۱- Introduction

۲- Literature review and hypothesis development

۳- Data and research methodology

۴- Empirical results

۵- Discussion

۶- Conclusion References

ABSTRACT

We examine the relationship between corporate governance and firm performance for a panel sample of 493 firms of non-financial firms in Thailand during the period 2001–۲۰۱۴٫ We find that for the full sample, corporate governance is not associated with financial leverage and firm performance. Leverage has a positive effect on firm performance. When we split firms into small and large firm subsamples, we observe some influence of corporate governance. The negative effect of audit committee size on firm performance is evident for large firms while the effect of audit reputation on firm performance is evident for small firms only. Furthermore, financial leverage mediates the effect of audit committee size on firm performance for the large firms.

Introduction

Is financial leverage a mediating variable between corporate governance and firm performance? To the best of our knowledge, this question has not been addressed in the literature. The extant literature focuses mainly on (1) the effect of corporate governance on firm performance (Chen et al., 2005; Hossain et al., 2001), (2) the effect of corporate governance on financial leverage (Connelly et al., 2012; Jiraporn et al., 2012), and (3) the effect of financial leverage on firm performance (González, 2013; Vithessonthi and Tongurai, 2015). Addressing the question of whether financial leverage mediates the effect of corporate governance on firm performance is important for the following reasons. First, corporate governance may not have a direct effect on firm performance. If the influence of corporate governance on firm performance is indirect, examining the mediating effect of financial leverage on firm performance could explain the mixed results regarding the effect of corporate governance on firm performance. Second, by looking at financial leverage as one of potential mediators, we would have a better understanding of how changes in corporate governance may affect firm performance. Without good corporate governance, a country may experience a crisis. For instance, when many firms become too leveraged and/or have a high level of short-term debt (e.g., due to weak corporate governance practices/systems), a financial crisis may occur. The Asian Financial Crisis of 1997 and the Global Financial Crisis of 2007 are two prime examples of a financial crisis arguably originating from the firms’ financing decisions. The literature on the effect of corporate governance and firm performance has been expanding in recent years. While some studies (Bhagat and Bolton, 2008; Duffhues and Kabir, 2008; Yang and Zhao, 2014) indicate that there is a direct relationship between these two variables, several studies show the indirect effect of corporate governance on firm performance.