Index to degree of adhesion to good practices of corporate governance and their effect on financial performance: evidence for Chilean companies

Abstract

Over recent decades, numerous financial crises have affected the global economy, which were caused by the lack of ethical values and conflicts of interest amongst the leaders of organisations. To protect organisations and their interest groups, regulators have developed norms to discourage and prohibit unethical practices through promotion of good practices of corporate governance. However, the literature on good corporate governance practices focuses mainly on developed economies without considering the challenges of developing countries. Therefore, this research proposes an index to measure the degree of adherence to good corporate governance practices in an emerging economy, like Chile, and estimate its effect on the financial performance of companies. Through a panel analysis, this research provides evidence that shows the existence of a positive and significant relationship between this index and financial performance of organisations, as well as a persistence of its benefits over time when companies adopt good practices.