Corporate Governance: Achieving Good Corporate Governance in order to Deal with the Contagion Effects of Financial Crisis

Abstract

This paper investigates the contagion effects of the financial crisis between selected stock markets using the ARCH and ARMA models. Further investigation has been conducted to pursue the importance of corporate governance elements involved in the proposed research models, and a set of mediator variables (dummy variables) have been used to capture the variations, significantly accounting for variations in the financial market contagion. The statistical outcomes revealed that corporate governance performance is positively related to internal and external governance behavior and negatively associated with financial market contagion. The empirical evidence exhibits, after controlling for corporate culture and corporate legality elements, that there has been a significant decrease in the financial market contagion during and post-crisis. The results also imply that it is more important to establish the right firm based corporate governance mechanism for companies prior to reforming capital market provisions to deal with the complexities of market contagion. Also, the objective of establishing the right legal system will continue to be a main priority on the politician’s agenda in order to prevent the impact of financial market contagion. The results could be helpful for investors in portfolio analysis for decision-making and for policymakers for reducing financial instability in crisis periods.