Purpose: This paper seeks to address the effect that principle‐based corporate governance practices have on the financial performance of large publicly‐listed companies. In 2004, the New Zealand Securities Commission (NZSC) promulgated nine high level principles and guidelines for all business entities with an aim of improving corporate governance practices and boosting investor confidence in the New Zealand capital market. This event provides a point for empirically testing companies' responses.Design/methodology/approach: Panel data for the NZX top 50 companies over the period 1999‐2007 are analysed using ordinary least squares (OLS) and two stage least squares (2SLS) regression techniques to evaluate whether: those firms that were continuously compliant with the NZSC requirements perform better; and the firm performance post‐NZSC recommendations is better than pre‐NZSC recommendations. Tobin's Q, market‐to‐book (MB) and return on assets (ROA) metrics are used as dependent variables..Findings: The findings indicate that large listed companies have universally adopted the Securities Commission recommendations, establishing subcommittees for audit and remuneration, and having a majority of non‐executive/independent directors on the board which, on average, have seven members. There is support for the view that the NZSC recommendations have had positive influence on firm performance measured by Tobin's Q, MB and ROA. The results show that the presence of a remuneration committee has had a positive influence on firm performance.Research limitations/implications: This study provides empirical support for the corporate governance recommendations made by the NZSC in 2004, giving support to the principle‐based corporate governance practices to be adopted in New Zealand. The sequential testing of each NZSC recommendation provides a comprehensive picture of performance outcomes which has not been achieved in prior research. The interdependency issues are of interest and the correlation between recommendations provides useful insights.Originality/value: This study offers insights for policy makers interested in adopting principle‐based corporate governance practices within their country. Within New Zealand, public policy developments and stock exchange listing requirements/regulatory issues with associated compliance burdens are better informed as a consequence of the research.

The purpose of this paper is to examine the effect of corporate governance practices of small cap companies have had on their financial performances. Previous studies have mainly examined governance practices of larger corporations. This analysis focuses on the governance variables that have been highlighted by the New Zealand Securities Commission (2004) governance principles and guidelines and also on the governance variables that are supported in the literature as providing an appropriate structure for the firm in the environment in which it operates. The data for 71 small cap companies listed in New Zealand over a five-year period from 2001 to 2005 was analysed. Pooled data, OLS and 2SLS regression techniques were used and Tobin's Q, ROA and OPINC were used as the dependent variables. The evidence does support the hypothesis that the existence of board independence and audit committee has enhanced firm financial performance, as measured by Tobin's Q.