BACKGROUND : Premised on agency, resource dependence and stewardship theories, the study
investigates empirically the existence of industry nuances in the relationship between corporate
governance and financial performance of companies listed in the Johannesburg Stock Exchange.
AIMS : The main objective of the study is to understand the relationship between internal
corporate governance and company performance from the perspective of three distinct
economic periods, as well as industry nuances, cognisant of endogeneity issues.
SETTING : South Africa, as an emerging African market, offers an interesting research context in
which the corporate governance and financial performance nexus can be examined empirically.
METHOD : A sample of 90 companies from the five largest South African industries, covering a
13-year period from 2002 to 2014 (1170 firm-year observations) was examined with three
RESULTS : Two key trends emerged from this study. First, the relationship between corporate
governance and company performance differed from industry to industry. Second, the
association between corporate governance and company performance also changes during
steady and non-steady periods, which is an indication that the nexus is driven by the state of
the global economy and the type of the industry.
CONCLUSION : Evidence from the study suggests that companies should be allowed to optimise
rather than maximise their corporate governance options. This finding questioned the
approach of the recently published King IV Code of Good Corporate Governance, which
requires Johannesburg Stock Exchange-listed companies to ‘apply and explain’ as opposed to
‘apply or explain’ as pronounced by King III Code of Good Corporate Governance.