Corporate Governance and Firm Performance: A Review of Theories and Hypotheses

Corporate governance has become one of the most important topics in the business world. It has gained wide acceptance due to its critical role in enhancing firm performance and competitiveness. Many corporate governance theories have emerged and proposed different governance mechanisms to reduce agency problems and enhance firm performance. Understanding different theoretical frameworks of corporate governance can help align the interests of corporate stakeholders and mitigate potential conflicts of interest, thus enhancing firm performance and value. Agency theory is the dominant theoretical framework in the corporate governance literature, and based on the agency literature, several hypotheses have been proposed, such as convergence of interest hypothesis, managerial entrenchment hypothesis, and expropriation of minority shareholders hypothesis. Furthermore, other major theories such as stewardship theory, stakeholder theory, and resource dependence theory have been put forward. This study aims to provide a comprehensive review of the major corporate governance theories and some related hypotheses in order to gain further insight and understanding of the relationship between corporate governance and firm performance. This study contributes to corporate governance literature by providing an in-depth review of the major corporate governance theories, which provides a broader insight regarding the relationship between corporate governance and firm performance. This study can be useful for firms in designing a good corporate governance model, which helps enhance firm performance and value. It can also be useful for investors, managers, boards of directors, and other corporate stakeholders by providing knowledge regarding different perspectives on corporate governance.