Corporate Governance And Intellectual Capital's Impact On Companies' Financial Performance

Abstract

This study's main goal was to investigate the relationship between corporate governance and financial performance. Particular attention was paid to the principles, concepts, and corporate governance's importance. This approach was deemed suitable and consistent with the prevention and treatment of the recent financial crises that occurred in East Asia, Russia, and the United States. These crises resulted in the insolvency of numerous prominent international institutions and companies, including the present one. The aforementioned crises can be attributed to the errors committed by the Board of Directors, a perceived deficiency in transparency and disclosure, and the disregard of corporate officials for their accountability and the obligation to ensure and safeguard the rights of others. These reasons were addressed in the governance charters issued by countries and companies to fill the previous gaps, as this brings benefits and interest to companies, stakeholders, and the economy in general. Therefore, it can be asserted that the implementation of these logical principles furnishes a solid foundation for attaining equity, fostering a sense of accountability among organisation members, and ultimately enhancing financial performance through the formulation of effective decisions that benefit all parties involved.

The current study also investigated the relationships between the organisation's financial performance and its intellectual capital. Intellectual capital was the subject of the inquiry, encompassing its constituent parts (Customer Capital (CC), Human Capital (HC), and Structural Capital (SC)), in addition to its importance, assessment approaches, and impact on the organisation's financial performance. Previous research has not found any significant correlation between intellectual capital effectiveness and an organisation's financial performance. Other contradictory results about the impact of components of intellectual capital on financial performance have been reported in previous studies.

The relationship between governance and intellectual capital has a greater effect on a company's financial performance and value than a sum of the contributions of each component considered separately. Inconsistencies in the findings of accounting studies that concentrate exclusively on intellectual capital or governance provide support for this assertion. The value of a corporation is increased by its improved performance, which is achieved through the combination of its intellectual capital and strong governance systems.