Effect of Corporate Governance Structure on the Financial Performance of Johannesburg Stock Exchange (JSE)-Listed Mining Firms

Isaih Dzingai and Michael Bamidele Fakoya
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Isaih Dzingai: Africa Centre for Sustainability Accounting and Management (ACSAM), School of Accountancy, University of Limpopo, Polokwane 0727, South Africa
Michael Bamidele Fakoya: Africa Centre for Sustainability Accounting and Management (ACSAM), School of Accountancy, University of Limpopo, Polokwane 0727, South Africa

Sustainability, 2017, vol. 9, issue 6, 1-15

Abstract: There have been many corporate collapses and financial crises in recent years linked to a lack of effective corporate governance. The South African King IV Code of Corporate Governance recommends that corporate governing bodies should be comprised of an appropriate balance of knowledge, diversity, and independence for discharging their duties objectively and more efficiently. This study examines the effect of corporate governance structures on firm financial performance. The secondary data of selected Johannesburg Stock Exchange (JSE), Socially Responsible Investment (SRI) Index-listed mining firms’ sustainability reports, and integrated annual financial statements are used. Using panel data analysis of the random effects model, we determined the relationship between board independence and board size and the return on equity (ROE) for the period 2010–2015. Results indicate a weak negative correlation between ROE and board size, and a weak, but positive, correlation between ROE and board independence. Additionally, there is a positive, but weak, correlation between ROE and sales growth, but a negative and weak relationship between ROE and firm size. The study suggests that effective corporate governance through a small effective board and monitoring by an independent board result in increased firm financial performance. We recommend that South African companies see compliance with the recommendations of the King IV Code on Corporate Governance not as a liability, but an ethical investment that may likely yield financial benefit in the long-term. Although complying with corporate governance principles does not necessarily translate into a significant economic benefit, firms should, however, continue to adopt corporate governance for ethical reasons to meet stakeholder’s social and environmental needs for sustainable development.

Keywords: corporate governance; firm financial performance; return on assets; return on equity; Johannesburg Stock Exchange (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:9:y:2017:i:6:p:867-:d:100906

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