Corporate Governance effect on firms’ Performance

In their 2017 article on corporate governance, Farhan and colleagues investigate the impact of the mandatory corporate governance code (MCGC) introduced by the government in the United Arab Emirates. Accountability and transparency are integral to every aspect of management. Reading this article makes one appreciate the role of mandatory and regulated corporate governance among firms. The authors are very articulate and start by recognizing the common need to solve the agency problem, which frequently arises between agents and principals. Corporate need to perform in order to fulfillthe expectations of shareholders.

Similarly, the government has an obligation to make sure that companies remain transparent and strictly accountable. This does not only encourage economic investment but also helps safeguard the public from fraud by the management. This is the feeling aroused by the article's argument.  

According to Farhan, Obaid, and Azlan (2017), the step taken by the UAE to impose corporate governance regulations in the country’s firms is a welcome move. However, as the research suggests, the firms require ample time and training in order to yield the desired results after adopting the mandatory corporate governance code. The article is informative and thought-provoking. As a remedy for the agency problem, establishing the board of directors has, for a long time, been considered to improve corporate performance. Contrary to this notion, however, Farhan and colleagues show that failure to impose regulatory measures is detrimental. This is because independent boards and independent accounting committees do not necessarily serve the interests of shareholders. In one way or the other, the reader is encouraged to think that complacency by boards and/or possible collusion with agents is not unlikely.  Indeed, this is important academic research whose application outside can significantly influence corporate governance and the understanding of management.  It can be a very useful tool for directors and policymakers.