Is Corporate Governance Important for Financial Performance? Evidence from Jordanian Small and Medium Enterprises

Small and medium enterprises (SMEs) often face challenges such as financial losses, inefficient management, and the absence of formal structures, leading to shorter operational lifespans. To address these issues, corporate governance has emerged as a critical solution. This study investigates specific components of corporate governance namely, an efficient management board, accounting credibility, internal controls, external audits, and sound operational practices and assesses their collective impact on the financial performance of SMEs in Jordan. These components were consolidated into three key dimensions to explore their influence comprehensively. Data were collected from 384 SMEs through structured questionnaires administered to executives and board members. This innovative approach helps address the common challenge of data reliability for SMEs. A key contribution of this research is the integration of agency theory, stewardship theory, resource dependency theory, stakeholder theory, the democratic perspective, and socio-economic theory into a cohesive framework. The findings underscore the substantial role of corporate governance in enhancing the financial performance of SMEs. These insights offer practical implications for policymakers and SMEs owners, emphasizing the adoption of corporate governance to improve financial outcomes. Moreover, this study lays the groundwork for future researchers to validate and expand the proposed model within the context of other emerging economies.