Corporate Governance Effects on Firm Performance: a Literature Review

Abstract

The objective of this paper is to analyze the results of recent empirical research concerning the impact of corporate governance on firm performance and reflect potential research design problems which lead to inconsistent results. By means of a literature review including all articles of academic journal data bases with a journal quality rating of at least a C-rating in the VHB Journal Rating or above '3' in the ABS Academic Journal Rating, respectively, the recent empirical research articles are analyzed regarding their main results. Two main groups of studies are identified: studies on company level to determine the impact of single corporate governance variables such as board size, chairman-CEO duality, etc. on a small set of performance measures, and studies with a larger sample and a longer time period using multivariate analysis to determine the overall impact of corporate governance on companies measured with an extended set of financial research variables measuring multiple dimensions of impact. Overall, the results of recent research show no consistent impact of corporate governance on firm performance. Beside this, a trend to studies with larger samples and longer time periods can be seen. However, also these studies come to inconsistent results. The inconsistencies of empirical research may be grounded in mostly small size of samples and small time periods, and the appli-cation of research constructs instead of financial research metrics to measure firm performance. As this is a conceptual paper, the objective is to define a research design based on the findings of this analysis.