Short- and long-term impact of governance on firm performance in emerging and developed economies: a comparative analysis

Abstract

Abstract This study examines the short- and long-term effects of internal and external governance on firm performance in both emerging and developed markets. The complex interplay between governance mechanisms and their impact on firms' financial outcomes requires further investigation, especially in the distinct and evolving economic contexts of these markets. Using the generalized method of moments, we assess the influence of internal and external corporate governance on firm performance while controlling for factors such as economic growth. Countries in the sample were selected based on their prominent roles within their respective economic blocs and unique economic and firm characteristics. We found that the internal governance mechanisms support firm performance in both emerging and developed markets in the short run. However, other factors play a more significant role in the long run. The results suggest that managers should strive to balance short-term gains with long-term sustainable growth view of company. For policymakers in emerging and developed markets, this study highlights the importance of designing governance frameworks that support firm performance across varying time horizons. This research offers a novel contribution by exploring the distinct short- and long-run interactions between governance machanisms and firm performance, comparing this dynamics across emerging and developed markets.

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