Corporate governance mechanisms and their impact on company performance: A structural equation model analysis

Abstract

The purpose of this study is to use structural equation modelling (SEM) to investigate the extent to which different monitoring mechanisms – the board and its committees, shareholders and independent auditors – are complements (i.e. a positive covariance) or substitutes (a negative covariance) for each other. The lack of consistent results in previous corporate governance research may be attributable to attention not being paid to monitoring mechanisms’ substitution or complementary relationships. By using SEM, this study concludes that complementary and substitution relationships among monitoring mechanisms are present. Using data from the pre – and post – global financial crisis period, this study explains where such corporate government impacts occurred, the inconsistencies that are evident in previous studies and provides insights into corporate governance practices.