The nexus of corporate governance developments and corporate failures

Abstract

Since 1992 there has been an increase in the development of corporate governance principles after the wide spread corporate failures in the UK and US in the late 1980s. In response to these failures, various good corporate governance principles and regulations have been developed by different institutions to address the factors that lead to the failures. The basis of the study is to find out whether the developments in corporate governance have led to a decrease in the incidence of corporate failures. In doing so, I used data from UK newspapers, journals, magazines and other publications relating to the period under review. The years were divided into groups made up of four years each and ranked according to corporate governance developments and failures. After which, the Spearman's Rank Correlation Coefficient formula was used to determine the level of correlation. My findings indicated that, there is a fairly strong positive correlation between developments in corporate governance and corporate failures meaning that as the number of codes and principles increased the number of corporate failures also increased. The study also identified some of the reasons for the continuous corporate governance failures as board incompetence, poor risk management by companies, ineffective internal controls, and the failure of external auditors to remain neutral. The researcher is, however, convinced that if the principles and codes that have been developed are effectively assimilated by boards of directors, there could be a significant reduction in corporate failures in the near future.