INFLUENCE OF CORPORATE GOVERNANCE ON FINANCIAL STABILITY OF BUSINESS OPERATIONS

Corporate governance is a legal, economic and social phenomenon, which was created primarily through private initiative to improve and standardize the corporate governance system and ensure easier and more efficient monitoring and control of business operations. The level of quality of corporate governance should reflect the quality of corporate governance practice at the level of corporations in BiH, which is determined by international standards (OECD Principles of Corporate Governance) and the state legal framework and national codes of corporate governance. Deviations from the set criteria are evaluated by the corporate governance quality index, where the overall score is the degree of fulfillment of the prescribed criteria. The quality of corporate governance is one of the non-financial indicators of business operations and shows the degree of compliance with international and national standards of corporate governance. A significant number of studies show that corporations that achieve higher standards or a higher degree of compliance with standards and better corporate governance practices also have better financial results and thereby higher value in the capital market. The subject of the study is to analyze the direction and intensity of the relationship between the quality of corporate governance and the financial stability of business operations in corporations in Bosnia and Herzegovina. The main objective of the research is to determine the direction and intensity of the relationship between the quality of corporate governance measured by the LCG index and the financial stability of business operations measured by the Kralicek DF ratio in corporations in BiH.