The association between corporate governance and firm performance – a meta-analysis

Purpose – The purpose of this paper is to investigate the relationship between corporate governance and firm performance by conducting a meta-analysis of 25 previous studies. The analysis has three specific concerns, i.e. the moderating effects of legal systems (common law or civil law), governance mechanisms (external or both external and internal governance together) and performance measures (accounting or market value). Design/methodology/approach – The methodology used is the meta-analysis technique developed by Hunter et al. (1982). Findings – The findings show that the external governance mechanisms measured by anti-takeover provisions and market value of firm performance measured by Tobin’s Q and market to book value are the key moderators of this relationship. Practical implications – This paper has important implications for regulators and directors by proposing external governance to be an influential factor of firm performance. This paper is also of interest to the investors and companies by highlighting the significant relationship between corporate governance and market value of the firm. Originality/value – As the author finds that the external governance mechanism (anti-takeover provisions) exerts more influential effect on firm performance than both external and internal governance together, this research confirms the imperative for external governance to increase the firm value.