Corporate governance and financial performance in the midst of exogenous shocks : a study of companies listed on the Johannesburg Stock Exchange

This study investigates the impact of corporate governance on financial performance in the wake of exogenous shocks such as corporate governance reforms and the 2007/8 global financial crisis. The nexus is examined in the context of listed firms in the African emerging economy of South Africa – a ju...

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Bibliographic Details
Published in:Management dynamics 2018-03, Vol.27 (1), p.20-38
Main Authors: Wolmarans, Hendrik, Du Toit, Elda, Brümmer, Leon, Tshipa, Jonty
Format: Article
Language:English
Subjects:
Best practice
Boards of directors
Corporate governance
Dependency
Dependency theory
Directors
Economic crisis
Economic models
Emerging markets
Financial performance
Hedging
Hypotheses
International finance
Jurisdiction
Management
Multiculturalism & pluralism
Stockholders
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Summary:This study investigates the impact of corporate governance on financial performance in the wake of exogenous shocks such as corporate governance reforms and the 2007/8 global financial crisis. The nexus is examined in the context of listed firms in the African emerging economy of South Africa – a jurisdiction with a history of implementing international best practices in corporate governance. Three significant patterns emerged. First, corporate governance structures function differently in crisis and non-crisis periods. Generally, some corporate governance attributes exert a positive impact on financial performance during steady-state periods and provide a hedging mechanism during crisis periods. Secondly, accounting returns appear to favour stewardship theory, while market returns seem to favour agency and resource dependency theories. The results point to an important issue, which is the need to re-evaluate corporate governance, not only during stable periods but also during turbulent times, and to evaluate the ability of corporate governance structures to perform effectively under such different conditions. Crafting a robust corporate governance structure well in advance of a crisis could be beneficial. Uniquely, the results indicate that the relationship between corporate governance and financial performance is of a dynamic nature and suitable for estimation techniques such as the two-staged least squares (2SLS), the generalised method of moments (GMM) and generalised least squares (GLS).
ISSN:1019-567X