The Influence of Corporate Governance and Ownership Concentration on Company Performance - Evidence from Bucharest Stock Exchange

The main purpose of this study was to explore whether the current corporate governance mechanisms have an impact on the company's performance in Romania. The importance of this study is given by the following reasons. Firstly, the study will contribute to the existing literature concerning corporate governance impact on firm performance of listed firms in Romania. Secondly, the result of this study will help interested parties to evaluate the level of compliance of recommendations made in the Corporate Governance Code. The study was conducted for the companies listed on BSE, in the first category. The financial companies and the credit institutions were excluded from the sample. The final sample included 15 companies. Return on Assets, Return on Equity and Return on Sales were used for measuring the performance of the firm. The corporate governance was measured with three variables: total numbers of board members, the percentage of independent members on the board and CEO duality. The ownership concentration was measured with the fraction of shares held by the largest top three shareholders having over 10% and Herfindal index. Econometric tools like multiple linear regressions were used for analysis. The results of the study suggest that there is a positive significant link between firm performance and proportion of independent members of the board. 1. Introduction Corporate governance (CG) has become an important subject in transition economies in recent years. The concept of CG refers to the set of mechanisms that influence the decisions made by managers when there is a separation of ownership and control. Directors, owners and corporate managers have started to realize the benefits of having a good corporate governance structure. One important benefit of good corporate governance is that capital can be obtained much easier. International investors hesitate to lend money or buy shares in a corporation that does not subscribe to good corporate governance principles. Transparency, independent directors and a separate audit committee are especially important for international investors and they will not invest in a company that does not have these things (McGee, 2008) The general idea is that corporate governance has important implications for the growth perspective of an economy, because good corporate governance practices reduce risk for investors, attract investment capital and improve the performance of companies (Spanos, 2005). Corporate governance is considered as a certification of corporate responsibility and quality of public financial information, therefore enhancing the integrity and efficiency of capital markets, …