Does ‘Better’ corporate governance cause better firm performance? Essay
Does ‘Better’ corporate governance cause better firm performance?
A study had been generated and said that performance are affected either the implemented governance is good or bad: … In summary, our results are as follows. First, we do not find significantly different firm performance between firms with “good” changes in governance and firms with “bad” changes in governance, except for isolated instances. This result holds for all the three samples (i. e. the Moderate Performance sample, the Abnormally Bad Performance sample and the Abnormally Good Performance sample).
Second, both “good” and “bad” changes in governance are followed by positive as well as negative changes in industry-adjusted performance. Indeed, more than 50% of the firms with “good” governance changes exhibit negative industry-adjusted performance. Third, we find that both “good” and “bad” changes in governance lead to significant changes in performance. Therefore, if one restricts the analysis to only “good” changes in governance or only “bad” changes in governance, one would incorrectly conclude that changes in governance lead to changes in performance.
Fourth, we observe that different firms vary in directions of governance changes when they experience the same direction in performance changes. A same firm also often simultaneously changes its different governance characteristics in conflicting directions (i. e. both “good” and “bad” governance changes). Last, our measure for Aggregate Governance Change confirms the first result for individual governance measure that the firms with “good” changes in governance do not have better performance than the firms with “bad” changes in governance.
Our results present strong evidence against the null hypothesis that “better” governance causes better firm performance. Note that our results do not imply that governance is irrelevant. Instead, it implies that firms are endogenously optimizing their governance structure in response to observable and unobservable firm characteristics. These results are consistent with the strand of the literature that has shown each governance mechanism to be related to observable and unobservable firm characteristics. The statement proves that all decisions and change causes an effect to a business.
This however means that every day, new challenge may face the company. It is normal for demands, and conflicts to happen. The thing that is important is the management and the organization as a whole would stand as one and face all the challenges with a positive outlook to solve it. From the study that we’ve conducted, the writer concluded that the main cause of business failure are the management’s negligence, improper planning. Conducting good and bad governance both causes changes in an organization so it’s better to be alert in all times.
Decision making should be done carefully and the organization should choose the people who they will trust. Recommendations Having all the different factors of company failures and the experiences of the UK Industry Company and MISnet Inc. , the writer recommend that the top management should not take the needs of the company for granted but they should also be careful in giving. Decisions should be done care. The financial capacity must always be monitored and all departments must always be alert in all times.
The management should encourage the workers to work with passion, be loyal to the company and work hand and hand to achieve all the goals that the company has. It is also important that the people working in the company are capable of doing their assigned job description. Workers are the company’s working hand. It is a must that the workers are at their best to bring the best product that the company wants to have. Investment has been always a part of life in a company. When it comes to people investment, the company must be sure that spending money for a person must be worth paying for.
Hence, the company must be very careful of choosing the right people to trust and the right people for a certain job. Documentation is always a must. Never let any situation happen without any documentation. All reports and transactions must be done with papers and with the PIC’s (Person in Charge) signature to make it even more valid and powerful in meetings and agreements. Even important conversations must be recorded and documented to ensure understanding between parties. Meetings are also important and dissemination of information is a must.
Memoranda should always be disseminated to all employees. Discipline has been an issue in all companies. The company must enforce a strict and fair rule and policies that the employees must do in order to organize a company. Make them come in the company on time and finish their work fast. Over time on work is not a measurement of quality service, it only show two things: its either the worker can’t handle too many work because of pressure or multi tasking or the worker can’t finish the work on time because he/she wasted it. The company should always have a room for improvement.
Benchmarking or company observation is a big help to improve the company’s usual workflow and environment. People used to compare one thing to another. Make it a positive way of upgrading the company. Have a group of trusted people to assist the company to make improvements. Lastly, a company must have a goal or mission. No company must have an inspiration to look forward to. Set a series of mission, vision, the company’s commitment, core values and principles so that the workers will live by the company’s principles and for the company’s goal.
There are series of ways and measurements that can be done through quality audits, and meetings. Implement good data management and all department management. Some analyst says that most business fails after its 8 years of operation it still depends on the teamwork of the people in an organization and its willingness to survive.
Reference Websites N. K. Chidambaran, Darius Palia , Yudan Zheng , Does ‘Better ‘Corporate Governance Cause Better Firm Performance? , , <http://www. fma. org/SLC/Papers/gov_perf_cpz_2006.pdf> viewed on 28 January 2008. Greg Bustin, ‘Why Companies Fail?
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Hubert Ooghe, Sofie De Prijcker ‘Failure process and causes of company bankruptcy’ (Universiteit Gent) Wayne L. Welsh CPA, ‘Best Practices For Good Management’ Office of the Legislative Author General (2001) R Massey, J Widdows, K Bhattacharya, R Shaw, D Hart, D Law, W Hawes, ‘Insurance Company Failure’ < http://www. actuaries. org. uk/files/pdf/giro2002/Massey. pdf > viewed on 28 January 2008 Conference John Hunter, Natalia Isachenkova ‘Aggregate Economy Risk and Company Failure: An Examination of the UK Quoted Firms in the Early 1990s’ Department of Economics and Finance’ (Brunel University).