Corporate governance and performance: a study of Canadian companies - 2009

Following the episodes of WorldCom, Enron, Parmalat, Lehman Brother, Nortel (in Canada), corporate governance and its impact on shareholder value has been brought into the forefront of the debate. Studies on the relationship between corporate governance and the performance of firms to date suggest a positive association between corporate governance and various measures of performance of companies. Unlike the widely dispersed ownership in countries like United States and United Kingdom, the ownership of companies in Canada is concentrated a controlling shareholder (usually a wealthy family) owns majority of the equity and ownership of firms. In Canada studies on the relationship between corporate governance and various performance indicators of firms are mixed. The present study examines the relationship between corporate governance and firm performance in Canada using financial performance data of 152 firms in 2009 and corporate governance ranking of those firms. The empirical results based on regression (ordinary least squares) showed that an overall corporate governance variable has a positive impact on firm's performance in Canada. These results are invariant to the choice of firm performance indicators like Return on Asset (ROA) and Return on Equity (ROE). These results are broadly in conformity with earlier studies (although there were mixed results in earlier empirical investigation). These results are also interesting given the fact that Canadian ownership structure is more concentrated. Most of the Canadian companies are listed also in US markets and that provides impetus for corporate governance practices to be implemented in Canada as well. Given these facts, the empirical results are not surprising. Apart from these facts, these results are based on data set of 152 Canadian companies for 2009 only there is need for more empirical verification and calibration. But that is beyond the scope of the present study due to constraint of resources and time. --P.iii-iv.