Corporate Governance and Firm Performance: Theory and Evidence from Literature

This paper is an attempt to give a short description of the theoretical literature focusing on different conceptual models of corporate governance and empirical studies relating to whether good corporate governance leads to better firm performance. Majority of the literature has been found to focus on the relationship between shareholders, directors, and management. The findings of these empirical studies are mixed and as a result, it is often difficult for users to draw any firm conclusion on the relationship. On the other hand, studies undertaken considering the overall corporate governance mostly provide evidence of significant relationship between corporate governance and firm performance. However, whether better corporate governance causes higher firm performance is still remains a valid research question for reasons like ambiguity regarding the direction of causality.