector.

This research paper allows us to study the impact of corporate governance on the financial performance sought by shareholders while basing ourselves on the FGLS method, which allowed us to eliminate the various sources of bias identified when using different regressors, namely the generalized least squares method, the regression with the consideration of the presence of the fixed effect as well as the persistence of the autocorrelation problem.

We will try through this research work to emphasize the possible relations between corporate governance and financial performance which is mainly based on the agency theory. It should also be added that the study of the previous relationship by taking into consideration the sectoral characteristics will lead us to turn to the foundations of the institutional theory. The latter theory emphasizes that an institution is constrained by its social, political, economic, legal and technological environment, which it conforms to in order to guarantee its legitimacy and durability.

In order to achieve our research objective, we will not use a simple governance mechanism to reflect the importance of corporate governance on financial performance, but we will opt for a governance score that better reflects all managerial, strategic and CSR characteristics. To achieve the objective of this research work, the remainder of the paper is arranged as follows. First, in “ Review and development of hypotheses ” section, we briefly discuss previous literature and the development of hypotheses. In “ Research methodology ” section, the research design and methodology are discussed including data, variables description. “ Empirical approach to the analysis of the relationship between corporate governance and financial performance ” section summarizes the empirical results, the discussions of the findings and their implications, including the focus on the difference in industry specifications using different regressors. Finally, in the last section, we conclude the study and provide the implications of our findings and the recommendations for future research.

Review and development of hypotheses

Agency theory and corporate governance.

Corporate governance has always played a fundamental role in monitoring and controlling the proper functioning of business processes transparently. By referring to the various research works, we can see that the agency theory is at the heart of the studies on corporate governance. The work of Ross ( 1973 ) and subsequently Jensen and Meckling ( 1976 ) has indicated that the agency theory is the most appropriate sphere to study corporate governance.

This theory can lead us to reflect on the way in which managers can behave. We can cite the case of companies that offer their managers variable remuneration depending on the growth of turnover. In the same sense, it must be said that internal control efficiency and internal audit within companies can play an important role in strengthening the governance structure of companies. It represents one of the guarantors of the proper functioning of business processes in a controlled environment to ensure the improvement of financial performance (Nyakundi et al. 2014 ).

To further develop the role of agency theory in the governance-performance relationship, we can say that agency theory is an analytical framework for understanding the relationships between a firm's stakeholders, including shareholders and management. According to this theory, shareholders have different objectives from those of managers, which can lead to conflicts of interest. Managers seek to maximize their own wealth and power, while shareholders seek to maximize the value of their shares. To align the interests of stakeholders and improve the financial performance of the firm, agency theory advocates the establishment of an effective governance system. Good corporate governance involves putting in place control and oversight mechanisms to ensure that management acts in the best interests of shareholders. This can include the appointment of an independent board of directors, executive compensation linked to company performance, financial transparency and disclosure of relevant information to shareholders. By establishing appropriate incentives and controls, corporate governance can help reduce conflicts of interest and improve the company's financial performance by increasing the value of the company and the return on investment for shareholders. The importance of corporate governance mechanism and its impact on the financial performance was studied by Yermack ( 1996 ), en plus Shleifer and Vishny ( 1997 ) reviewed the state of corporate governance research using a review of the existing literature. The authors concluded that agency theory is an important framework for understanding the relationship between corporate governance and financial performance, and that it can be used to develop effective governance mechanisms for firms.

Consider a publicly traded company whose shareholders are concerned with maximizing the value of their shares. The company's managers, on the other hand, may have different objectives, such as maximizing their own compensation or maintaining their power within the company. This divergence of interests can lead to strategic decisions that are not optimal for the company or its shareholders. In this case, agency theory suggests that strong corporate governance can help align stakeholder interests and improve the firm's financial performance. For example, the appointment of an independent and competent board of directors can help monitor the activities of executives and make strategic decisions in the interests of shareholders. Similarly, compensating executives based on company performance can provide an incentive to work hard to increase the value of the company.

In summary, agency theory shows that corporate governance is essential for aligning stakeholder interests and improving the financial performance of the firm. By putting in place appropriate control and oversight mechanisms, corporate governance can help reduce conflicts of interest and improve shareholder value.

Effect of governance score on performance

In studies that have introduced corporate governance as a main variable, two main areas have been examined. The first seeks to address governance from a shareholder and capital structure perspective, the second seeks to address the composition of boards of directors and the improvement of the quality of governance mechanisms to improve financial performance. Among the research that has emphasized the importance of capital structure, we can cite McConnell and Servaes ( 1990 ), Nesbitt ( 1994 ), Smith ( 1996 ), Del Guercio and Hawkins ( 1999 ), and Hartzell and Starks ( 2003 ), who found that the presence of institutional shareholders positively affects management behavior. Regarding the research that has dealt with the functioning of boards of directors, we can cite Brickley et al. ( 1994 ), Lee et al. ( 1999 ) who have emphasized the importance of independent or outside directors in improving the level of governance quality. In addition, Jensen ( 1993 ) has shown that dual directorships increase the discretion of the director so that the director can influence the financial outcome. For Dechow and Sloan ( 1991 ), the introduction of the CEO's age as a variable makes it possible to reflect the difference between executives and their behaviors throughout their career and especially in the last year of service. During the last two decades, institutional theory has contributed greatly to the understanding of the behavioral aspect and the explanation of the reaction of the different stakeholders toward corporate governance (Aguilera and Jackson 2003 ; Judge et al. 2008 ). It must be said that this theory has contributed enormously to the study of the interaction between the governance mechanism and the institutional framework in which any firm operates. Several studies tried to examine closely the main characteristics of corporate governance to show if there is a possible explanation of the relationship between corporate governance and fiscal management in a perspective of improving financial performance. While Armstrong et al. ( 2015 ) and Seidman and Stomberg ( 2017 ) found a significant relationship between the latter two variables, Blaylock ( 2016 ) did not find any relationship between these two concepts. Before proposing the research hypothesis of the first chapter, it was necessary to first list the results found by researchers who studied the relationship between corporate governance and financial performance based on the governance index or score.

Indeed, La Porta et al. ( 2000 ) have shown that the value of firms is positively associated with minority shareholders' rights. In their research, they emphasized the role of compliance with good governance practices while focusing on the impact of external governance mechanisms such as the level of control of firms in the market.

Indeed, other research works, such as those of Guney et al. ( 2019 ), have shown that the quality of corporate governance measured by Data Stream's ESG ASSET 4 governance score presents a negative and significant association with financial performance for panel data for a sample of 10171 US companies between 2002 and 2014 classified into 10 industries. Indeed, these authors indicated that there are several studies that have given importance to the relationship between corporate governance and its financial performance and whose results of impact or association are mixed while taking into consideration the sectoral characteristics. Other research works have emphasized the importance of internal governance mechanisms while studying factors related to other aspects such as board structure, board function, executive properties of management, and the effect of compensation (Bhagat et al. 2008 ; Guney et al. ( 2019 ); Walsh and Seward 1990 ). In addition and while referring to the work of Guney Guney et al. ( 2019 ), we can say that several research works have tried to investigate the relationship between governance and the performance of companies that seeks to be consistent with the principles of good governance codes. They have used a governance index in particular; the G-INDEX of Gompers et al. ( 2003 ) which focused on the structure and characteristics within American companies to find in conclusion a positive and significant association between their governance index and the value of the companies, their level of profits, their growth in sales and their reduction in capital expenditure.

We also distinguish the E-INDEX index used by Bebchuk et al. ( 2006 , 2002 ). According to Bebchuk et al. ( 2006 ), the E-INDEX derives from an index that consists of 6 attributes related to the IRRC provisions in the USA and that can allow academics to find meaningful results. In fact, these authors divided the Gompers et al. ( 2003 ) index into two indices: the E-INDEX, which is made up of six governance factors, and the O-INDEX, which is made up of the rest of the provisions or attributes used by Gompers et al. ( 2003 ). It should be remembered that this E-INDEX index includes six provisions, which are: the board of directors, limits on changes in shareholder regulations, poison pills, golden parachutes, the requirement of an absolute majority for mergers, and changes in the charter. As a result, they found that increases in the index level are monotonically associated with economically significant reductions in firm valuation and large negative abnormal returns over the period 1990–2003. Regarding the other 18 Investor Responsibility Research Center (IRRC) requirements that formed the O-INDEX, they do not correlate with reductions in firm valuation or with abnormal market returns. Ribando and Bonne ( 2010 ) tried to analyze the relationship between the ASSET4 ESG index of Data Stream and the performance of the company. Indeed, they used the information coefficient (IC) while trying to find possible relationships between ESG characteristics of firms between 2003 and 2009 and future returns. For these characteristics, they found positive and significant associations with all scores except for the corporate governance component. Jun Xie et al. ( 2019 ) found that board independence has a positive and significant association with financial performance as measured by (ROA). On the other hand, there is a negative and significant association between executive compensation, duality, number of audit committee meetings on the one hand, and financial performance on the other hand. Concerning the presence of women on boards of directors, it does not show a significant relationship with ROA. Finally, the control variable, which is research and development expenses, shows a positive and significant association with financial performance. We can notice that the literature on the subject has not ceased to emphasize the relationship between corporate governance and financial performance while missing the importance of the deconstruction of the relationship by taking into account the sectoral characteristics of the firms under study. For this reason, we can say that our work will present an added value to the previous literature because it gives a lot of importance to the sectoral characteristics. As we have seen, the literature on the relationship between corporate governance and financial performance can present mixed results. This leads us to propose the first research hypothesis, which is as follows:

Corporate governance score has a positive and significant association with financial performance.

In our study, we will try to investigate this relationship taking into account the sectoral characteristics of the firms in the UK economy (ICB Code). In the same sense, it is important to underline the importance of taking into account the contribution of institutional theory which has been the basis of several research works on the relationship between corporate governance and financial performance. For example, we can cite the research work of Rachmawati et al. ( 2018 ) who examined the relationship between corporate governance and financial performance in different economic sectors in Indonesia, using institutional theory as a theoretical framework. The authors found that corporate governance had a positive impact on financial performance in all sectors studied, but that the impact was greater in more regulated sectors. In addition, Boubakri et al. ( 2019 ) examined the relationship between corporate governance, institutional environment and financial performance of Russian firms. The authors found that corporate governance had a positive impact on financial performance. Qin et al. ( 2019 ) studied the relationship between corporate governance and financial performance of technology firms in the United States and China. These authors found that corporate governance had a positive impact on financial performance, but that the impact was greater in firms operating in stronger institutional environments. In addition, Muda et al. ( 2018 ) examined the relationship between corporate governance and firm financial performance in different economic sectors in Malaysia, using institutional theory as a theoretical framework. The authors found that corporate governance had a positive impact on financial performance in all the sectors studied, but the impact was greater in the more regulated sectors.

Research methodology

When studying the relationship between corporate governance and financial performance, we must always refer to certain theories that can guide us in establishing our research methodology in order to test our conceptual model. Referring to the governance literature, we can indicate that there is no single pioneering theoretical framework that can be considered as a foundation for governance research. Nevertheless, we can face a particular set of research currents gathered in a paradigm to explain the logic of the relationships in corporate governance. Thus, we can distinguish the research stream focusing on the contractual aspect of the relationship between agents, principals, and creditors. A such relationship can be detailed in the following part of this research paper.

Sample selection

As mentioned at the beginning of this paper, the targeted context is the United Kingdom. Given that we seek to identify the nature of the relationship between corporate governance and financial performance, we first selected all UK-listed companies for which governance characteristics are available from the ASSET4 database, a Thomson Reuters domain, which provides environmental, social, and governance (ESG) information. This initial selection attempts to capture an initial sample of panel data that corresponds to 349 companies that will remain active, between the period of 1998 and 2019, and we will limit ourselves to the period of 2005–2018, i.e., 14 years. This choice is justified by two reasons. The first is the choice of 2005 as the reference year, which corresponds to the year of adoption and application of IFRS by the United Kingdom. The second is the elimination of the year 2019 which does not present complete information when we collected data. In order to obtain a homogeneous sample that allows us to achieve a consistent interpretation, we have eliminated banks and companies that provide financial services, as well as life and non-life insurance (Table 1 ).

This first elimination reduces our sample to 301 companies, obtained as follows:

When processing the panel data that make up our sample, we were obliged to eliminate observations relating to firms whose functional currency does not correspond to the currency of the context of the study, i.e., the pound sterling. These companies number is about 15. In preparing our data, we were obliged to remove the English companies that are not listed on the London Stock Exchange. The number of these companies is 2. We also eliminated 2 other companies that belong to sectors of activity that could cause outliers in our analysis (Financial services according to the ICB classification). This data processing allowed us to obtain a final sample of 282 companies that served as a basis for the study of the relationship between corporate governance and the financial performance of UK companies (Table 2 ). These steps are summarized in the following data processing table:

For a more in-depth study that aims to analyze the impact of governance on financial profitability, we also eliminated firms with missing observations and with a missing value or a very high age of establishment. They are 21 firms. This reduced the number of firms in the sample to 261 firms. We also eliminated 101 firms with outliers in the dependent variable so that the value varies between − 100% and + 200%, which leads us to a final sample of 160 firms with better homogeneity in the dependent variable (ROE). In fact, there is no hard and fast rule for determining an appropriate range for ROE. However, a range of − 100% to + 200% for ROE can be considered as less extreme for our study because we identified more extremum values. We can add that we have tried to refer to other previous works that have tried to present a homogeneous value of financial profitability ROE cite Masood and Ahmad ( 2012 ) who studied the determinants of capital structure of firms in the manufacturing sector in Pakistan. The authors used regression analysis to study the effect of various factors on the capital structure of firms. The authors also used a homogeneous value of ROE by eliminating ROE outliers to reduce the effect of extreme values on the results of the analysis. The results showed that firm size, tax rate, firm growth, and liquidity have a significant influence on the capital structure of firms in the manufacturing sector in Pakistan. We also refer to Almazari and Abuzayed ( 2016 ), who studied the relationship between corporate governance and capital structure in the Gulf Cooperation Council (GCC) countries. The authors used regression analysis to study the effect of corporate governance on firms' capital structure. The authors also used a homogeneous ROE value by eliminating ROE outliers to reduce the effect of extreme values on the results of the analysis (Table 3 ). The results showed that corporate governance has a significant effect on the capital structure of firms in the GCC countries.

In the processing of the data obtained at the level of the variables of the research model, we found some missing observations that could influence the results. To solve this problem, we have resorted to the literature to know how to treat them. In this framework and by reference to Florou and Galarniotis ( 2007 ), missing values (i.e., not disclosed) are treated as an absence of the variable at the study level and thus, the firms constituting the study sample are penalized in the evaluation of the variable studied. Indeed, the missing values were excluded from the analysis. We can add that in the field of corporate governance research, the variables do not present a remarkable change between the following years. For this reason, we preferred to replace the missing values by the weighted average of the existing variables in order not to reduce our sample of panel data further, which remained cylindrical. This choice was made with reference to Rahman et al. ( 2016 ) and White et al. ( 2011 ).

Measures of variables

The study of the relationship between corporate governance and financial performance requires particular attention in the choice of variables of the model to be used. Indeed, we can refer to the work of Alodat et al. ( 2022a ), who assessed the effect of the board of directors and the audit committee attributes and ownership structure on firm performance. They stated that better governance leads to better financial performance. Mansour et al. ( 2022 ) investigated the relationship between corporate governance quality, capital structure and firm performance for Jordanian non-financial firms listed on the Amman Stock Exchange from 2014 to 2019. The results show that good corporate governance practices have a positive impact on firm performance, and that capital structure can strengthen this relationship. The variables reported that summarizes our model are in the form of dependent variables reflecting the financial performance of firms and independent explanatory variables reflecting the quality of corporate governance as well as other control variables relating to the characteristics of UK firms and reflecting size, debt, and age. Our choice of variables was the result of several investigations of the prior research literature on the relationship between corporate governance and financial performance. Alodat et al. ( 2022a , 2022b ) studied ESG disclosure in Jordanian industrial firms. ESG disclosure is low but improving due to stakeholder pressure. Board size and meetings have an impact on ESG performance, but other corporate governance mechanisms do not. The study provides recent evidence from the literature on disclosure in emerging markets. Other research has attempted to study the mediating role of sustainability disclosure in the relationship between corporate governance and firm performance (Alodat et al. 2022a , 2022b ).

In this sense, we will try to detail the measures of the variables used in our research work starting with the dependent variable, the independent variable and then control variables.

Dependent variable

Previous studies used variables reflecting the financial performance while taking into account the effect of governance (Cornett et al. 2008 ). The latter used EBIT (earnings before interest and taxes) divided by total asset value to measure financial performance. Indeed, the use of EBIT or operating profits divided by total asset value has been used by a range of research studies (Eberhart et al. 2004 ; Denis and Denis 1995 ; Hotchkiss 1995 ; Huson et al. 2004 ; Cohen et al. 2005 ). Also, Cornett et al. ( 2008 ) provide another measure of performance which is profitability, not subject to result management. This is the financial profitability with neutralization of the effect of discretionary accruals which is detailed as follows:

While referring to the research on corporate finance, we can see that several researchers have adopted accounting and non-accounting evaluations to arrive at the quantification of this variable. In our study, we will measure the financial performance as follow (measure proposed by data stream):

It reflects the variation of ROE that adjusts for the effect of preferred dividends. We have opted for the ROE because our objective is to measure the company's performance in terms of shareholder return, ROE measures the return on shareholder investment by comparing the company's net income to the value of its equity. It measures the company's ability to generate profits from the funds invested by shareholders. We will thus consider that this measure of the dependent variable is the most adequate for our analysis which remains adaptable.

Independent variable

Corporate governance practices have not stopped evolving. This is presented through the succession of good governance practice guides that seek to counter the failures detected over time and which manifest themselves in financial scandals, sometimes inducing a harmful imbalance in the global economic fabric. Based on the "FTSE 350 corporate governance review (2013)" elaborated by Grant Thornton (auditing and consulting firm), especially for the UK, the evolution of good governance guides, as well as institutions in the field of corporate governance, have developed to respond to the panoply of problems that may be directly related to corporate governance.

Zahra and Pearce ( 1989 ) have identified several studies that have attempted to investigate the effect of corporate governance characteristics on financial performance. We cite the research work of Zahra and Stanton ( 1988 ) who studied the relationship between the size of the board of directors and the financial performance of companies by measuring it based on the variable (ROE), the gross sales margin, the ratio of revenues net of capital, the earnings per share (EPS), and the log of revenues. Based on a sample of 100 Fortune, 500 companies in the USA between 1980 and 1983 found that board size and the ratio reflecting the proportion of outsiders on boards are not associated with financial performance. Schmidt ( 1977 ), taking into account the US context, focused on the external affiliation of outsiders while measuring financial performance by ROE in 156 industrial firms. Schmidt found no relationship between these two variables. Kesner ( 1987 ) studied the effect of the proportion of insiders at the board level and the percentage of equity held by board members while aiming to explain their effects on gross margin, (ROE), (ROA), earnings per share (EPS), stock price and (ROI). Based on a sample of 250 Fortune 500 companies across 27 industries, he found a positive association between the percentage of board members' ownership and the cited financial performance. In addition, Baysinger and Bulter ( 1985 ) studied the impact of outsiders on the financial profitability (ROE) of 266 companies between 1970 and 1980 and found that the presence of a significant number of outsiders on the board of directors improved their financial performance. Pearce ( 1983 ) studied the effect of directors' skills and attitudes on the financial performance of firms measured by several variables including (ROE). He found, based on the responses of 137 respondents in 8 banks, that there is a strong association between the attitude of directors and the financial performance of their company. Referring to the above, we can say that previous studies have tried to examine the relationship between the different governance mechanisms and financial performance while quantifying the latter by using different variables and financial ratios. Among these variables, it is important for us to focus on the financial profitability of shareholders, namely the ROE, which will be used as the dependent variable for our research. Regarding the variables that measure governance mechanisms, we can distinguish variables that were proposed by Cornett et al. ( 2008 ).

After having exposed these research works, we can see that previous research has used particular measures of governance mechanisms to reflect the quality of corporate governance we allow ourselves to indicate that in our research work we are going to use the governance score (CGVS: Corporate Governance Score) which encompasses a significant number of governance mechanisms, and this one manifests itself as the governance score that we have obtained from the database (Data Stream) for the companies that make a disclosure according to ASSET 4. The latter measures a company's governance systems and processes, ensuring that its board members and executives act in the best interests of shareholders over the long term. It reflects a company's ability, through its use of best management practices, to direct and control its rights and responsibilities through the creation of incentives and control mechanisms to generate long-term value for shareholders. Its value is presented as a percentage so that it can be used to detect the effectiveness of companies in terms of governance. Based on the Thomson Reuters ESG Scores calculation guide (February 2019), we can see that the governance score we will use as an independent variable in our analysis plays an important role in determining the governance component of the ESG score.

Control variables

Control variables refer to the characteristics of UK firms and reflect size, leverage and age. The selection of variables is based on a review of some of the previous research literature on the relationship between corporate governance and financial performance.

LNTA: It is the total assets of the company; in our research work, we will use as recommended in the literature the Log of TA as a control variable for our research model.

leverage = ((short-term debt and a current portion of long-term debt + long-term debt)) /(total assets).

AGE: the age of the company

Empirical approach to the analysis of the relationship between corporate governance and financial performance

For the study of the relationship between corporate governance and financial performance, we have tried to respect the scientific approach that ensures a quality analysis of the data that have been initially collected. It is a matter of following a positivist epistemological posture according to a hypothetical-deductive approach. Indeed, when analyzing panel data, there is a very specific approach to follow and a set of econometric tests that will allow us to obtain the research model that leads us to the realization of the necessary predictions. First, when we use cylindrical panel data, we must verify the necessary conditions that give us the assurance of the reliability of the database studied. The verification of such conditions allows us to have the best unbiased predictor that ensures an efficient interpretation of the associations that may exist between the variables. Then, we must analyze the influence of the fixed effect and the random effect of the observations, which will guide us toward the path of analysis to follow. It should be added that the results of the preliminary tests will give us a better idea of which regressor to use so that we can ensure that all sources of bias in the results are eliminated. Among these preliminary tests, we can mention the homoscedasticity test, the autocorrelation test, the multicollinearity test. In our research approach, we made sure to verify these preliminary tests in order to be able to move on to the analysis of associations via the execution of adequate regression models.

At this level, it should be noted that the estimation of panel data can be carried out through 3 possible estimators depending on the behavior of the data. In this respect, we mention 3 methods, which are the Pooled OLS regression (pooled OLS) which can lead us to the use of the GLS method which eliminates estimation bias problems. As an illustration, it is relevant to mention that the GLS method allows us to overcome the heteroscedasticity problem and the first-order autocorrelation problem. The second method is the fixed effect model (or within model): This model is characterized by the existence of a particular characteristic or behavior for a well-defined set of individuals or the firms in the sample. In our analysis, we are going to move directly toward an approach that targets the verification of the fixed effect while taking into consideration the specific characteristics related to each sector of activity (ICB industry code).

Finally, the third method is the random effect model. In this last case, the individuals understudy can also be influenced by both factors at the same time ( i and t ).

In the context of the analysis of the association that may exist between the governance score and the financial performance of the company and while taking into account a significance level of 5% for the interpretation of the results, we will run the model based on the sample of UK companies that we have specified. This will allow us to verify the strength of the link between the endogenous and exogenous variable which is manifested through an approach that can test the existence of the fixed and random effects. The execution of the model via the command "xtreg" on STATA, which implements the method of generalized least squares (GLS: generalized least square), remains effective for the study of panel type databases. For a more refined analysis and in order to use a more accurate estimator, we will show the results found by the execution of the GLS command which allows finding a better estimate allowing to reduce the bias effect caused by the presence of heteroscedasticity and the first-order autocorrelation. This is the Feasible GLS (FGLS) method. (Feasible Generalized Least Squares).

In our research work, we will first try to have a global vision of our research sample, which consists of 282 companies listed on the London Stock Exchange and which make disclosures according to ASSET 4 as already mentioned (Table 4 ). For this reason, we will expose the descriptive statistics that are manifested as follows:

These descriptive statistics tell us that the sample of 282 firms obtained displays numerous observations, namely 3948 observations.

Regarding the dependent variable, we note that the (ROE) shows a mean of -0.16 which reflects in a global but not precise way that all the companies studied operate in an unstable environment that can be considered unfavorable given the circumstances through which the United Kingdom is passing such as the effect of the repercussions of the global financial crisis of 2008 and the BREXIT. The dependent variable shows a maximum value of 72.06 which is considered an extremely high value in relation to the measure of financial profitability (ROE). The same remark can be made regarding the minimum value of the dependent variable, which is equal to 563.32. It should be noted that these outliers led us to reduce our sample. Concerning the independent variable (CGVS) which is the governance score proposed by Data Stream. This shows an average of 0.67, which indicates that all the companies in our sample give importance to governance and its mechanisms for creating value and improving financial profitability. This governance score has a maximum value of 0.98 and a minimum value of 0.02. These values indicate that there are two types of companies, those that give importance to governance and its mechanisms and those that do not. Moving on to the control variables, we can see that the variable (LNTA), which reflects the size of the company according to the current literature, has an average of 14.03. For the variable (LVERAGE), we have an average of 0.25, which indicates the level of indebtedness of the companies in the sample. Regarding the last control variable, which is the (AGE), it indicates that the average age of the companies studied is equal to 64 years. After presenting the descriptive statistics of our sample which is composed of 282 companies, we will try to start the study of the relationship between their governance score and their financial performance in order to know if we are able to confirm the hypothesis providing the existence of a positive and significant relationship between these variables.

For this reason, we will present our correlation matrix for the sample of 282 companies (Table 5 ).

This correlation matrix clearly shows that (CGVS) has a positive and significant correlation at the 5% level with (ROE). This supports the hypothesis of the existence of a relationship. Indeed, the analysis of the correlation remains insufficient to decide on such a relationship. For this reason, we will proceed to the analysis of the regressions necessary to provide a precise vision of the association between these two variables.

It should be noted that the outliers identified in the descriptive statistics forced us to reduce our sample to avoid problems of discordance and observations with outliers as explained in the approach to the selection of our final sample, which reflects the shift from the sample of 282 companies to the sample of 160 companies. In the rest of our analysis, we will limit ourselves to this sample of 160 firms to avoid being influenced by the high values of financial profitability. During our analysis, we will even try to perform robust regression to validate our results.

It must be said that in our analysis we have based ourselves on the book by William Greene ( 2011 ). Our research approach will be based on the identification of biases that can affect the quality and the level of convergence of the estimator to be used. Indeed, we will check the effect of the individuals studied which merit the use of an approach that takes into account the individual effect of each sector of activity for the analysis of the results. For the random effect and while basing ourselves on William Greene ( 2011 ), we can say that the most adequate estimator is the generalized least square as well as the quasi-generalized least square estimator (feasible) which presents a better level of correction of possible sources of bias (Table 6 ). Indeed, we will start by exposing the descriptive statistics of the 160 companies as follows:

The descriptive statistics mentioned above indicate that the value of the dependent variable which is financial profitability measured by (ROE) has an average of 16.9%, which could lead to an increase in results management. In the same framework, the governance score indicates that it varies between 2 and 98%, with an average of 68.5%. In fact, for companies with a low governance score, we can say that the security of shareholders can be negatively affected. Regarding the control variables, we find that (LNTA) displays an average of 14.152. For the level of debt that is presented through (LEVERAGE), it shows that the companies in our sample display leverage equivalent to 24.5%, and the average age of the companies studied is equal to 68 (Table 7 ). In fact, we did not limit ourselves to the presentation of descriptive statistics according to the companies which are the object of our global sample only but also we used descriptive statistics by sector according to the criterion ICB industry which is summarized as follows:

Moving forward in our analysis of the results, we present the correlation matrix for our sample of 160 listed companies that are characterized by the disclosure of governance characteristics according to ASSET4 (Table 8 ).

This correlation matrix indicates the absence of correlation at the 5% level between (ROE) and (CGVS). However, we can estimate that there is a correlation at the 15% level, which means that in 85% of the situations we distinguish a positive and significant correlation between the financial performance and the governance score. Despite a weak correlation, there is a possible link between the dependent and independent variables. Moreover, and concerning the control variables, we can notice the existence of a negative and significant correlation at the 5% level between (LEVERAGE) and (ROE) which reflects the negative effect of debt on English companies. Similarly, LNTA shows a negative and significant correlation with the financial performance of firms, which is explained by an unfavorable effect of the growth of the political visibility of firms in the UK. In order to unravel and further analyze such a relationship, it is necessary to conduct a correlation analysis by sector to identify those that may imply a correlation. Indeed, the present research work will be based essentially on the study of the relationship between governance and financial performance which has been widely studied by most researchers. Thus, OLS regression will allow us to approach this analysis as presented in Table 9 :

Indeed, it remains clear that the OLS regression presents a positive and a significant association at the 5% level between the governance of firms and their financial performance, measured on the basis of the ROE. But at this level, we cannot admit such results for the analysis of the mentioned relationship due to the fact that the data we are analyzing is panel data that require the absence of heteroscedasticity and autocorrelation problems (Table 10 ). Thus, we can present the preliminary tests in question. We start with heteroscedasticity, which presents a remarkable problem in the data. This manifests itself through the Breusch–Pagan test, which is displayed as follows:

This test is based on a null hypothesis predicting the equality of the variance of the residuals. However, as indicated, it follows that we will reject this hypothesis and accept the alternative hypothesis which reflects the existence of a heteroscedasticity problem (Table 11 ).

Still, within the framework of the reliability of the data quality, we used the Woodridge autocorrelation test which shows the following results:

This test includes a null hypothesis that considers the absence of an autocorrelation problem. However, we find that such a hypothesis can only be rejected. This indicates the presence of a first-order autocorrelation problem, which will be corrected.

We also tested the multicollinearity problem by computing the VIF (Table 12 ). We found that such a problem does not taint the processed data. The multicollinearity test is displayed as follows:

After checking the quality of the data, we proceed to the use of a second estimator namely, the GLS, which is an efficient and unbiased estimator of the parameters of the model with a lower variance. The use of such an estimator presents the following results:

Table 13 shows a P value < 5%. This means that the model is significant in its entirety. Furthermore, it remains clear that the governance score has a positive and significant relationship at the 5% level with financial profitability.

Regarding the control variables, we find that they also show a significant association with the dependent variable. For example, the debt ratio has a negative and significant association at the 5% level with financial performance. This is due to the fact that excessive debt can damage the financial performance of the firm. Regarding age, we find that it does not show a significant association with the dependent variable. These results can only reinforce the confirmation of the basic hypothesis predicting the existence of the positive and significant association between governance and financial performance.

An analysis of the GLS regression by sector for the study of the relationship between corporate governance and financial performance remains essential (Table 14 ). This regression will be presented in this synthetic table, which is displayed as follows:

This table indicates that with the use of GLSs we obtain a positive and significant association at the 5% level between (ROE) and (CGVS) this is in line with the confirmation of our research hypothesis at the level of ICB10, 40, and 50 namely the technology sector, the sector of non-essential discretionary consumption and industrial (Table 15 ). To determine whether the fixed or random effect is the effect that influences the research data, we referred to the Hausman test which indicates a P value = 0.0000 < 0.05, this leads us to reject the null hypothesis predicting the existence of the random effect. The last test is as follows:

To refine the quality of the analysis, we will, in the following, analyze the presence of the fixed effect which will allow us to reinforce the expected result (Table 16 ).

Indeed, the regression of the data taking into account the existence of a fixed effect is as follows:

It remains clear that taking the fixed effect into consideration can only confirm the previous results regarding the association between the governance score and financial performance at the 5% level.

In order to analyze this association by sector, we performed the sectoral GLS regression, taking into account the presence of the fixed effect. In fact, based on the results obtained we can say that we found a positive and significant relationship at the 5% level between corporate governance and financial performance in the ICB 15 40 50 and 60 sectors. However, it should be noted that the association found in ICB 15 will not be taken into account because the model is not significant in its entirety for the companies in this last sector (Table 17 ). To summarize our results, we can present the table of results found, by sector according to the regressor that takes into account the fixed effect which is presented as follows:

In the following, we will try to take into account the autocorrelation problem identified by the fact that the fixed effect estimator is consistent (Table 18 ). Indeed, the regression in the presence of a fixed-effect by correcting the effect of autocorrelation can be presented as follows:

Taking into account the correction of the first-order, autocorrelation leads us to the same finding, which predicts the existence of a positive and significant association at the 5% level between governance and financial performance. An analysis by sector based on the sectoral regression with the presence of the fixed effect, with correction of the autocorrelation for the study of the relationship between governance and the financial performance of the company remains adequate to detail our results. This regression is presented in Table 19 . This analysis by sector, with the correction of the autocorrelation problem of order 1, indicates that we have a positive and significant association at the 5% level between the two main variables studied at the level of ICB35, 40, and 50. It is true that we had found a significant relationship at the level of ICB 15, but such an association will not be taken into account because Fisher test for this sector indicates that there is no overall significance of the model.

To summarize these results, we present the following table, which presents the fixed effect regression correcting for the effect of the first-order autoregressive autocorrelation.

Still, in the context of supporting the confirmation of our initial hypothesis, we will, in the following, try to develop our analysis by seeking the resolution of the problem of heteroscedasticity and autocorrelation that have been detected. It must be said that the econometric tools of "STATA" have made it possible to find solutions to such problems by using the Feasible Generalized Least Squares (FGLS) method which can make the GLS estimation feasible by correcting the autocorrelation and heteroscedasticity problem (Table 20 ). The use of such a regressor gives us the following results:

By analyzing this FGLS regression, we can see that this model is generally significant in its entirety because the P value < 5%. Thus, there is at least one explanatory variable that can analyze the variable to be explained.

The results found indicate that we have a positive and significant association at the 5% level for the 160 firms in our study. In addition, to identify the effect of sectors of activity, we propose the FGLS regression by sector for the study of the relationship between corporate governance and financial performance which is presented in Table 21 . The results obtained can be summarized as follow:

These results indicate that when correcting for the statistical problems identified, we were able to obtain in almost all the sectors of activity studied a positive and significant association at the 5% level between the governance index and financial performance in fact for ICB 10,20,40,45,50 and 55, we were able to obtain a very significant association at the 5% level. It must be said that with the correction of inconsistencies, we can confirm our H1 hypothesis in almost all sectors of activity. This leads us to emphasize the importance of governance in improving the financial performance of firms.

To further summarize our results, we can present the following summary table that analyzes, by sector and by regressor used, the type of association between governance and financial performance (Table 22 ).

As part of the validation of our results, we used robust regression to ensure that our results remained free of bias.

Indeed, we performed robustness checks on the overall sample of 160 companies as well as by sector of activity studied (Table 23 ).

For the overall sample we found these results:

The results obtained after the verification of the robustness of our model validate the results obtained previously indicating the fact that corporate governance presents a positive and significant association with financial performance which further confirms our research hypothesis (Table 24 ).

In addition, we performed robustness checks on the detailed results by sector and obtained the following results:

The results of the robustness checks lead us to validate the previous results obtained mainly in the ICB40 (Consumer Discretionary) and ICB50 (Industrials) sectors.

Comparing the validation results with the previous results, we can see that for the sector ICB 10 (Technology), ICB 35 (Real Estate), ICB 45 (Consumer Staples) and ICB 60 (Energy) we could visualize a positive association between ROE and CGVS (Table 25 ).

These results can be summarized in the following table:

Benefits and contributions

These results indicate that when correcting for the identified statistical problems, we were able to obtain in almost all the sectors of activity studied a positive and significant association at the 5% level between the governance index and financial performance in fact for ICB 10,20,40,45,50 and 55, we were able to obtain a very significant association at the 5% level. It must be said that with the correction of inconsistencies, we can confirm our H1 hypothesis in almost all sectors of activity. This leads us to emphasize the importance of governance in improving the financial performance of firms active in industries, which gives specific importance to the role of governance. It should be noted that our in-depth investigations and the use of robust regression have shown that the significant association between corporate governance and financial performance is still mainly valid for the ICB10 and ICB40 sectors.

Interpretation of results

At this level, we can see that the results that were found by reference to the different regression methods used, lead us to confirm our first hypothesis H1 predicting the existence of a positive and significant association between the governance score and financial performance. Indeed, in order to have better visibility of the effect of the improvement of the results via the correction of the identified econometric problems and to reflect the approach that led us to adopt the FGLS regressor, we propose the following summary table that shows the corrections of the estimates of the strength of the relationship between corporate governance and financial performance when taking into account the sectoral influences and the correction of the various sources of bias.

In our present research, we have tried to focus on the impact of corporate governance on the financial performance of firms in the United Kingdom. The 160 companies studied between 2005 and 2018 are listed on the London Stock Exchange and are characterized by the achievement of corporate social responsibility disclosures according to ASSET4.

In this chapter, we have tried to clarify the important concepts that are directly related to our study on the relationship between corporate governance score (CGVS) and corporate financial performance (ROE). In this chapter, we have also tried to demonstrate how the adoption of good governance measures can be associated with better firm performance. In this sense, we conducted a sectoral analysis according to the ICB code, which allowed us to identify a positive and significant association in the companies of 6 sectors of activity, which are ICB 10 (Technology), 20 (Health), 40 (Secondary consumption), 45 (Basic consumption), 50 (Industrial) and 55 (Basic material or raw materials). These results led us to observe that companies that are characterized by best practices in governance, as well as those with a favorable structure of their board of directors that are well organized and disciplined, can have better financial profitability through the enhancement of their corporate organizational architecture. It should also be added that the establishment of controls and compensation committees reinforces the role of governance in achieving better financial performance. In addition, the protection of shareholders' interests and the consideration of social and environmental factors at the decision-making level can only improve the financial performance of companies. We must add that the robustness checks we have performed confirm and validate the results obtained mainly in the ICB 40 and 50 sectors, i.e., the Consumer Discretionary sector and the Industrial sector.

Through our study, we have corroborated the findings drawn by a significant number of research works. Nevertheless, the originality of ours, which we consider innovative, consists in focusing attention on the different sectors of activity in the UK (United Kingdom). We have followed an approach advocating achieving a cross-sector benchmark which allows to reflect the ideas proposed by the institutional theory. This paper evinces that despite the variation in the sectors of activity, the corporate governance plays a key role in improving the financial performance of English corporations. This result is consistent with the foundations of agency theory. We also emphasize the prominence of using the clustering technique with a view to targeting the analysis of the relationship between the corporate governance and financial performance. The analytical approach we have used has inspired several previous authors, including Lo and Shekhar ( 2018 ) who examined the impact of corporate governance on the financial performance of companies in Germany. They identified a positive association between strong corporate governance and financial performance in all industries studied. In addition, and for the economy of the UK, we can cite the research of O'Sullivan and Carroll ( 2021 ) which studied the impact of corporate governance on the financial performance of firms in the United Kingdom using a cluster approach to distinguish firms according to their industry. The results found suggest that corporate governance is positively associated with financial performance, but that this relationship varies across industries. This confirms the role of our research in consolidating the results of previous research and highlighting the importance of the use of cluster analysis in the dissection of the phenomena studied.

Moreover, identifying the positive and significant association between the corporate governance in most sectors studied makes us confirm our research hypothesis, which remains well founded by a rich literature (Alodat et al. 2022a , 2022b ; Jia et al. 2021 ; Khan and Hanafi 2021 ; Agyei-Mensah and Gyimah 2020 ; Abdulsalam and Oyewo 2019 ). Previous research has identified mixed results owing to the differences in the measures used to assess the corporate governance quality or to measure the financial performance level.

Through this research work, we have also been able to validate that corporate governance plays a key role in improving the performance of English companies, mainly in the consumer discretionary sector and in the industrial sector. These results reflect the level of detail of our analyses which give a lot of importance to the sectoral characteristics of the firms.

Like any research study, we have found difficulties in the data collection process. Yet, our strength and originality consist in a new empirical approach making us dismantle a particular phenomenon. This latter has been widely studied in the different sectors of activity through analyzing the corporate governance research. This remains substantial from a managerial point of view, and extremely beneficial for advisors and decision-makers at a scale characterized by a more remarkable degree of precision. What is more, it is worth noting that our work has some limitations related to the study period dealing only with the period before Brexit (the withdrawal of the United Kingdom from the European Union). The process of preparing the database has also led us to eliminate several companies, but this is necessary to avoid any source of econometric bias.

To put this into perspective, we suggest carrying out a comparative study of the UK corporations before and after the Brexit period. This period has been characterized by a political and regulatory flow, especially at the European and international levels. Furthermore, the studies on corporate governance mechanisms in times of health crises, such as the COVID-19 pandemic period, are significantly important. In this sense, we have only introduced in our study the health sector, but this may necessitate more detailed investigations in future works.

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Affes, W., Jarboui, A. The impact of corporate governance on financial performance: a cross-sector study. Int J Discl Gov 20 , 374–394 (2023). https://doi.org/10.1057/s41310-023-00182-8

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Received : 11 August 2022

Accepted : 06 May 2023

Published : 30 May 2023

Issue Date : December 2023

DOI : https://doi.org/10.1057/s41310-023-00182-8

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Majority of workers who quit a job in 2021 cite low pay, no opportunities for advancement, feeling disrespected

The COVID-19 pandemic set off nearly unprecedented churn in the U.S. labor market. Widespread job losses in the early months of the pandemic gave way to tight labor markets in 2021, driven in part by what’s come to be known as the Great Resignation . The nation’s “quit rate” reached a 20-year high last November.

A new Pew Research Center survey finds that low pay, a lack of opportunities for advancement and feeling disrespected at work are the top reasons why Americans quit their jobs last year. The survey also finds that those who quit and are now employed elsewhere are more likely than not to say their current job has better pay, more opportunities for advancement and more work-life balance and flexibility.

Majorities of workers who quit a job in 2021 say low pay (63%), no opportunities for advancement (63%) and feeling disrespected at work (57%) were reasons why they quit, according to the Feb. 7-13 survey. At least a third say each of these were major reasons why they left.  

Roughly half say child care issues were a reason they quit a job (48% among those with a child younger than 18 in the household). A similar share point to a lack of flexibility to choose when they put in their hours (45%) or not having good benefits such as health insurance and paid time off (43%). Roughly a quarter say each of these was a major reason.

Pew Research Center conducted this analysis to better understand the experiences of Americans who quit a job in 2021. This analysis is based on 6,627 non-retired U.S. adults, including 965 who say they left a job by choice last year. The data was collected as a part of a larger survey conducted Feb. 7-13, 2022. Everyone who took part is a member of the Center’s American Trends Panel (ATP), an online survey panel that is recruited through national, random sampling of residential addresses. This way, nearly all U.S. adults have a chance of selection. The survey is weighted to be representative of the U.S. adult population by gender, race, ethnicity, partisan affiliation, education and other categories. Read more about the ATP’s methodology .

Here are the questions used for this analysis, along with responses, and its methodology.

About four-in-ten adults who quit a job last year (39%) say a reason was that they were working too many hours, while three-in-ten cite working too few hours. About a third (35%) cite wanting to relocate to a different area, while relatively few (18%) cite their employer requiring a COVID-19 vaccine as a reason.

When asked separately whether their reasons for quitting a job were related to the coronavirus outbreak, 31% say they were. Those without a four-year college degree (34%) are more likely than those with a bachelor’s degree or more education (21%) to say the pandemic played a role in their decision.

For the most part, men and women offer similar reasons for having quit a job in the past year. But there are significant differences by educational attainment.

Among adults who quit a job in 2021, those without a four-year college degree are more likely than those with at least a bachelor’s degree to point to several reasons. These include not having enough flexibility to decide when they put in their hours (49% of non-college graduates vs. 34% of college graduates), having to work too few hours (35% vs. 17%) and their employer requiring a COVID-19 vaccine (21% vs. 8%).

There are also notable differences by race and ethnicity. Non-White adults who quit a job last year are more likely than their White counterparts to say the reasons include not having enough flexibility (52% vs. 38%), wanting to relocate to a different area (41% vs. 30%), working too few hours (37% vs. 24%) or their employer requiring that they have a COVID-19 vaccine (27% vs. 10%). The non-White category includes those who identify as Black, Asian, Hispanic, some other race or multiple races. These groups could not be analyzed separately due to sample size limitations.

Many of those who switched jobs see improvements

A majority of those who quit a job in 2021 and are not retired say they are now employed, either full-time (55%) or part-time (23%). Of those, 61% say it was at least somewhat easy for them to find their current job, with 33% saying it was very easy. One-in-five say it was very or somewhat difficult, and 19% say it was neither easy nor difficult.

For the most part, workers who quit a job last year and are now employed somewhere else see their current work situation as an improvement over their most recent job. At least half of these workers say that compared with their last job, they are now earning more money (56%), have more opportunities for advancement (53%), have an easier time balancing work and family responsibilities (53%) and have more flexibility to choose when they put in their work hours (50%).

Still, sizable shares say things are either worse or unchanged in these areas compared with their last job. Fewer than half of workers who quit a job last year (42%) say they now have better benefits, such as health insurance and paid time off, while a similar share (36%) says it’s about the same. About one-in-five (22%) now say their current benefits are worse than at their last job.

College graduates are more likely than those with less education to say that compared with their last job, they are now earning more (66% vs. 51%) and have more opportunities for advancement (63% vs. 49%). In turn, those with less education are more likely than college graduates to say they are earning less in their current job (27% vs. 16%) and that they have fewer opportunities for advancement (18% vs. 9%).

Employed men and women who quit a job in 2021 offer similar assessments of how their current job compares with their last one. One notable exception is when it comes to balancing work and family responsibilities: Six-in-ten men say their current job makes it easier for them to balance work and family – higher than the share of women who say the same (48%).

Some 53% of employed adults who quit a job in 2021 say they have changed their field of work or occupation at some point in the past year. Workers younger than age 30 and those without a postgraduate degree are especially likely to say they have made this type of change.

Younger adults and those with lower incomes were more likely to quit a job in 2021

Overall, about one-in-five non-retired U.S. adults (19%) – including similar shares of men (18%) and women (20%) – say they quit a job at some point in 2021, meaning they left by choice and not because they were fired, laid off or because a temporary job had ended.

Adults younger than 30 are far more likely than older adults to have voluntarily left their job last year: 37% of young adults say they did this, compared with 17% of those ages 30 to 49, 9% of those ages 50 to 64 and 5% of those ages 65 and older.

Experiences also vary by income, education, race and ethnicity. About a quarter of adults with lower incomes (24%) say they quit a job in 2021, compared with 18% of middle-income adults and 11% of those with upper incomes.

Across educational attainment, those with a postgraduate degree are the least likely to say they quit a job at some point in 2021: 13% say this, compared with 17% of those with a bachelor’s degree, 20% of those with some college and 22% of those with a high school diploma or less education.  

About a quarter of non-retired Hispanic and Asian adults (24% each) report quitting a job last year; 18% of Black adults and 17% of White adults say the same.

Note: Here are the questions used for this analysis, along with responses, and its methodology.

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A look at small businesses in the U.S.

Majorities of adults see decline of union membership as bad for the u.s. and working people, a look at black-owned businesses in the u.s., from businesses and banks to colleges and churches: americans’ views of u.s. institutions, 2023 saw some of the biggest, hardest-fought labor disputes in recent decades, most popular.

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