Does Stronger Corporate Governance Improve Firm Performance?

There is much debate over the efficacy of corporate governance in mitigating agency costs, and the ability of stronger corporate governance measures to improve firm performance. I investigate this dichotomy in the corporate... [ view full abstract ]

There is much debate over the efficacy of corporate governance in mitigating agency costs, and the ability of stronger corporate governance measures to improve firm performance. I investigate this dichotomy in the corporate governance literature by examining the impact of corporate governance on firm performance during recessions.  Business cycle contractions are challenging times for firms, and arguably a period when stronger corporate governance would be significant in the success of the firm.  I posit that better governed firms would outperform their peers in subsequent challenging recessionary periods.  My research extends the literature on the impact of corporate governance on firm performance by using a recessionary period metric.  I find that during the 2001 recession, firms with stronger corporate governance outperform firms with weaker corporate governance on a risk adjusted basis, lending support to the positive connection between stronger corporate governance and greater firm performance.