Corporate governance practices and comprehensive income

Abstract

Purpose – The purpose of this paper is to analyze the effect of corporate governance practices on firms’ financial performance, as measured by comprehensive income (CI).

Design/methodology/approach – Using a sample of 237 firms from the Standards & Poor (S&P) 500 index during the years 2004-2009, multivariate statistical analyses are conducted to confirm the authors’ main hypothesis.

Findings – The results indicate that having high levels of corporate governance culture has a positive impact on a measure of firms’ financial performance, namely, CI. Furthermore, they indicate a positive correlation between a higher percentage of external directors and financial performance, and a negative relationship between number of board meetings and financial performance.

Originality/value – The main contribution of this research is that good corporate governance strategies deliver superior financial performance for businesses in terms of CI. This serves as a method of value creation, which is the ultimate goal of a business. In addition to the use of CI as an indicator of financial performance, a unique measure of corporate governance level is tested.