THE IMPACT OF CORPORATE GOVERNANCE ON FINANCIAL PERFORMANCE: EVIDENCE FROM SINGAPORE

Abstract Good corporate governance creates a climate of trust, responsibility and transparency for promoting financial stability and business ethics. Corporate governance best practice is strongly recommended if companies intend to attract investment. Despite what is stated in agency theory or stewardship theory, agency costs exist like any cost. Having strong law and regulations related to modern corporations are a powerful motivation for people to reduce agency costs. This study examines the impact of corporate governance structure on the financial performance of companies in Singapore. We hypothesize the relationship between three governance variables, board size, CEO (chief executive officer) duality and board independence and firm performance measured by return on assets (ROA). We found a positive relationship between board size and company performance. The positive relationship could be influenced by the new Code of Corporate Governance which stipulated at least half of the board should be independent in specific incidences.