The Zimbabwe Code on Corporate Governance (Zimcode) and Financial Performance

Abstract

ABSTRACT This paper examines the impact of a set of corporate governance provisions (CGI) as provided in the Zimbabwe Corporate Governance Code (Zimcode) and financial performance using a sample of 48 companies listed on the Zimbabwe Stock Exchange between 2013 to 2018. The Zimcode was introduced in 2015 in Zimbabwe and its main purpose was to curtail corporate scandals that had ravaged listed companies as a result of inadequate corporate governance compliance and was meant to augment the outdated colonial-era Companies Act of 1951. The study uses a market-based measure (Tobin's Q) and an accounting-based measure (ROA) as proxies for financial performance. A CGI is constructed using three dimensions: board, directors and ownership; accounting and auditing; and risk management. Least Absolute Value (LAV), Ordinary least Squares (OLS) with heteroscedasticity consistent standard errors and Fixed Effects estimators are used to examine if the introduction of the Zimcode has improved the financial performance of companies. The results show that the corporate governance reform in Zimbabwe through the introduction of the Zimcode did not significantly affect the financial performance of Zimbabwean companies. This might be a signal that the regulators need to overhaul the code or gravitate toward mandatory compliance.