Determinants of corporate performance

The Anglo-Saxon corporate governance focus on maximizing shareholder value. This principle provides a conceptual and operational framework for evaluating business performance. The value of shareholders, defined as market value of a company is dependent on several factors: the current profitability of the company, its risks, its economic growth essential for future company earnings .

All oftenest are major factors influencing the market value of a company. Other studies (Brief & Lawson, 19922; and Peasants, 19963) argue the opposite, that financial indicators based on accounting information are sufficient in order to determine the value for shareholders. Market Position A company’s financial performance is directly influenced by its market position. Profitability can be decomposed into its main components: net turnover and net profit margin. Ross et al. 1996) argues that both can influence the profitability of a company one time. If a high turnover means better use of assets owned by the company and therefore better efficiency, a higher profit margin means that the entity has substantial market power. Risk and Growth Risk and growth are two other important factors influencing state corporations profitability. Since market value is conditioned by the company’s results, the level of risk exposure can cause changes in its market valued.

Economic growth is another component that helps to achieve a better session on the financial markets, because market value also takes into consideration expected future profits. Size The size of State Corporations can have a positive effect on profitability because larger firms can use this advantage to get some financial benefits in business relations hence greater profits. Large companies have easier access to the most important factors of production, including human resources. Also, large organizations often get cheaper funding.

In the classical theory, capital structure is irrelevant for measuring company reference, considering that in a perfectly competitive world performance is influenced only by real factors. Recent studies contradict this theory, arguing that capital Structure play an important role in determining corporate performances. Barton & Gordon (2008) suggest that entities with higher profit rates will remain low leveraged because of their ability to finance their own sources. On the other hand, a high degree of leverage increases the risk of bankruptcy of companies.