Effect of Corporate Governance on Financial Performance in China

Abstract

Purpose: The aim of the study was to assess the effect of corporate governance on financial performance in China. Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings: The study indicated a positive correlation between strong corporate governance practices and improved financial outcomes for companies. These practices typically include transparent decision-making processes, effective board oversight, and alignment of management incentives with long-term shareholder value. Study suggests that companies with robust corporate governance structures tend to experience higher profitability, better risk management, increased investor confidence, and enhanced access to capital. Additionally, strong corporate governance is associated with lower instances of financial misconduct and improved overall corporate reputation, which can further contribute to sustainable financial performance over time. Implications to Theory, Practice and Policy: Agency theory, stewardship theory and resource dependency theory may be used to anchor future studies on assessing the effect of corporate governance on financial performance in China. Implement best practices in corporate governance that align with empirical findings and theoretical insights to optimize financial performance. Advocate for regulatory frameworks and policies that incentivize effective corporate governance practices and align them with desired financial performance outcomes.