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СпутникиРНSpaceXРоскосмосNASABackground The 2021–2024 economic turbulence exposed vulnerabilities in corporate oversight, as many firms faced financial distress despite high governance ratings. These failures highlight the flaw of overrelying on aggregate governance scores, which induce a ‘masking effect’ where strong pillars conceal severe deficiencies in others. Furthermore, prior literature often promotes a ‘one-size-fits-all’ paradigm, ignoring institutional contexts. This study unbundles corporate governance into four functional pillars to evaluate their distinct, region-specific impacts on financial performance. Methods Using 14,776 firm-year observations from non-financial listed firms across 53 countries (2020–2024), we integrate data from MSCI, OSIRIS, and the World Bank. We employ panel regression analysis with year, industry, and country fixed effects to evaluate the four pillars’ impacts on ROA. To capture institutional heterogeneity, the baseline model is extended through region-specific regressions across Africa, the Americas, Asia, Europe, and Oceania. Results We find that accounting, executive pay, and ownership governance are positively associated with ROA, whereas formal board governance correlates negatively. These findings remain robust after addressing selection bias via Coarsened Exact Matching (CEM). Regional analyses reveal a striking asymmetry: accounting governance is a universal profitability driver across all regions. Conversely, the effectiveness of executive pay, ownership, and board structures is highly heterogeneous, depending heavily on local institutional conditions. Conclusions Governance influences performance through distinct channels, challenging the global ‘one-size-fits-all’ paradigm. While accounting governance universally enhances performance, board, compensation, and ownership mechanisms must be tailored to local institutional contexts. Stakeholders must move beyond superficial aggregate scores and prioritise context-sensitive reforms to ensure firm resilience.
The post-pandemic global business landscape has been defined by extreme economic turbulence, characterised by surging inflation, severe supply chain disruptions, and escalating geopolitical tensions (Alessandria et al., 2023; McCaffrey et al., 2023; OECD, 2024). For example, the sudden collapse of Silicon Valley Bank (SVB) and the forced rescue of Credit Suisse in 2023, despite both possessing extensive formal governance structures and risk committees (Li et al., 2023). These real-world phenomena have blatantly exposed the fundamental vulnerabilities in contemporary corporate oversight. When confronted with these multidimensional crises, traditional corporate governance mechanisms that were historically deemed effective often failed to shield firm value and prevent profitability collapse (El-Chaarani et al., 2022; Jebran & Chen, 2023). This harsh reality raises a critical question: Do governance standards that are effective under stable economic conditions retain their predictive power and functionality in an era of profound uncertainty?
A primary reason these vulnerabilities often remain undetected until a crisis strikes is the persistent overreliance on aggregate governance indices. Historically, research and commercial assessments have amalgamated diverse governance attributes into a single, comprehensive score (Saona et al., 2025). However, this aggregated approach frequently induces a dangerous ‘masking effect’ (Khatib & Nour, 2021). The positive impact of one robust governance pillar, such as a highly concentrated ownership structure, can artificially inflate the total score. Thereby, concealing severe deficiencies in other critical areas, such as poor accounting transparency or flawed executive compensation designs (Njoku et al., 2026). Consequently, an aggregate index fails to capture how different governance components might neutralise each other’s effects and loses its predictive power regarding functional effectiveness. This limitation dictates that investors and regulators must move beyond superficial aggregate scores to understand which specific mechanisms truly drive profitability and resilience (Núñez Izquierdo & Garcia-Blandon, 2017).
Despite the burgeoning literature on the nexus between corporate governance and financial performance, critical research gaps persist. While recent scholarship is beginning to recognise the limitations of aggregate governance scores (Núñez Izquierdo & Garcia-Blandon, 2017; Njoku et al., 2026). There is a conspicuous paucity of empirical evidence evaluating how specific, disaggregated global economic dynamics operate between 2021 and 2024. Furthermore, much of the existing research implicitly promotes a ‘one-size-fits-all’ paradigm, largely overlooking the reality that governance effectiveness is highly context-dependent (Bischoff et al., 2025; Thuan et al., 2026; Zhu et al., 2026). Global-scale studies that unbundle these mechanisms to examine their varying impact across distinct regional institutional environments remain markedly limited (Durczak et al., 2026).
To bridge these methodological and empirical voids, this study adopts an ‘unbundling’ approach by decomposing corporate governance into four functional pillars derived from the MSCI ESG framework: accounting, executive pay, ownership, and board governance (MSCI, 2026). Utilising a comprehensive dataset of non-financial listed firms worldwide, the authors isolate the specific impact of each mechanism of firm financial performance during this volatile period. Furthermore, to rigorously challenge the prevailing ‘one-size-fits-all’ assumption in corporate policy, the authors extend the analysis across five distinct global regions: Africa, the Americas, Asia, Europe, and Oceania. This multidimensional perspective allows us to determine whether certain governance mechanisms act as universal drivers of resilience or if their effectiveness is strictly bound by regional institutional contexts.
The empirical findings reveal a striking asymmetry in how individual governance mechanisms influence financial performance. Notably, we find that accounting governance quality emerges as a universal driver of profitability, consistently exhibiting a positive impact across all regions. Conversely, the effectiveness of executive pay, ownership structures, and board governance is highly contingent upon the regional institutional environment. Strikingly, formal board governance structures often exhibit negative or mixed associations with performance, suggesting a critical disconnect between compliance-driven board arrangements and actual oversight effectiveness during crises. By disaggregating these pillars and demonstrating their localised impacts, this study provides nuanced insights that extend beyond traditional aggregate indices, offering vital implications for designing context-sensitive corporate governance reforms and sustainable investment strategies.
Unbundling Governance in Volatile Environments: Agency Theory, as articulated by (Jensen & Meckling, 1976), serves as the primary theoretical framework in this study. This theory states that modern corporate structure involves a separation between owners (principals) and managers (agents), which can give rise to conflicts of interest due to the divergence of goals between the two. Under the assumption of rational and self-interested human behaviour, managers potentially pursue personal interests, such as excessive perquisite consumption or risk avoidance, that are not aligned with shareholder interests. This situation generates agency costs that can reduce firm efficiency and value. To address this, companies implement governance as a nexus of monitoring and incentive contracts (Fama & Jensen, 1983). However, many prior studies use aggregate governance indices that tend to oversimplify the complexity of agency relationships. Following the unbundling governance approach (Ammann et al., 2011). This study argues that each governance pillar performs a specific function. Accounting governance primarily mitigates information asymmetry, executive pay governance aligns managerial incentives, ownership governance reduces principal–principal conflicts, and board governance strengthens internal monitoring and strategic oversight. Therefore, decomposing governance into distinct pillars provides a theoretically richer framework for explaining variations in firm financial performance.
Information asymmetry represents a primary agency conflict, wherein managers possess superior information regarding firm prospects compared to external investors. During periods of high volatility, this asymmetry widens, increasing the temptation for managers to manipulate earnings to mask operational weaknesses. In this context, accounting governance quality plays a crucial role as a monitoring mechanism. When transparency and reporting quality increase, the room for managers to conceal poor performance or engage in accounting manipulation becomes more limited. Previous studies support this argument, as shown by Biddle et al. (2009), who noted that high-quality reporting can reduce the risk of investment errors, as well as Sarafrazi et al. (2015) who found a positive impact of accounting transparency on cost of capital efficiency and market performance. Furthermore, consistent with signalling incentives, high-quality accounting serves as a credible signal of resilience to the market, thereby reducing financing constraints when capital is scarce. Empirical evidence supports this, indicating that rigorous financial reporting reduces investment inefficiency and enhances market valuation.
Accounting Governance Quality has a positive effect on firm financial performance (ROA).
The misalignment between managerial incentives and shareholder value creates moral hazard risks, particularly when economic downturns threaten executive tenure. Inappropriate incentive structures can encourage managers to make decisions detrimental to the firm, such as shirking behaviour or inefficient business expansion. To overcome this, compensation governance is designed as a bonding instrument that aligns the interests between agents and principals. Research by Core et al. (1999) explains that without an appropriate compensation design, managers tend to pursue their own interests. Empirical evidence from Conyon & He (2011) and Ozkan (2011) confirms that compensation design directly linked to performance can increase ROA and prevent the abuse of authority by managers.
Executive Pay Governance Quality has a positive effect on firm financial performance (ROA).
Beyond the conflict between managers and shareholders, Agency Theory also encompasses the conflict between controlling shareholders and minority shareholders, known as the second type of agency problem. In concentrated ownership structures, there is a risk that controlling parties may engage in tunnelling, which is the transfer of corporate assets for personal gain. A strong ownership pillar reflects the existence of legal protection and organisational structures capable of safeguarding minority shareholder interests. Dakhlallh et al. (2021) state that good ownership governance mechanisms limit the potential abuse of power by majority owners. Previous studies, such as Lemmon & Lins (2003) and Panda & Leepsa (2017) support the importance of protection for minority shareholders as a key element to ensure the efficiency of asset use and the sustainability of the firm’s financial performance.
Ownership Governance Quality has a positive effect on firm financial performance (ROA).
The board of directors serves as the apex of internal control, tasked with separating decision management from decision control. Theoretical predictions suggest that board quality, characterised by independence and oversight intensity, enhances firm value by disciplining underperforming management. Within the same framework, the function of the board of directors plays a central role as the firm’s internal monitoring mechanism. Fama & Jensen (1983) state that the board of directors has the responsibility to separate and oversee the decision management and decision control processes. Board governance quality, reflected by independence, competence, and meeting frequency, determines the effectiveness of oversight over management. Research by Nguyen & Nielsen (2010) and Pillai & Al-Malkawi (2018) indicates that the presence of independent directors and intensive monitoring practices significantly increases ROA and shareholder value. In the context of global economic instability, Koutoupis et al. (2021) also noted that companies with quality boards possess better financial resilience during times of crisis. Nevertheless, adhering to the prevailing view that independent oversight is crucial for resilience during instability, we hypothesise:
Board Governance Quality has a positive effect on firm financial performance (ROA).
This study draws on a cross-country sample of publicly listed non-financial firms from 53 countries over the 2020–2024 period to examine the association between corporate governance quality and firm financial performance in a broad international setting. Corporate governance data are obtained from the MSCI Governance Database, firm-level financial information is sourced from OSIRIS, and country-level macroeconomic indicators, specifically real GDP growth and inflation, are collected from the World Bank, thereby ensuring the use of internationally recognised and comparable data sources at the firm and country levels. The sample period is deliberately chosen because it provides consistent cross-country governance coverage while also capturing firm behaviour during the post-pandemic recovery and the subsequent phase of global economic adjustment. The sample selection procedure is implemented sequentially to preserve comparability and data quality. It begins with all publicly listed firms available in the underlying databases for the observation period, excludes financial firms because their capital structures, regulatory environments, and operating models differ fundamentally from those of non-financial firms, and removes observations with missing values in the key variables used in the baseline analysis. This process yields a final sample of 14,776 firm-year observations (see Table 1). Table 2 reports the distribution of firm-year observations across the 53 countries. The sample is highly concentrated: the United States contributes 6,706 observations (44.85%), followed by Japan with 1,185 observations (8.02%). By contrast, several countries are minimally represented, each contributing less than 0.05% of the sample. To address the risk that the findings may be disproportionately influenced by country concentration, the main analysis is complemented by additional tests designed to assess the robustness of the results to sample dominance by specific countries.
This study employs a panel regression model to examine the association between corporate governance quality and firm financial performance. Specifically, the following empirical specification is used to estimate the effects of the four main governance pillars, namely accounting governance, executive pay governance, ownership governance, and board governance, on Return on Assets. The coefficients on the governance variables correspond to the four hypotheses developed in the preceding section, while Table 3 presents the operational definitions of all variables used in the analysis.
ROAi,t=α+β1PAY_PCTLi,t+β2OWNERSHIP_PCTLi,t+β3ACCOUNTING_PCTLi,t+β4BOARD_PCTLi,t+β5−11CONTROLSi,t+β12YEARi,t+β13INDUSTRYi,t+εi,t
The model is estimated to use panel data regression with year fixed effects and industry fixed effects. In this specification, i denote firms and t denotes the year. In addition to the main explanatory variables, the model includes a set of firm-level and country-level control variables to mitigate potential bias arising from other factors that may affect firm profitability. YEAR is included to account for common time-specific shocks, while INDUSTRY is incorporated to control unobserved industry heterogeneity. Accordingly, the model enables a more focused estimation of the relationship between each governance pillar and firm financial performance. To enhance transparency and ensure replicability, Table 3 reports the detailed operational definitions and measurements of all variables employed in the empirical analysis.
Descriptive statistics for the final sample of 14,776 firm-year observations are reported in Table 4. The mean value of the dependent variable, ROA, is 0.037 (3.7%), with a median of 0.038, indicating that firms in the sample exhibit a positive but modest profitability on average. The ROA values range from −0.447 to 0.291, with a standard deviation of 0.097, suggesting substantial variation in financial performance across the studied firms during the 2020–2024 period. In terms of the independent variables, all four governance pillars show considerable dispersion. These measures, which represent percentile rankings relative to home-market peers, reflect varying levels of governance quality across the sample. Accounting Governance (ACCOUNTING_PCTL) recorded the highest mean score at 59.455, suggesting that transparency and financial reporting quality are relatively strong among the firms. This is followed by Executive Pay (PAY_PCTL) at 57.869 and Ownership Governance (OWNERSHIP_PCTL) at 56.409. Conversely, Board Governance (BOARD_PCTL) shows the lowest average score of 51.079, indicating that board-related oversight is the area with the most significant room for improvement.
The relationships between the variables based on the Pearson correlation results in Table 5 show that ROA is positively and significantly associated with PAY_PCTL, ACCOUNTING_PCTL, and OWNERSHIP_PCTL. These findings suggest that higher governance quality in executive compensation, accounting transparency, and ownership structures tends to align with better financial performance. Conversely, the results indicate that ROA has a small but significant negative correlation with BOARD_PCTL. This particular outcome implies that stronger board-level oversight may not translate directly into immediate profitability improvements within the study period. To ensure the integrity of the model, we examined the potential for multicollinearity. The correlation coefficients among the independent variables remain low, and the Variance Inflation Factor (VIF) values range between 2.7 and 8.4. Since these figures are well below the standard threshold of 10, the data is suitable for the subsequent regression analysis.
The regression results in Table 6 examine the relationship between the four governance quality pillars and firm financial performance. First, the findings show that the coefficient for ACCOUNTING_PCTL is consistently positive and highly significant (coeff = 0.000; t = 11.013), providing strong support for H1. This result aligns with the predictions of Agency Theory, suggesting that enhanced reporting transparency effectively reduces information asymmetry and limits managerial opportunism (Jensen & Meckling, 1976). This finding is also consistent with prior evidence indicating that high-quality accounting information improves monitoring accuracy and overall investment efficiency (Biddle et al., 2009; Sarafrazi et al., 2015).
Second, PAY_PCTL exhibits a robust and significant positive association with ROA (coeff = 0.001; t = 17.142), which supports H2. This reinforces the argument that properly structured incentive contracts successfully align managerial behaviour with shareholder interests, thereby mitigating moral hazard (Core et al., 1999; Ozkan, 2011; Conyon, 2014). Third, OWNERSHIP_PCTL shows a positive and significant impact (coeff = 0.000; t = 10.906), supporting H3. This suggests that strong ownership governance enhances performance by reducing agency conflicts and strengthening (Pfeffer & Salancik, 2015; Al-Janadi et al., 2016; Boshnak, 2023). Such a mechanism is consistent with the view that influential owners can mitigate secondary agency problems and improve asset utilisation efficiency (Lemmon & Lins, 2003; Panda & Leepsa, 2017).
Finally, BOARD_PCTL displays a significant negative coefficient (coeff = −0.000; t = −4.882), which contradicts H4. This result mirrors the negative association between board independence and performance documented in several studies, where boards dominated by external directors may lack the detailed operational knowledge required for swift decision-making (Dang et al., 2018; Shan, 2019). These findings suggest that boards with more insiders might occasionally outperform others because insiders act as stewards with superior firm-specific knowledge (Donaldson & Davis, 1991, 1994; Davis et al., 1997; Shan, 2019). Consequently, the negative sign on BOARD_PCTL may indicate that formal board governance mechanisms do not automatically translate into better monitoring, particularly in institutional settings where boards might be constrained or insufficiently empowered.
One of the main issues in this analysis is endogeneity, particularly regarding self-selection bias. As reported in Table 7, this problem arises because the appointment of a particular director rarely occurs randomly but is influenced by internal firm characteristics. Such correlations between governance metrics and unobserved factors can introduce bias into regression estimates, potentially weakening the causal interpretation of the study’s results. To mitigate this concern, we employ Coarsened Exact Matching (CEM) as a robustness check. This method enhances the comparability of our treatment and control groups by reducing imbalances, thereby strengthening the credibility of our findings and ensuring that the observed relationships are not solely driven by self-selection effects.
By applying the CEM procedure, we re-examine whether the relationships identified in our baseline models persist after balancing the observations across three strata of all control variables. This approach matches firms based on their characteristics before evaluating the impact of each governance pillar (Blackwell et al., 2009). The results from the matched sample of 14,762 observations closely align with our initial findings. Specifically, PAY_PCTL, OWNERSHIP_PCTL, and ACCOUNTING_PCTL maintain their positive and highly significant associations with ROA. Meanwhile, BOARD_PCTL continues to exhibit a significant negative coefficient. This consistent pattern across the matched regressions confirms that our baseline results are robust and not driven by data imbalance, further validating the reliability of our study.
To broaden the scope of our investigation and further enhance the study’s contributions, we performed additional regional analyses. By partitioning the sample into Africa, the Americas, Asia, Europe, and Oceania, we examined whether the effects of specific governance quality pillars on firm financial performance vary across diverse institutional and economic landscapes. This granular approach helps identify whether certain governance mechanisms are universally effective or contingent upon regional characteristics. The regional regressions reported in Table 8 indicate significant institutional heterogeneity regarding the performance implications of governance mechanisms. Accounting governance quality (ACCOUNTING_PCTL_HOME) consistently displays a positive and statistically significant association with ROA across all five regions. This finding suggests a universal role for high-quality financial reporting and internal controls in enhancing operational efficiency. Such results align with agency theory and prior evidence suggesting that robust accounting systems reduce information asymmetry and improve resource allocation regardless of the specific institutional setting (Bushman & Smith, 2001; Dechow et al., 2010).
In contrast, pay governance quality (PAY_PCTL_HOME) exhibits region-specific effects. It is positive and significant in the Americas and Europe, and weakly significant in Oceania, yet remains insignificant in Africa and Asia. This pattern supports the view that incentive-based compensation improves performance primarily in environments characterised by strong investor protection and effective enforcement. In such contexts, pay-performance sensitivity is more credible and less prone to rent extraction by managers (Jensen & Murphy, 1990; Core et al., 1999; Conyon, 2014). Furthermore, the impact of board governance quality (BOARD_PCTL_HOME) is mixed. We observed negative coefficients in the Americas and Oceania, but positive associations in Asia and Europe. This heterogeneity reinforces the argument that board independence and formal structures do not universally enhance monitoring. In some cases, these structures may even impair performance if boards become overly focused on compliance or lack sufficient firm-specific knowledge (Davis et al., 1997; Dang et al., 2018; Shan, 2019).
Finally, ownership governance quality (OWNERSHIP_PCTL_HOME) relates positively to ROA in the Americas and Asia, but negatively in Europe and Oceania. These results highlight the dual nature of ownership concentration, which can mitigate agency conflicts through better monitoring in certain contexts while fostering entrenchment and expropriation in others, depending on the legal environment (Lemmon & Lins, 2003; Boshnak, 2023). Overall, these findings underscore that governance mechanisms beyond accounting quality are highly contingent on regional frameworks. This reinforces the idea that one-size-fits-all governance prescriptions are unlikely to produce uniform outcomes across the globe (Aguilera & Jackson, 2010).
This study investigates the relationship between corporate governance quality and firm financial performance by examining four governance pillars (accounting governance quality, executive pay governance quality, ownership governance quality, and board governance quality) across global non-financial listed firms. The empirical findings demonstrate that accounting governance quality, executive pay governance quality, and ownership governance quality are positively associated with ROA, whereas board governance quality exhibits a negative association. These findings remain robust after the Coarsened Exact Matching (CEM) test, suggesting that the observed relationships are unlikely to be driven by sample imbalance or self-selection bias. Overall, the results indicate that governance mechanisms influence firm performance differently depending on the specific governance pillar and institutional environment.
The first key finding reveals that accounting governance quality is positively and significantly associated with firm financial performance. This result supports the agency theory perspective that higher-quality financial reporting reduces information asymmetry between managers and stakeholders, thereby improving monitoring effectiveness and resource allocation efficiency. Prior research consistently demonstrates that firms with higher financial reporting quality experience lower levels of overinvestment and improved investment efficiency, particularly in contexts where governance structures and financial reporting standards are strong (Houcine et al., 2021; Hosseini et al., 2025). Similarly, improvements in accounting quality and IFRS adoption have been shown to enhance operational efficiency in the banking sector (Chao et al., 2022). Evidence from Nigeria and Indonesia further confirms that high-quality accounting information and accounting information systems contribute to improved financial performance and organisational outcomes (Anggraeni & Winarningsih, 2021; Macgregor & Ibanichuka, 2021).
These findings suggest that accounting governance represents a fundamental governance mechanism that facilitates effective monitoring and decision-making across firms. Reliable financial reporting allows shareholders, creditors, and regulators to evaluate firm performance more accurately, thereby strengthening governance oversight and improving managerial accountability. Consequently, accounting governance appears to be one of the most universally effective governance mechanisms, as its performance-enhancing effects are consistently observed across diverse institutional contexts.
The second finding indicates that executive pay governance quality is positively associated with firm performance. This result aligns with agency theory, which posits that well-designed incentive contracts align managerial interests with those of shareholders, thereby reducing moral hazard and encouraging managers to pursue value-maximising strategies. Early empirical research shows that executive compensation is closely linked to firm performance and shareholder returns, indicating that compensation systems function as important internal governance mechanisms (Coughlan & Schmidt, 1985; Murphy, 1985). Further studies demonstrate that equity-based compensation and managerial ownership can strengthen managerial incentives and improve firm performance (Mehran, 1995).
More recent evidence also supports the effectiveness of incentive-based compensation systems in enhancing firm performance. For example, studies in emerging markets find that executive compensation is positively associated with profitability and market performance indicators such as ROA and Tobin’s Q (Han & Yu, 2023). Similarly, empirical evidence from South Africa reveals a nonlinear but positive relationship between executive pay and firm performance, supporting the optimal contracting perspective of executive compensation (Rasoava, 2019). Moreover, research in Asian markets suggests that compensation structures and corporate governance mechanisms interact in shaping firm performance outcomes (Farooque et al., 2019). Taken together, these findings reinforce the view that properly structured compensation systems can function as effective governance mechanisms when they align managerial incentives with shareholder interests.
The third finding shows that ownership governance quality is positively related to firm financial performance. This result is consistent with agency theory, which suggests that ownership concentration can enhance monitoring effectiveness and reduce agency conflicts between managers and shareholders. Empirical evidence indicates that concentrated ownership structures may strengthen managerial oversight and improve operational performance by encouraging active monitoring by large shareholders (Han & Yu, 2023). However, the governance literature also highlights the dual role of ownership concentration. While concentrated ownership can reduce agency problems, it may also create entrenchment risks or enable controlling shareholders to pursue private benefits at the expense of minority investors (Nel et al., 2024).
Furthermore, studies of family-controlled or foundation-controlled firms suggest that alternative governance mechanisms, such as incentive-based compensation, may substitute for direct monitoring by large shareholders (Van Diem & Reda, 2024). These findings imply that ownership governance can influence firm performance through multiple channels, including monitoring, resource provision, and strategic oversight. Therefore, the positive relationship observed in this study indicates that ownership governance mechanisms may improve firm performance when monitoring incentives are sufficiently strong, and institutional protections limit the risk of expropriation.
In contrast, the results reveal a negative relationship between board governance quality and firm performance. This finding contradicts the expectation that stronger board governance mechanisms necessarily improve firm outcomes. One possible explanation is that boards with a higher proportion of independent directors may lack firm-specific knowledge or operational expertise, which can reduce decision-making efficiency and strategic responsiveness. Previous studies provide mixed evidence regarding the effectiveness of board governance mechanisms. For instance, board independence is positively associated with firm performance in some contexts, while other governance indicators, such as governance ratings or ownership structures, may produce mixed or even negative effects depending on the performance measure used (Ganda, 2022).
Similarly, research examining corporate governance indices suggests that while transparency and overall governance quality may enhance firm performance, certain board-related governance indicators may not always exhibit a statistically significant relationship with firm outcomes (Bui & Krajcsák, 2023). These findings suggest that formal board structures alone may not guarantee effective monitoring or improved performance. Instead, board effectiveness may depend on factors such as director expertise, board engagement, and institutional context.
Another important contribution of this study is the identification of significant regional heterogeneity in the governance performance relationship. The regional analysis indicates that accounting governance quality consistently improves firm performance across all regions, whereas the effects of pay governance, ownership governance, and board governance vary across institutional environments. This result supports the institutional perspective that the effectiveness of governance mechanisms is influenced by country-level factors such as legal systems, investor protection, and market development. Prior studies similarly highlight that corporate governance mechanisms operate differently across countries and institutional contexts, emphasising the importance of contextual factors in determining governance effectiveness (Farooque et al., 2019; Bui & Krajcsák, 2023).
Despite its contributions, this study has several limitations that should be acknowledged. First, the analysis relies on ROA as the primary measure of firm performance. Although ROA captures operational efficiency, it may not fully reflect market-based performance measures such as firm value or shareholder returns. Future studies could incorporate additional performance indicators such as Tobin’s Q, ROE, or market-adjusted returns to provide a more comprehensive assessment of governance effectiveness. Second, the study focuses on non-financial firms, which may limit the generalizability of the findings to financial institutions that operate under different regulatory and governance frameworks. Third, although the CEM approach mitigates potential self-selection bias, endogeneity concerns related to reverse causality and omitted variables may persist.
Future research could extend this study in several ways. Scholars could examine dynamic governance performance relationships using longitudinal models or natural experiments to better identify causal mechanisms. Additionally, future studies could investigate the interaction effects among governance pillars, as governance mechanisms may function as complementary rather than independent systems. Finally, further research could explore how institutional characteristics such as legal origin, investor protection, or regulatory enforcement moderate the relationship between governance quality and firm performance.
This study examines the relationship between corporate governance quality and firm financial performance by analysing four governance pillars: accounting governance quality, executive pay governance quality, ownership governance quality, and board governance quality. Empirical evidence from global non-financial listed firms during the period 2020–2024 indicates that accounting governance quality, executive pay governance quality, and ownership governance quality are positively associated with firm financial performance, while board governance quality demonstrates a negative association with ROA. The robustness test using the Coarsened Exact Matching (CEM) approach confirms that these relationships remain consistent after addressing potential selection bias, thereby strengthening the reliability of the empirical findings.
Accounting governance quality emerges as the most consistently influential governance pillar in improving firm performance. High-quality financial reporting systems enhance transparency, reduce information asymmetry, and improve monitoring effectiveness, thereby facilitating more efficient resource allocation and managerial decision-making. Governance mechanisms related to executive compensation also contribute positively to firm performance because well-structured incentive contracts align managerial incentives with shareholder interests. Ownership governance quality similarly supports firm performance through enhanced monitoring and improved access to strategic resources. Board governance quality, however, demonstrates a negative relationship with ROA, suggesting that formal board structures alone may not necessarily translate into effective monitoring or improved firm performance when boards lack firm-specific knowledge or become primarily compliance-oriented rather than strategically engaged.
Regional analysis further reveals that the effectiveness of governance mechanisms varies across institutional environments. Accounting governance quality consistently improves firm performance across all regions, indicating that transparent and reliable financial reporting functions as a universal governance mechanism. Executive pay governance, ownership governance, and board governance exhibit heterogeneous effects across regions, suggesting that governance mechanisms operate differently depending on institutional conditions such as investor protection, regulatory enforcement, and market development.
The findings contribute to the corporate governance literature by demonstrating that governance quality affects firm performance through multiple governance channels rather than through a single governance mechanism. Evidence from this study supports the relevance of agency theory in explaining how governance mechanisms mitigate conflicts between managers and shareholders. Institutional perspectives also help explain why the effectiveness of governance mechanisms differs across countries and regional contexts.
Practical implications arise for corporate decision-makers and policymakers. Firms should prioritise strengthening accounting governance and financial reporting quality because these mechanisms appear to provide the most consistent performance benefits across institutional contexts. Executive compensation systems should be designed to align managerial incentives with long-term shareholder value rather than short-term financial outcomes. Ownership structures require careful management to ensure that monitoring benefits outweigh potential entrenchment risks. Board governance reforms should emphasise director expertise, strategic engagement, and decision-making effectiveness rather than relying solely on formal structural indicators such as board independence.
Several limitations should be acknowledged. Reliance on ROA as the primary measure of firm performance may not fully capture market-based performance outcomes such as firm value or shareholder returns. Focus on non-financial firms limits the generalisability of the findings to regulated industries such as financial institutions. Potential endogeneity concerns may remain despite the use of the CEM approach. Future research may extend this study by incorporating market-based performance measures such as Tobin’s Q or stock returns to provide a broader assessment of governance effectiveness. Examination of interaction effects among governance pillars would improve understanding of how governance mechanisms function as complementary systems. Investigation of institutional moderators, including legal origin, regulatory quality, and investor protection, may further clarify the contextual factors shaping the governance–performance relationship. Longitudinal and cross-country comparative studies would also provide deeper insights into the long-term effectiveness of corporate governance mechanisms. Overall evidence indicates that corporate governance quality remains an important determinant of firm financial performance. Governance effectiveness depends not only on the existence of governance structures but also on how those mechanisms function within specific institutional environments.
This study does not involve any studies on human participants conducted by the authors.
The data used in this study were obtained from third-party commercial databases. The Governance Pillars variables ( PAY_PCTL_HOME , ACCOUNTING_PCTL_HOME , BOARD_PCTL_HOME , and OWNERSHIP_PCTL_HOME ) were sourced from the MSCI database through the Center for Environmental, Social, and Governance Studies (CESGS). Financial variables (ROA, LEV, CASHTA, FAGE, AuditCommMtgs, and WmnonBd) were sourced from OSIRIS (Bureau van Dijk), while macroeconomic indicators (GDP and INF) were obtained from the World Bank. The original data sources can be accessed by researchers with authorised institutional access through their respective platforms:
Repository: Zenodo [Dataset – Beyond the Aggregate Score: The Differential Impact of Governance Pillars on Financial Performance] [https://doi.org/10.5281/zenodo.20428341]
Reference: Zhafira et al. (2026) ‘Dataset – Beyond the Aggregate Score: The Differential Impact of Governance Pillars on Financial Performance’, Zenodo, V1. https://doi.org/10.5281/zenodo.20428341.
The Stata Do-file containing the code used for data cleaning, regression analysis, and robustness checks (CEM) is available as extended data to ensure the reproducibility of the methodology.
To ensure transparency, the authors have detailed all variable operationalisations and sample selection criteria within the manuscript. For further information regarding the datasets or replication procedures, researchers may contact the corresponding author at: [email protected].