The impact of corporate governance on firm performance: A sectoral analysis of JSE listed companies

Abstract

Corporate Governance has become an important business focus and has gained prominence globally and specifically in South Africa with the publication of the various King codes. Good corporate governance is usually associated with transparency, accountability and investor confidence however there is limited literature on the impact corporate governance can have on firm financial performance. This study analysed 50 JSE listed companies from 10 sectors over a five-year period from 2020 to 2024 in order to determine the levels of adherence to corporate governance principles and to determine the existence of any relationship between corporate governance and financial performance. The results show that there is generally high and increasing adherence to corporate governance practices, however concerning negative trends in the basic materials and real estate sectors were detected. When all companies and sectors were analysed together, the results show that there is no significant relationship between corporate governance and financial performance however when a sectoral analysis was conducted, strong positive correlations between corporate governance and certain financial metrics were observed in the financials and industrials sectors. The study therefore concludes that there is a direct relationship between adoption of corporate governance practices and financial performance in sectors that are highly capital intensive.