Corporate governance and company performance in Australia
Date of this Version
This study tests whether the adoption of Australian best practice corporate governance recommendations have a positive or negative relation with financial performance measured by return on assets (ROA) and Tobin's Q. The governance mechanisms associated with increased ROA and Tobin's Q are the existence of an audit, nomination and remuneration committee in Australia suggesting they are particularly beneficial to companies. We found evidence that a significant negative relation exits between the number of directors and proportion of independent directors on the board and the presence of a dual CEO/Chairperson and ROA. There is a significant positive relation between the number of directors on the board and the presence of a dual CEO/Chairperson and Tobin's Q and a negative relation between the number of board meetings and Tobin's Q. Agency theory is applied and results indicate that the existence of audit, nomination and remuneration committees is significantly associated with improved financial performance of Australian listed companies. Stewardship theory explains the significant positive association between the presence of a dual CEO/Chairperson and company market performance.
This document has been peer reviewed.