Conclusion
Corporate governance is one of the hottest topics, especially in the aftermath of firm failures and/or a banking/financial crisis. Two important questions have often been asked: First, can strong corporate governance reduce the firm’s risk (e.g., investment risk and financing risk)? Second, do firms with strong corporate governance perform better those with weak corporate governance? While empirical results appear to be mixed, many regulators around the world have firm beliefs that strong corporate governance would reduce the probability of the firm taking on excessive risk (e.g., over-leveraged) and enhance firm performance. In this paper, we use a large sample that covers non-financial firms listed in Thailand during the period 2001–2014 to shed light on of the relationships between corporate governance, financial leverage, and firm performance. We find that for an average firm, corporate governance (i.e., board size, board independence, audit committee size, female directorship, CEO duality, ownership concentration, and audit reputation) has no effect on leverage and performance. However, we find that leverage partially mediates the effect of audit committee size on firm performance for large firms only. To the best of our knowledge, we are one of the first to show that corporate governance exerts the indirect effect on firm performance via financial leverage for firms in an emerging market economy.
