Using both Return On Assets (ROA) and Tobin’s Q as proxies for performance, the study seeks to explore if better governed firms exhibit greater financial performance than poorly governed firms. The paper employs a panel study methodology for a sample of 137 Johannesburg Stock Exchange (JSE) listed firms between 2002 and 2011. The results show that the compliance levels to corporate governance in South Africa (SA) has been improving since 2002 when King II came into force. However, the compliance level in large firms appears to be higher than in small firms. Further, the findings show that the market value of large firms is higher than that of small firms. These results largely support the notion that better governed firms outperforms poorly governed firms in terms of financial performance. Notably, the empirical results indicate that board size, CEO duality and the presence of independent non-executive directors positively impact the performance of a firm, whereas board gender diversity, director share-ownership and frequency of board meetings have no impact on firm performance. This suggests that greater representation of independent non-executive director, a larger board size and the separation of CEO and Chairman should be encouraged to enhance firm performance. Unexpectedly, the presence of internal key board committees, such as remuneration, audit and nomination, negatively impact firm performance. Similar to UK, South Africa has a flexible approach to corporate governance, in which listed firms are required to apply or explain non-conformance to King recommendations. This study has policy implications as it determines whether the flexible corporate governance approach employed by SA improves corporate governance compliance than the mandatory corporate governance approach as employed by countries such as Sri Lanka and US, and whether compliance translates into firm performance. The significant finding of this study is that compliant firms enjoy a higher firm performance as measured by ROA and Tobin’s Q. This implies that compliance to corporate governance code of practice matters, not just as box ticking exercise but as a real step change in the governance of South African listed firms. This paper fulfils an identified need of how compliance to corporate governance influences firm performance in South Africa. The findings have implications to JSE listing rules, policy, investor confidence and academia.
Toward Firm Performance in Indonesia: The Role of Good Corporate Governance and Investment Opportunity Set
