Chapter 3: Literature Review

This chapter highlights the intricacy in the relationship between corporate governance variables and corporate performance through a discussion of selected studies. The numerous empirical studies, such as those of Yermack (1996), Stiglbauer (2011), Muravyev, Talavera, and Weir (2014), etc., have focussed on the dimension of the relationship between corporate governance variables and corporate performance, particularly for a developed economy, such as Germany, the US, Japan and the UK. However, studies in this area are different in terms of their hypotheses and the methods used. Many of these studies have pioneered new modelling techniques or have explored different hypotheses; many have worked simply to apply important theories to a new data set. Some of the studies vary considerably in the type of economies examined, in the size of the sample studied, in the regional area or in their overall purpose. Moreover, several studies have investigated the effect of corporate governance variables on corporate performance. A large body of research such as those of Ross (1973), Bhagat and Black (1999), etc., has focussed on the determination of the effect of corporate governance variables, like a corporate board, ownership structure, capital structure, etc. on firm performance. Another important dimension in earlier studies is the examination of the optimum board structure and ownership structure for corporations. Some studies conducted by Desender (2009), Jensen and Meckling (1976), etc., have evaluated the acceptance of different corporate governance theories in the context of different economic environments.