Corporate Governance and Internal Controls: Correlation to Financial Performance in Italian SMEs

In the economic literature, some studies have pointed out a relationship between corporate governance and internal controls issues and a firm’s performance. The composition, activity and processes of the Board of Directors, the level of the internal control system may have a positive relationship with the financial performance. If we consider Italian SMEs, that relationship is less evident, due to a lack in the literature. In this study, focused on Italian SMEs, we analysed the relationship between CG matters, internal control system and financial performance. Using a questionnaire addressed to the SMEs operating in manufacturing, construction and grocery and distribution macro-sectors in the Italian Veneto region, 18 specific variables related to corporate governance and internal control system in 2014 were monitored. Separately, data regarding the financial performance in 2014 and 2015 of those companies, in terms of ROI, ROA, ROS and ROE indexes, were collected. The analysis of around 200 companies that gave us those information, revealed an interesting correlation between those variables and the financial performance.