Question

Project Topic: CORPORATE GOVERNANCE AND FIRM PERFORMANCE. (A case study of listed Financial firms on the Ghanaian Stock Exchange Market).

Requirement:

Write Literature Review on the topic and it must include:

a. introduction

b. theoretical review

c. conceptual review and framework

d. empirical review

Answer 1

(a) Introduction

1. Introduction
Corporate governance focuses on the structures and processes for the business direction and management of firms. It involves the relationships among company’s controlling system, roles of its board directors, shareholders and stakeholders. Williamson (1988) considered that the corporate governance has relation with transaction cost and, in turn, enhances firm performance. In addition, weak corporate governance reduces investor confidence and discourages outside investment. Similarly, Bhagat and Bolton (2008) undertook a research on the endogenous relationship between corporate governance and firm performance and concluded that
good corporate governance affects firm performance positively. In Vietnam, the framework of corporate governance has just been in an early stage of development. In academia,
the corporate governance in Vietnam has been approached many angles of law and legal consideration by Nguyen (2008), qualitative consideration by Le and Walker (2008) and quantitative approach by Vo and Phan
(2013a, b, c, d). Various empirical studies on corporate governance and firm performance in Viet Nam
consecutively conducted by Vo and Phan have confirmed that this important issue in terms of research and practice has not attracted significant attention research community in Vietnam in the past. However, even though Vo and Phan’s studies have covered a wide range of issues in relation to corporate governance, their estimation for firms performance is relatively constrained. As a result, the importance of the topic on corporate governance and a relaxation of restriction on the measurements of firm performance has provided key rationales to conduct
this study to provide another empirical evidence on the issue for a further debate. This study uses a sample including listed firms in Ho Chi Minh City Stock Exchange (HOSE). Until 2012, HOSE has 342 listed firms including 301 stocks, 3 institutional fund certificates and 38 bonds. Total volume of
share and listed value is more than 26.7 billion shares and 273 trillion VND respectively. The HOSE is
considered as a high liquidity market with total market capitalization of 678 trillion VND (32.6 billion USD) by

the end of 2012. This figure accounted for 24 percent of the national GDP. Moreover, the average of transaction value in 2012 was 890 billion VND, an increase of 39 percent compared to that in 2011. The specific objective of this study is to examine the relationship between corporate governance and firm performance in term of three
components: duality, board composition and ownership concentration using The Feasible Generalized Least Square (FGLS). From the sample, bank and financial institutions are excluded.
The structure of this paper includes five sections. Following this section, section 2 is devoted for a literature review exploring the theories explaining the mechanism of impact of corporate governance on firm performance, as well as the relationship between them. The next section focuses on descriptions of data collection,
measurements of model variables and regressions. Section 4discusses empirical results on the effects of
corporate governance on firm performance in Vietnam from 2008 to 2012. The final section summarizes main findings, provides implications for firms in Vietnam on corporate governance and firm performance

(b)  Theoretical Considerations
In corporate governance, board of director is considered as the most important factor which affects an entire business and interest of owners. As such, the question of “what is the board of director characteristics and how does it influence firm performance of a firm” has attracted significant attention from academia and practitioners
over the last 50 years or so. Zahra and Pearce (1989) in their research approached the role of board of director on financial performance by reviewing and synthesizing four perspectives: (i) legalistic perspective, (ii) resources
dependence, (iii) class hegemony; and (iv) agency theory. Meanwhile, stewardship theory, which is developed by Davis, Schoorman and Donaldson (1997), explained the board’s role in different way.

(c) Conceptual Review and framework

Corporate governance - a concept referring to the ideal mode of ensuring firm's accountability to its stakeholders, has ascended to its current level of importance owing to corporate level scandals in the large economies of the world; experience gained from which has brought some positive changes in the less developed economies - changes that are proactive and are aimed at enhancing corporate responsibility and performance. The objective of this study has been to review this concept as is being practised, the problems being faced, the schools of thought, its implication on firm valuation and performance and lastly, to see its relevance in the context of Bangladesh, where the listed firms are mostly owned and managed by family members. Suggestions to improve corporate governance and accountability, also in line with SEC guidelines, is to have an active board with well proportioned executive vs non-executive members, along with representatives from all groups of shareholders/stakeholders; separation of the role of CEO and the chairperson; creation of board committees; changing audit firms periodically etc, to name a few.

(d) Empirical Review

This empirical study, the first of its kind, seeks to quantify the relationship between corporate governance and the performance of firms in Vietnam. As part of this study, the authors undertook an intensive review of literature to identify a range of elements that contribute to overall corporate governance. In this study, corporate governance is considered to consist of the following elements:(i) the size of the board;(ii) the presence of female board members;(iii) the duality of the CEO;(iv) the education level of board members;(v) the working experience of the board;(vi) the presence of independent (outside) directors;(vii) the compensation of the board;(viii) the ownership of the board; and (ix) blockholders. Using the flexible generalized least squares (FGLS) technique on 77 listed firms trading over the period from 2006 to 2011. The findings of this study indicate that elements of corporate governance such as the presence of female board members, the duality of the CEO, the working experience of board members, and the compensation of board members have positive effects on the performance of firms, as measured by the return on asset (ROA). However, board size has a negative effect on the performance of firms. This study also presents that ownership of board members has a nonlinear relationship with a firm’s performance.