The Impact of Corporate Governance on Firm Performance: Evidence from Bahrain Bourse

Abstract

(ProQuest: ... denotes formulae omitted.)IntroductionMany researchers have carried out studies to identify corporate governance, focus on its characteristics, and determine how these characteristics impact performance of entire firm. Studies found many answers related to research queries by providing a clear definition of good corporate governance. Studies also examined ethics and procedures used to manage and monitor performance of a business. The goal of most of these studies was to examine relation between corporate governance mechanisms and performance measures.After collapse of Enron and corporate scandals that have been ongoing since October 2001, confidence of marketplace shareholders began to shake. In response to this erosion, many investors, boards of directors and government regulators have encouraged businesses to emphasize corporate governance from different sides. These different sides include accounting and finance, economies, law, and management.In addition to these divergent factors, countries and economies differ regarding what governance mechanisms they should use to attain best results. For instance, majority of Taiwan businesses are owned by families; however, in Anglo-American economies, equity market is most popular means of ownership. Still, when considering best way to structure a firm, whether firm is in Asia, Europe or USA, it is of utmost importance to implement correct governance mechanisms. This will aid any business in process of decision making.Given factors that go into structuring a business, and cultural differences that can exist between economies, countries, business founders and investors, it is extremely difficult to define corporate governance. A review of literature shows that there is no universal definition. For purposes of this paper, we will define corporate governance as the system by which companies are directed and controlled (Cadbury Committee, 1992). This is most broadly used definition in business literature. There are few studies which examine effect of corporate governance on performance measures in Global Council Cooperation (GCC) business environment. This paper may be first to do so in Bahrain. Bahrain is one of fastest growing global economies. Its government is keen to support good corporate governance mechanisms in hopes of increasing investor confidence and encouraging market improvement.This study provides empirical evidence from Bahrain about impact of corporate governance on a typical company's performance measures .Bahrain is one of most unique and attractive marketplace in region, mainly because it provides great opportunities for more investment flows. This paper is a contribution to previous studies that investigate effect of corporate governance practices among performance measures for entire firm. The paper will also aid stakeholders in proposing proper organizational structure of a firm. The paper will help to differentiate between firms with effective and ineffective corporate governance policies. Effective corporate governance has goals of building marketplace confidence and attracting positive investors in organization. The main objectives in this study are to* Determine a means of distinguishing between effective and ineffective corporate governance,* Demonstrate effect of corporate governance practices on a firm's financial sector performance,* Increase awareness on agency theory and its relative costs,* Illustrate Bahraini market generally and Bahrain Bourse specifically.Literature ReviewMany studies from around world have investigated impact of corporate governance variables on firm performance. Certain studies from other countries are useful to review in understanding and informing current study. Sayla Siddiqui (2014) investigated effect of corporate governance characteristics on firm performance based on 25 previous research studies. …

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