Corporate Governance and Its Impact on Financial Performance of Companies - Dissertation Example

Such financial and money-laundering scandals are not a recent phenomenon as is evident from the historically infamous cases involving top companies such as Enron and Worldcom among many others whereby the interests of the stakeholders and the general community were ignored by the management leading to widespread concern. Incidences such as these have raised serious concerns regarding the effectiveness of governing policies required to enhance accountability among the management and help control and monitor their activities and decision making, in order to safeguard the interests of the stakeholders.

Scandals such as these are certainly not new and have been witnessed in almost all sectors of the industry. However, the rising number of such incidences has brought to light the ineffectiveness of corporate governance policies or their lack thereof in preventing them. It has also given rise to debates regarding the vulnerability of stakeholders against the misappropriation of funds by the management and their lack of control in having a say in company matters. The failure of companies in recent times along with the historical cases whereby various companies were forced to shut down on account of such scandals (including BCCI, Maxwell Communications etc) has prompted researchers to probe into the matter and suggest effective solutions and recommendations with regard to various corporate governance issues.

The literature on the impact, influence and consequences of lack of corporate governance on financial frauds has grown over the years which reaffirm the consensus on the issue regarding its significance. This study includes a comprehensive overview of the various issues concerning corporate governance, the relationship between corporate governance and a firm’s performance; various mechanisms of corporate governance and its ability to influence the functioning of an organization; etc. 

The key purpose of this study is to probe and ascertain the relationship between corporate governance and the financial performance of organizations in various sectors – particularly the banking sector; integrated oil and gas sector; as well as retail sector. It also aims to study and assess the relationship between corporate governance and financial performance of firms across various sectors; the effect of corporate governance on earnings management of firms; the impact of corporate governance on bank performance; as well as the relationship between the effectiveness of management and its impact on the financial performance of firms is discussed in great detail. Two major UK banks namely, HSBC and RBS are chosen for this purpose.

In the process, key accounting theories such as the agency theory, and the stewardship theory as well as their association with corporate governance and performance of firms are also discussed.