Does good governance result in improved firm performance?             - some directions for future research.              ...
Corporate Governance –a definition    Corporate Governance has been defined as;   “… how to assure financiers that they ge...
Why focus on good governance?The movement towards good corporate governance hasbeen motivated by the presumed existence of...
Relationship between Governance and Performance  Good Governance has been the focus of research  by Consultants, Fund Mana...
Governance and Performance..contd.• The broad conclusion of the survey based  research efforts have been near unanimous – ...
Governance and Performance – Empirical Research  Key Studies:  •   Gompers, Paul A., Ishii, Joy L. and Metrick, Andrew;Cor...
Conclusions from Empirical ResearchDespite the intuitive appeal of the proposition that‘Good Governance (of the Firm) woul...
Basis for a robust Governance Policy Effectiveness of corporate governance regulations (in bringing about good performance...
Key Challenges in C G research•    The first challenge of defining and measuring corporate    governance in a manner that ...
Directions for future research    ONE- CG Research needs to develop a more complete      understanding of the corporate go...
Directions for future research..contd.   TWO- CG Research needs to grow beyond merely studying    the impact of simplistic...
Directions for future research..contd.THREE - CG Research has to be based on  developing more robust econometric models  t...
Directions for future research..contd. FOUR – Models for CG Research should take  into account the basic differences that ...
Directions for future research..contd.FIVE – CG Research need to go beyond a ‘tick in  the box’ approach while studying co...
Directions for future research..contd.SIX – A serious lacuna in existing C G research is the  absence of an encompassing a...
SUMMARIZINGDespite causality between good governance andgood performance not being established it shouldnot be implied tha...
In the absence of robust CG Research…    “It would augur well if the Indian corporate governance       debate were to tran...
In the absence of robust CG Research...    “It becomes clear that even with attentive       crafting of detailed governanc...
Further…….• To access a full length paper on this subject  and other Corporate Governance  issues, please visit my author’...
DISCUSSIONS & QUESTIONS!                                    THANK YOUDoes good governance result in improved firm performa...
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Does good governance result in improved firm performance? - some directions for future research.

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To access a full length paper on this subject and other Corporate Governance issues, please visit my author’s page on the Social Science Research Network (SSRN) website at:
http://ssrn.com/author=1714442
Comments and feedback most welcome, please write to me at;
spande@nihilent.com

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Does good governance result in improved firm performance? - some directions for future research.

  1. 1. Does good governance result in improved firm performance? - some directions for future research. SANTOSH PANDE ITM University & Thought Arbitrage Research Institute. Presented at the 3rd International Conference on Corporate Governance. Shriram College of Commerce, New Delhi,. 27th March 2012.
  2. 2. Corporate Governance –a definition Corporate Governance has been defined as; “… how to assure financiers that they get a return on their investment”. Shleifer, Andrei and Vishny, Robert W., (1997); A Survey of Corporate Governance, The Journal of Finance, Volume 52, Number 2 (June 1997). Traditionally deals with the agency problemDoes good governance result in improved firm performance? some directions for future research.
  3. 3. Why focus on good governance?The movement towards good corporate governance hasbeen motivated by the presumed existence of the followingintuitive linkages;•Good corporate governance would protect the interest ofthe owners (shareholders) and harmonize the interests of theowners and managers•Good corporate governance would result in betterorganizational performance and make it easy for firms toaccess external funds and investors , Does good governance result in improved firm performance? some directions for future research.
  4. 4. Relationship between Governance and Performance Good Governance has been the focus of research by Consultants, Fund Managers, Rating Agencies, Donor organizations. Some Key Studies: – Coombes, Paul and Watson, Mark, (2000); Three Surveys on Corporate Governance, The McKinsey Quarterly, 2000, No. 4. – Beyond the Numbers-Corporate Governance: Implication for Investors; Deutsche Bank –submitted by Deutsche Bank A.G., in 2004 to the Asset Management Working Group (AMWG) of the United Nations Environment Program Finance Initiative (UNEP FI). – ICRA CORPORATE GOVERNANCE SURVEY, February 2004 – CORPORATE GOVERNANCE IN ASIA, Recent Evidence from Indonesia, Republic of Korea, Malaysia, and Thailand –an ADB Report Does good governance result in improved firm performance? some directions for future research.
  5. 5. Governance and Performance..contd.• The broad conclusion of the survey based research efforts have been near unanimous – Good Governance pays!• To put these findings into perspective, reforming the Corporate Governance practices by a Firm could significantly improve its valuation at considerably lesser effort than that required to boost sales, cost cutting exercise or improving margins!Does good governance result in improved firm performance? some directions for future research.
  6. 6. Governance and Performance – Empirical Research Key Studies: • Gompers, Paul A., Ishii, Joy L. and Metrick, Andrew;Corporate Governance & Equity Prices • Lucian Bebchuk, Alma Cohen, and Allen Ferrel ; What Matters in Corporate Governance? • Lawrence D. Brown and Marcus L. Caylor; Corporate Governance and Firm Performance • Kenneth Lehn, Sukesh Patro, and Mengxin Zha; Governance Indexes and Valuation: Which causes Which? • David Larcker, Scott Richardson, and Irem Tuna; How Important is Corporate Governance? • Carol Padgett & Amama Shabbi; The UK Code of Corporate Governance: Link between Compliance and Firm Performance • Balasubramanian, N., Black, Bernard S., and Khanna, Vikramaidtya,; Firm Level Corporate Governance in Emerging Markets – A case study of India Does good governance result in improved firm performance? some directions for future research.
  7. 7. Conclusions from Empirical ResearchDespite the intuitive appeal of the proposition that‘Good Governance (of the Firm) would lead to GoodPerformance (by the Firm)’ conclusive evidencelinking good governance to good performance hasbeen lacking with the results obtained from empiricalresearch, to date, having been mixed.…………………yet, country after country has gone in forgovernance reforms including introducing ‘model’codes for good governance in the belief that goodgovernance would lead to good performance!Does good governance result in improved firm performance? some directions for future research.
  8. 8. Basis for a robust Governance Policy Effectiveness of corporate governance regulations (in bringing about good performance) depends on the answers to the following questions; – Are the regulatory changes in corporate governance based on sound theory or are they based on popular perceptions and a common position that is arrived at based on the negotiation of the divergent views of various interest groups who are affected by the regulatory changes? – How robust is the underlying theory of CG, in particular, the linkage of good governance to good performance? – Does the CG Theory comprehensively model all the factors that impact corporate governance and accounts for differences in contextual and cultural factors that could impact governance. – Has the CG Theory been tested, empirically, on actual conditions and have the conclusions been tested for their validity?Does good governance result in improved firm performance? some directions for future research.
  9. 9. Key Challenges in C G research• The first challenge of defining and measuring corporate governance in a manner that it captures its essence – assessment of good governance requires measuring ‘soft issues’!• The second challenge in establishing a universal standard of good corporate governance and to examine if it is indeed possible to develop such a standard - can a policy of ‘one size fits all’ hold for good governance?• The third challenge of establishing causality from empirical data - have researchers who have inferred causality between corporate governance and corporate performance drawn conclusions which are beyond the empirical evidence?Does good governance result in improved firm performance? some directions for future research.
  10. 10. Directions for future research ONE- CG Research needs to develop a more complete understanding of the corporate governance model in the following areas; – A better understanding of the various underlying factors that affect corporate governance in an organization. – There is a need to better understand the external factors that impact corporate governance . …….. taking a ‘one size fits all’ approach to corporate governance ( as is done in most of current research) fails to recognize the impact of important contextual factors that make each organization unique and because of which individual corporate governance solutions may have to be crafted for each organizations.Does good governance result in improved firm performance? some directions for future research.
  11. 11. Directions for future research..contd. TWO- CG Research needs to grow beyond merely studying the impact of simplistic, structural factors like board attributes or shareholder rights on organizational performance ……….. and should be able to account for systemic and multi dimensional influences on corporate performance which are related to the organization’s strategy.Does good governance result in improved firm performance? some directions for future research.
  12. 12. Directions for future research..contd.THREE - CG Research has to be based on developing more robust econometric models to study corporate governance ………………….. models need to be based on a more comprehensive understanding of the theory as studies based on an incomplete or partial understanding of the theory are likely to give misleading results.Does good governance result in improved firm performance? some directions for future research.
  13. 13. Directions for future research..contd. FOUR – Models for CG Research should take into account the basic differences that exist between organizations that are characterized by the ‘insider’ model of management as opposed to organizations that are characterized by the ‘outsider’ model of management.Does good governance result in improved firm performance? some directions for future research.
  14. 14. Directions for future research..contd.FIVE – CG Research need to go beyond a ‘tick in the box’ approach while studying corporate governance. …….. need for greater use of qualitative research methods, including observing boards in real time and interviewing directors – for advancing research in this field …..how do you assess the ‘quality’ of decisions of the Board of Directors? or Board ‘Effectiveness’?Does good governance result in improved firm performance? some directions for future research.
  15. 15. Directions for future research..contd.SIX – A serious lacuna in existing C G research is the absence of an encompassing and unifying theory of corporate governance; the existing frameworks do not hold anymore. ………..we need new theoretical insights that will take us towards a comprehensive theory of governance - one such model is based on the concept of maximizing the long term strategic value for an organization.Does good governance result in improved firm performance? some directions for future research.
  16. 16. SUMMARIZINGDespite causality between good governance andgood performance not being established it shouldnot be implied that such a causal relationshipdoes not exist!All it means is that existing corporate governanceresearch has not been able to identify such acausal relationship….…… and points to the need for more detailed andin-depth research in this field!!Does good governance result in improved firm performance? some directions for future research.
  17. 17. In the absence of robust CG Research… “It would augur well if the Indian corporate governance debate were to transcend beyond conventional wisdom to take into account the distinctive factors that are characteristic to the agency problems between controlling shareholders and minority shareholders, rather than to continue to operate under concepts that relate to the agency problems between shareholders and managers that are inappropriate to Indian corporate law and governance ”. • ………..Umakanth Varottil, A CAUTIONARY TALE OF THE TRANSPLANT EFFECT ON INDIAN CORPORATE GOVERNANCE , electronic copy available at: http://ssrn.com/abstract=1331581.Does good governance result in improved firm performance? some directions for future research.
  18. 18. In the absence of robust CG Research... “It becomes clear that even with attentive crafting of detailed governance rules by a group of elites with a deep understanding of corporate governance standards around the world, the reform process is useless if an effective infrastructure for enforcement and implementation is not in place”. ………………Afra Afsharipour; THE PROMISE AND CHALLENGES OF INDIA’S CORPORATE GOVERNANCE REFORMS; electronic copy available at: http://ssrn.com/abstract=1640249Does good governance result in improved firm performance? some directions for future research.
  19. 19. Further…….• To access a full length paper on this subject and other Corporate Governance issues, please visit my author’s page on the Social Science Research Network (SSRN) website at: http://ssrn.com/author=1714442• Comments and feedback most welcome, please write to me at; spande@nihilent.comDoes good governance result in improved firm performance? some directions for future research.
  20. 20. DISCUSSIONS & QUESTIONS! THANK YOUDoes good governance result in improved firm performance? some directions for future research.

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