Corporate Governance Structures and Their Impact on Firm Performance: An Empirical Analysis

Abstract

In the United States, especially due to the growing regulatory attention and activism by investors, corporate governance has become a focal point of firm performance. This research paper is an empirical study on the association between firm performance and corporate governance structures modeled on a panel data set of U.S. publicly-traded firms during a six-year time frame (20182023). The major governance variables are analyzed with regards to the firm performance measures like Return on Assets (ROA), Return to Equity (ROE) and Q of Tobin. Controlling for the heterogeneity of firms and accounts of time changes is done through a fixed-effects regression model. These findings suggest that board independence and active audit committees are positively and significantly linked with better firm performance, and there should be effective oversight mechanisms. Conversely, CEO duality shows a negative correlation with performance implying that leadership concentration could impair efficiency of governance. Board size is also non-linear, and moderately sized boards lead to increased efficiency on the board, whereas boards that are too large cause a decrease in efficiency. The results suggest strong empirical data in the U.S. corporate setting and make practical suggestions to improve corporate governance systems, regulatory institutions and to institutional investors with the objective of maximizing the firm value.