Examining cointegration between corporate governance and financial performance in selected listed South African financial institutions

Since the 2007 global financial crisis, scholars have attempted to explain market failures using aspects other than corporate governance. Previous studies focused on the function of corporate governance in financial performance, with a dearth of literature on other financial dimensions like risk appetite, financial stability, and the effect of financial performance on the corporate governance of financial institutions. This study examines the cointegrating relationships between financial performance and corporate governance in selected South African listed financial institutions between 2007 and 2020. Employing the pooled mean group and fixed dynamic effect estimators in a panel autoregressive distributed lags framework, our results indicated notably positive long-term cointegrating relationships between the capital adequacy ratio (CAR) and financial stability, return on equity (ROE) and return on assets (ROA), respectively. We consider this paper valuable in that it contributes to the literature on the interrelatedness of corporate governance and financial performance, particularly of listed financial institutions, and is useful to central banks, market regulators, boards of directors and academics to inform policies and regulations.