Corporate Governance and Financial Performance: Theoretical and Philosophical Predicaments in Research

Abstract

Theories and philosophical approaches in research are crucial to the understanding of the overall perspective from which the study is designed and carried out. However, inconsistencies in theory and duality in philosophical paradigms leads to predicaments as to which approach is suitable in a certain area of inquiry. This paper examines some of the theoretical and philosophical predicaments faced by researchers in corporate governance. This is achieved by identifying and discussing controversies in theories and philosophical approaches applicable in corporate governance studies. A review of theoretical literature shows lack of a unitary perspective to explain the relationship between corporate governance and firm financial performance. Consequently, researchers may have to adopt a multi-theory approach by taking views of property rights agency, resource based and stewardship and stakeholder’s theories to understand different perspectives of corporate governance. The multiplicity of theories and inconsistencies of expected relationships between variables also creates dilemma to researchers in predicting the relationships between corporate governance variables and firm performance. The duality of philosophical paradigms and divergent assumptions of ways of knowing also creates dilemma as to which is the best approach to apply in corporate governance research. This study found that most corporate governance studies opts for objectivism position in ontology which leads to positivism view in epistemology, associated with value free axiology, deductive approach and application of quantitative methods. This is in contrasts to the choice of subjectivism position in ontology which leads to the selection of interpretivism stance in epistemology and consequently value laden position in axiology. Subjective approach also leads to inductive approach and application of qualitative methods of data collection and analysis. It is therefore concluded that identification of ontology at the start of the research process is crucial in determining the choice of the research design.

Keywords: Corporate Governance, Theory, Philosophy,