Corporate Governance Practices And Firm Performance: A Review And Interrogation Of Theory

Most of the debate and work in the field of corporate governance picks from the issue highlighted first by Berle and Means (1932), which is the separation of ownership and control. This separation will generate an agency relationship between owners as “the principal” and managers as “the agent”. In an ideal world, managers would invest all of their abilities and skills to generate the best possible returns for investors. In the real world, things are slightly different. A series of unexpected corporate failures in the 1990s brought to attention the importance of the corporate governance system. The 1990s witnessed a series of financial scandals such as Enron, WorldCom, and Paramalat which were facilitated by wrong doings on the part of the management, auditors and financial market operatives. These scandals shook the confidence and trust of the citizens in the institutions of these economies and led them to devise stricter regulator mechanisms to control excesses from the management. As a result, any serious listed company has had to allocate a part of annual, or other important, reports to addressing and explaining its corporate governance procedures. Furthermore international organizations such as the OECD, stock exchanges, and various government commissioned reports across the world have devised, and some of them imposed corporate governance guidelines. This paper review and interrogates theories that makes an attempt to explain the concept of corporate governance. Based on this review, a synthesis and discussion are done which provides a basis for the suggestions made herein. Abstract: This paper reviews literature on corporate governance practices with a focus on banking institutions, and their impact on the performance of these institutions. As such it contributes to the debate on the importance of corporate governance for firms across various sectors. Corporate scandals in the 1990s and 2000s drew the attention of governments to the importance of corporate governance, and induced legislation to prevent similar situations in the future. This paper reviews and interrogates theories that attempt to explain the concept of corporate governance. Based on the synthesis of the theoretical review, a blended model for on corporate governance is suggested. From the literature review done, it is seen that the nature and conduct of corporate behavior has implications on the level of corporate governance effectiveness in terms of transparency, accountability and sustainability which again has implications on firm competitiveness and relevancy. One of the key areas pointed out in the discussion of this paper is the silence by the postulators of the various theories on other forces that may bring about either facilitate or hinder the expected good corporate governance practices. The review and interrogation of theories further reveal that no one single theory can adequately explain the concept of corporate governance. Hence, we have suggested a blended approach to understanding corporate governance practices and also taking into recognition that there could be other forces that may moderate the nature and direction of corporate governance practices and effectiveness. Borrowing from the theoretical postulations, a model on corporate governance has been suggested.