Corporate Governance and Financial Performance Nexus: Any Bidirectional Causality?
Journal Title: International Journal of Management and Economics - Year 2016, Vol 0, Issue 50
Abstract
Most studies on corporate governance recognize endogeneity in the nexus between corporate governance and financial performance. Little attention has, however, been paid to the direction of causality between the two phenomena, and hence the Vector Error Correction (VEC) model, which allows for endogenous determination of the direction of causality, has not been widely employed. This study fills that gap by estimating the nexus and the direction of causality using the VEC model to analyze panel data on selected listed firms in Nigeria. The results agree with the findings of most previous studies that corporate governance significantly affects financial performance. Board skills, board composition and management skills enhanced financial performance indicators – return on equity (ROE), return on asset (ROA) and net profit margin (NPM); in many occasions, significantly. Board size and audit committee size did not, and can actually undermine financial performance. More importantly, financial performance did not significantly affect corporate governance. On the basis of the lag structure of the VEC model, this Corporate Governance and Financial Performance Nexus: Any Bidirectional Causality? 83 study affirms unidirectional causality in the nexus, running from corporate governance to financial performance, nullifying the hypothesis of bidirectional causality in the nexus.
Authors and Affiliations
Ibrahim S. Alley, Abimbola Adebayo, Blessing Oligbi
Keywords
Related Articles
- EP ID EP182263
- DOI 10.1515/ijme-2016-0013
- Views 70
- Downloads 0
What can institutional analysis say about capitalism in Central and Eastern Europe? Results and limitations
A growing literature examines institutional arrangements in Central and Eastern European (CEE) market economies. Some sources claim that there is a distinct model of capitalism in this region. This paper overviews and an...
Endogeneity and Specialization in the European Monetary Union
There has been a broad discussion about the viability of the European Monetary Union (EMU) in its present and prospective confines. Generally, the EMU, consisting of 19 countries, is not considered an optimal currency ar...
Organisational-Level Attributes of Micro-Multinationals. The Evidence From European SMEs
This paper investigates organisational-level attributes that allow European SMEs to choose equity-based modes of entry to foreign markets, thus becoming micro-multinationals. We hypothesize that international R&D coopera...
Corporate Governance and Financial Performance Nexus: Any Bidirectional Causality?
Most studies on corporate governance recognize endogeneity in the nexus between corporate governance and financial performance. Little attention has, however, been paid to the direction of causality between the two pheno...
Okun’s Law and Youth Unemployment in Germany and Poland
Unemployment rates, especially among youth, have increased in various countries of Europe over the last years. This paper examines changes in youth unemployment in Germany and Poland with Okun’s law, testing that young e...