The Impact of Corporate Governance on Firm Performance in Mauritius

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Corporate governance is a field in economics that investigates how to secure/motivate efficient management of corporations by the use of incentive mechanisms, such as contracts, organizational designs and legislation. This is often limited to the question of improving financial performance, for example, how the corporate owners can secure/motivate that the corporate managers will deliver a competitive rate of return. (Mathiesen, 2002). Another definition is "Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society" (Sir Adrian Cadbury in 'Global Corporate Governance Forum', World Bank, 2000). According to La Porta et al.(2000) “corporate governance is to a certain extent a set of mechanisms through which outside investors protect themselves against expropriation by the insiders”. The problem is to see whether the corporate governance standards adopted by firms in Mauritius are positively, negatively or more affecting the firms’ performance. Research will be made on a sample of firms operating in Mauritius.

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It has been argued that as ownership concentration increases, the incentives and the abilities of shareholders to properly monitor managers increase too. This creates beneficial effect for firms in the sense that performance or profitability improves (Morck et al. (1989)).

There are studies which find that higher ownership concentration lead to detrimental effects for corporations in the sense that large blockholders and managers can collude to extract rents from small shareholders (Lehman and Weigand (2000)).

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