Abstract
This paper examines a widely explored but yet to be confirmed relationship between two latent constructs - corporate governance and financial performance of small corporations in Australia. Prior studies have either focused on larger organisations or isolated corporate governance mechanisms in small firms. However, few have examined how corporate governance mechanisms, as a bundle, relate to small corporations. This study fills this gap by empirically analysing the aforementioned relationship using Structural Equation Modelling (SEM). Based on 387 responses from small corporations, the results show that corporate governance bundles measured by the extant literature, has a negative impact on the financial performance of small corporations. The result calls for a stakeholder approach to the governance needs of small corporations.
Highlights
Small corporations are the backbone of the Australian economy
Empirical results from the Structural Equation Modelling (SEM) model in the result section found a negative impact of corporate governance on the financial performance of small corporations, which challenges the well-established theories on corporate governance in the large corporations’ literature
The result from this study seems to contradict those in the well-cited literature of large corporations
Summary
Small corporations are the backbone of the Australian economy. Various studies have explored corporate governance as it applies to larger organisations. Few studies have examined how corporate governance relates to small corporations, who are losers in the “corporate governance reform competition”, given their resource constraints and failing to put these matters on their strategic agenda (Audretsch and Lehmann 2011). From the Stakeholder Theory perspective, Du Plessis, Bagaric et al (2010) suggested that the ultimate. (external stakeholders, governments and local communities ...) who can be affected by the corporation’s conduct, in order to ensure responsible behaviour by corporations and to achieve the maximum level of efficiency and profitability for a corporation Any other usage is stakeholders and other parties prohibited without the express permission of the publisher. (external stakeholders, governments and local communities ...) who can be affected by the corporation’s conduct, in order to ensure responsible behaviour by corporations and to achieve the maximum level of efficiency and profitability for a corporation (Du Plessis, Bagaric et al 2010, p. 10).
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