Corporate governance and corporate performance: financial crisis (2008)

This paper aims to investigate the impact of corporate governance, as measured by the Corporate Governance Index, on firm performance and dividend payouts during the financial crisis of 2008.

The empirical approach followed in the study involved constructing a comprehensive measure of corporate governance for 298 non-financial companies listed on the Warsaw Stock Exchange in the years 2006-2010.

The results show that prior to the crisis, there was a positive association between corporate governance and performance as measured by Tobin’s q. Moreover, the study presents evidence that higher corporate governance leads to an increase in cash dividends. Amid the financial crisis, corporate governance was positively associated with a higher return on assets, yet this was not observed when measured by Tobin’s q. Additionally, during this period, better-governed companies paid dividends less generously than firms with lower corporate governance standards did.

The study provides new evidence on the impact of corporate governance on firm performance and valuation in an emerging market during the financial crisis. Moreover, the study shows that governance mechanisms operate differently in crisis and non-crisis periods.