May Corporate Governance Lead to Better Performance? Insights from Romanian SMEs

Abstract

The transition to a sustainable economy put SMEs under strain to implement improved corporate governance policies and practices in line with European and international sustainability frameworks, as well as legal requirements and social expectations. The aim of this research is to investigate the perceptions of SMEs’ managers, investors, and operational employees regarding corporate governance mechanisms as performance drivers, as well as the relevance of implementing particular policies and practices related to audit characteristics. This empirical approach uses questionnaire as the main research method, with 130 responses that are analysed. To test the research hypothesis, an in-depth descriptive overview, frequency and reliability analyses, and regression estimation are performed. The main findings suggest that the respondents do not ignore the need for a strong internal control and risk management system in SMEs. Likewise, they draw attention to the valuable roles of auditors, being aware of their responsibilities such as ensuring financial statements’ integrity, minimising risks and conflicts of interest, as well as guaranteeing the integrity of internal and external audit procedures. The results shed new light on a developing economy background, suggesting that SMEs may achieve performance through corporate governance policies and practices, designed for their needs and entrepreneurial traits. Thus, this study could be valuable for government and investors alike in creating plans and regulations for a sustainable economy and business environment. UDC: 005.35:[334.012.63+334.012.64]; JEL: G34, M41