Abstract
M.Com. (Financial Management)
This study explores the relationship between corporate governance and company financial performance within a South Africa context. The importance of governance globally has been stressed by corporate collapses that have occurred in the past 30 years. South Africa presents an intriguing case from which to investigate this as it is an international pioneer of governance standards in the form of the King Code and is an emerging economy categorised by its high dependence on capital flows, flagging economy and growing socio-political tensions. By utilising a panel data analysis, a sample of 30 South African companies listed on the Johannesburg Stock Exchange (JSE) was selected. A governance index was constructed based on the provisions of King III and regressed against two financial performance measures. The findings indicated that there was no relationship between the return on assets ratio and the governance index. However, there was a statistically significant and positive relationship between Tobin’s Q and the index. The findings thus suggest that investors are willing to pay a premium for companies that are better governed. This has important implications for companies and policymakers in South Africa. The significance of this relationship implies that if companies can adhere to the best standards of corporate governance, then this will strengthen the confidence of both local and international investors in the country’s institutions and financial markets, which will have a broader positive impact on South Africa’s long-term competitiveness. Furthermore, if policymakers can implement effective standards, it may also have a stabilising effect on the economy as foreign entities look to invest their money in well-governed corporations which will increase capital inflows into the country. Further research should develop a model that facilitates the comparison of findings between various other developing or developed countries.