The Impact of Corporate Governance on Firm Performance in Mauritius
Introduction Corporate governance is a field in economics that investigates how to secure/motivate efficient management of corporations by the use of incentive mechanisms, such as contracts, organizational designs and legislation.This is often limited to the question of improving financial performance, for example, how the corporate owners can secure/motivate that the corporate managers will deliver a competitive rate of return.(Mathiesen, 2002).
Another definition is “Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals.
The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society” (Sir Adrian Cadbury in ‘Global Corporate Governance Forum’, World Bank, 2000). According to La Porta et al. (2000) “corporate governance is to a certain extent a set of mechanisms through which outside investors protect themselves against expropriation by the insiders”.
The problem is to see whether the corporate governance standards adopted by firms in Mauritius are positively, negatively or more affecting the firms’ performance. Research will be made on a sample of firms operating in Mauritius. Literature Review Related searches in other countries It has been argued that as ownership concentration increases, the incentives and the abilities of shareholders to properly monitor managers increase too. This creates beneficial effect for firms in the sense that performance or profitability improves (Morck et al. 1989)). There are studies which find that higher ownership concentration lead to detrimental effects for corporations in the sense that large blockholders and managers can collude to extract rents from small shareholders (Lehman and Weigand (2000)). The study by Demsetz and Villalonga (2001) provides evidence that there is no significant relation between ownership structure and firm performance. Chhaochharia and Grinstein (2007) looked at the impact of the 2002 governance rules established by the Sarbanes-Oxley Act on firm value.
They found that less compliant firms earn positive abnormal returns compared to more compliant firms. They also found that less compliant large firms earn positive abnormal returns but less compliant small firms earn negative abnormal returns. Bhagat and Bolton (2008) examined the relationship between corporate governance and performance, and found that better corporate governance, board members’ stock ownership, and CEO-Chair separation are positively related to operating performance.
They also found that the probability of management turnover is positively related to board members’ stock ownership and board independence when firms perform poorly. Patibandla (2006) examined the ownership structure and firm performance on Indian firms by separating large investors into private foreignin stitutional investors and government-owned local financial institutions. Patibandla found a positive relationship between private foreign institutional investors and firm profitability and a negative relationship between government-owned local financial institutions and firm profitability.
Aims & Objectives of Research The aim of this investigation is to make a research on the impact of corporate governance on the performance of firms in Mauritius. The research is going to see the contribution that corporate governance has made on the firms’ financial performance. The research seeks to evaluate the performance of firms in terms of: • Firms’ financial performance • Firms market value The research aim at looking standards which are contributing to high mprovement in firms’ performance and to look also those standards that are contributing to poor performance. The objectives are: • Identify the causes that contribute to high or poor firms’ performance • Measures that can be used to improve the poor performance of firms by comparing their corporate standards adopted by firms experiencing high performance. Research Methodology Sample A sample size of 10 firms is to be selected operating in the private sector of Mauritius. Data The data will be obtained from annual reports for the year 2007 and 2008.
Questionnaire A questionnaire will be sent to those firms via letters. The questionnaire will contained defined questions that are relevant to the related research. The questionnaire should be filled by the executives of the respective firms. Methodology Some data will be obtained by looking at secondary data and the other data will be received by letters (Questionnaire). These primary and secondary data will be input in the SPSS software which will analyse and give the result of the analysis of the collected data.
Tentative Grant Chat |Activities |9-Sep |9-Oct |9-Nov |9-Dec |10-Jan |10-Feb |10-Mar | Introduction | | | | | | | | |Literature review | | | | | | | | |Research Methodology | | | | | | | | |Analysis of data | | | | | | | | |Conclusion | | | | | | | | | References • Bhagat Sanjai, and Brian Bolton, 2008, Corporate governance and firm performance, Journal of Corporate Finance, Vol. 14, pp. 257-273. Chhaochharia Vidhi, and Yaniv Grinstein, 2007, Corporate governance and firm value: The impact of the 2002 governance rules, Journal of Finance, Vol. LXII, No. 4, pp. 1789-1825 • Demsetz, H. and B. Villalonga, 2001, Ownership structure and corporate performance, Journal of Corporate Finance, vol. 7, 209-233. • La Porta, Lopez-de-Silannes, Shleifer, Vishny. Investor perfomance and corporate governance. Journal of Financial Economics. 58 (2000). 3-27. • Lehman, E. and J. Weigand, 2000, Does the governed corporation perform better?
Governance structures and corporate performance in Germany, European Finance Review,vol. 4, 157-195. • Mathiesen (2002) http://corpgov. net/library/definitions. html • Morck, R. , A. Shleifer and R. Vishny, 1989, Alternative mechanisms of corporate control,American Economic Review, vol. 79, 842-852. • Patibandla Murali, 2006, Equity pattern, corporate governance and performance: A study of India’s corporate sector, Journal of Economic Behavior & Organization, Vol. 59, pp. 29-44. • Sir Adrian Cadbury in ‘Global Corporate Governance Forum’, World Bank, 2000