The Impact of Corporate Governance on Stock Market Performance

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Impact of Corporate Governance on Stock Market Performance

Farah Rezwan

Reyan Zeenat Hai
Nogmaye Habiba


The paper aims to establish a relationship between Corporate Governance and stock market performance. In doing so, several variables had been identified by a thorough review of literature. These variables were measured on the basis of their performance, in respect to developed and developing countries, in relation to Corporate Governance. The performance measures were done by using data and graphical representations. The analysis recognized a significant relationship between corporate governance and stock market performance.

Keywords: Market Efficiency, Market Valuation


A country’s economic condition depends largely on the performance of the financial market. A strong financial market is the backbone for the economic development of the country. Financial markets have significantly developed in the last decades throughout industrialized countries. Governments throughout the world have become aware of the importance of corporate governance for the efficient performance of the stock market. In the last few years’ corporate governance has become an important issue throughout the world. A market that has sound corporate governance proves to be very efficient. An efficient market in turn attracts more investment and increased transaction thus increasing market capitalization and liquidity.

Although economies are becoming increasingly global, firms with international operations are still subject to the principles and practice of national corporate governance. It has been rightfully seen that a firm’s valuation does not only depend on the profitability or the growth prospects embedded in its business model, but also on the effectiveness of control mechanisms, which ensure that investors’ funds are not wasted in value decreasing projects. Investors’ however are encouraged to invest in sound, orderly and transparent markets where transactions can be conducted with confidence and risks can be assessed and managed. Whether the investment is in the financial institutions or the financial markets corporate governance is necessary to ensure protection to the investors.

During the past decade corporate governance has gained an increased importance throughout the developed and developing countries. The increased importance of corporate governance is due to several important functions that it performs in the financial market. It ensures that shareholders’ rights are protected, liquidity is increased, market is transparent etc. The countries that have been successful in ensuring corporate governance have developed their capital market efficiently. The developing countries however, have not yet fully ensured corporate governance measures.


The main objective of the research paper is focused on how corporate governance effects stock market performance through various markets. To reach the objective the paper focuses on a thorough review of related articles on corporate governance and market performance; finding out the factors or indicators that can be used to define good performance of the markets; to provide some empirical analysis of the indicators identified show their affect on market performance.


The method of study includes both qualitative and quantitative analysis. This paper focuses firstly on literature survey to identify the variables or indicators that will assist to reach the purpose of the paper. Some secondary empirical data have been collected from the World Bank library and various articles. A few graphical representations have been provided. The ranking done by World Bank (secondary data) and the scatter diagram (graphical representation) of the countries would help to establish the objective of the paper. The volatility of the respective markets has been calculated and relationship between volatility and performance has been observed....
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