Exploring Corporate Governance: Balancing Stakeholder Interests and Improving Financial Performance

Corporate Governance Research Paper 2021

Corporate governance encompasses the rules, practices and structures that guide a company’s management. It involves balancing the interests of different stakeholders, including shareholders, employees, financiers, customers, suppliers and the community. Good corporate governance entails implementing control and oversight mechanisms that help to align stakeholder interests and improve financial performance.

Investors expect companies to disclose and demonstrate progress in diversity, equity and inclusion. In addition, they have expectations around ESG issues such as climate change.

Agency theory

Agency theory is a popular theory used to explain different aspects of business. It explores the distinctive relationship between a principal and an agent, and the various interactions and disagreements that are encountered. In many cases, the interests of a principal and an agent are not in alignment. This is known as the principal-agent problem.

One example of the principal-agent problem is the way a country’s government functions. Citizens elect political representatives, and the representatives promise to serve their best interests. However, voters feel betrayed when the elected officials fail to fulfill their guaranteed promises. This is a clear example of a principal-agent conflict.

Another example is corporate governance, which seeks to align the interests of shareholders and managers. It involves monitoring and controlling the actions of executives, and it can reduce conflicts of interest. It also helps improve financial performance. Research has shown that good corporate governance can have a positive impact on firm financial performance, but the effect varies across industries.

Stakeholder theory

Corporate governance (CGV) is a complex phenomenon that involves many different stakeholders. It is a combination of processes, ethic codes and organisational structures that ensure business practices are geared towards balancing the values of economy, society and the environment. CGV is related to organizational identity (OID), which influences employee loyalty and productivity. Research shows that employees who perceive a company’s CGV are more loyal to the firm and will enhance their positive perception of the organisation, thus improving the firm’s profitability.

Recent work on CGV has developed a stakeholder theory of the firm, which combines RBV with social identity and stewardship theories. These theories suggest that a firm’s performance depends on how well it manages its stakeholders. This approach demonstrates that a business can create value for its stakeholders without compromising its long-term profitability. It also focuses on a company’s moral responsibility to its stakeholders. Moreover, it can improve the positive perception of its employees, leading to higher employee engagement.

Organizational identification

Organizational identification (OID) is a form of emotional attachment to a company’s values and principles. It is a significant factor in a firm’s ability to create good corporate governance (CGV) and improve its financial performance. It is also a key factor in the success of businesses that aim to achieve CGV and sustainability goals. OID is a major motivational element for employees in the workplace and is linked to the company’s leadership and culture.

Despite this, little is known about how OID mediates the relationship between symmetrical internal communication and employee performance. The present study aims to clarify this relationship by examining the effects of organizational identification on symmetrical internal communication and employee performance using a Portuguese sample in the tourism sector. This study is the first to explore this link with an empirical approach. The findings indicate that OID significantly increases symmetrical internal communication and influences employee performance. Moreover, OID mediates the relationship between leverage and company performance.

Corporate social responsibility

Several studies have shown that corporate social responsibility (CSR) is an important factor for financial performance. In addition, a company’s CSR practices can improve its business reputation, which can lead to increased revenue and improved investor confidence. It is also a key consideration for prospective employees and customers. In the wake of the COVID-19 pandemic, investors will be expecting companies to show how they take social justice and equity issues seriously.

The relationship between corporate governance and financial performance varies across countries. This is due to the fact that different environmental and contextual factors influence firms’ behavior. For example, some countries follow a strict set of rules and regulations while others have looser regulations. The effects of these differences are difficult to measure.

In one study, Muda et al. found that the quality of corporate governance has a positive effect on financial performance in Malaysia. This is mainly due to the fact that good corporate governance promotes a stable economic environment.

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