Corporate Governance and Firm Performance: A Systematic Literature Review and Future Research Directions

Introduction

Researchers and investors worldwide are interested in the return profile of the equities stock market (Mehta et al. 2019; Mehta and Sharma 2017). Firm performance indicators provide investors lucrative opportunities, yet they frequently result in market inefficiencies as well (Sharma and Mehta 2013). As a result, the factors that influence company performance are essential for various stakeholders. Corporate governance has been extensively proposed as a best practice for boosting company performance (Haji 2014). In order to safeguard shareholders' interests, a company's board must follow a set of rules and procedures which is known as corporate governance (CG) (Abdeljawad et al., 2020).

CG differs in various countries. These countries have different socio-cultural and economic environments. The markets of developing countries are less stable than those of developed countries because of the concentration of ownership and the lack of well-established financial systems and regulatory frameworks. But despite all this, whether it is a developed or developing country, mechanisms of good governance affect business performance equally in both.

CG and FP have been linked in numerous studies. The link has been the subject of numerous reasons. First, there are fewer opportunities for management to misappropriate funds in businesses with better governance structures. Thus, the use of resources is maximised. As a result, the operating income rises in tandem with the company's success. Second, investors are more likely to put their faith in a company with sound governance, which makes it easier for the company to raise money for investment purposes and, as a result, improve its performance. Third, a better-governed company has less information asymmetry, which sends affirmative signal to the investors, who are more willing to provide funds to such companies because of the lower costs. This was explained by Akerlof's (1970) model of information asymmetry. Fourth, investors reward companies with better governance structures by paying a greater premium (Global investor opinion, 2002). Fifth, companies with strong governance perform better financially than those with weak governance and are ranked higher (Business Week, 2000). On the other hand, Gompers et al. (2003) found a long-term affirmative link between corporate governance and stock returns. In contrast to companies with poor governance, those that exhibit greater stock returns and a greater Tobin's Q score do better (Nandelstadh and Rosenberg, 2003). Seventh, corporate governance improves a company's reputation and profitability, as well as the value of its stock (Brown and Caylor, 2006).

There have been lot of academicians, practitioners, and researchers concerned about articles written on good CG and FP in the wake of numerous corporate scandals and financial collapses. Few studies in the past have performed systematic literature review to discuss the CG and FP association. For instance, while Azila-Gbettor et al (2018) systematically reviewed CG and FP linkages focussing on family firms, Siddiqui (2015) performed meta-analysis on CG and FP association. Similar to Siddiqui (2015), Maranho and Leal (2018) also performed meta-analysis on CG and FP association but focussed on Latin America. As against these, Nomran and Haron (2020) systematically reviewed Shariah Governance with the performance of Islamic banks. While these studies have focussed on some particular governance mechanism or particular type of firm, there is a lack of study that systematically reviews the CG and FP relationship in an Indian context. The present study aims to fill this research gap.

For this study, the keywords have been used to conduct a SLR of CG and FP in India. It is our goal to determine the most influential theories, CG variables, and FP parameters, key industries, as well as the most common methodologies. A list of future research directions is also included in this document. To achieve this objective, the keywords were searched in the Scopus research database from 2014 to 2021. TCCM approach (T-theory, C-Construct, C-Context and M-Methodology) has been used in this study.

There is a dearth of information in the literature on CG and FP. This study synthesises the findings of previous studies and sets the stage for future research. In addition, this will aid in the advancement of this field. It expands the literature on the role of CG in maximising shareholder value, and it contributes to the current debate. Investors, practitioners, and other stakeholders with an interest in a company's operational efficiency will benefit from this report.