Do Publicly Listed Insurance Firms in Saudi Arabia Have Strong Corporate Governance?

Abstract

Saudi Arabia has now opened its markets to foreign investors in line with its strategy to diversify its economy. However, investors need to feel confident that Saudi enterprises are being monitored and regulated appropriately. This study identifies the impact of improvements in Saudi corporate governance practices among insurance firms. The effects of corporate governance on the financial performance of 35 insurance firms listed on the Saudi stock market are examined from 2008 to 2014, including Shariah-compliant and life insurance firms. Four different methodologies are used: the generalised least squares random effect, fixed effect models, a difference-in-differences (DID) measurement for comparisons, and the probit model with average marginal effect to address endogeneity. The results indicate that firm performance is affected by information asymmetry. The 2009 exogenous shock from the Saudi regulatory change to board composition and audit committee size shows a positive effect on performance in the DID comparison. However, an increase in independent board and audit committee members has a significant negative effect. Other findings indicate that an increase in CEO (Chief Executive Officer) age has a positive effect on performance, as do three pay variables (director incentives, CEO and top executive pay, and above-the-mean director incentives). However, when CEO and top executive pay increases above the mean, the effect turns negative; this also happens with a change in CEO from poor performance. The results support the importance of Saudi insurance industry corporate governance regulation and reflect the improved governance perspectives of the Saudi Capital Market Authority and Saudi Arabian Monetary Agency.

Adapting Corporate Governance for Sustainable Organizational Performance: A Case Study of the Banking Sector in Pakistan amid the COVID-19 Pandemic

“…The second hypothesis supports that there is a connection between corporate governance and sustainable financial performance. This finding is consistent with the findings of recent studies (Al-Faryan & Alokla, 2023;Amrani et al, 2022;Dănescu et al, 2021;Mubeen et al, 2021) who discovered a link between corporate governance and sustainable financial performance. Hence, Audit committees and their independence are integral parts of corporate governance, and they ensure the sustainable performance of firms.…”

“…The literature shows that corporate governance practices positively and negatively impact organizational performance, but some studies have mixed (Abdullah & Tursoy, 2023;Al-Faryan & Alokla, 2023;Waris et al, 2023). Several studies have found a significant positive relationship between corporate governance practices and organizational performance indicators, such as return on assets, return on equity, and net income (Aggarwal & Management, 2013).…”

“…The correlation between corporate governance and sustainable performance makes intuitive sense, yet there is a dearth of evidence on this topic and a wide range of results. The majority of the studies discovered a positive correlation, while many of them show a negative relationship, but few have a mixed relationship (Abdullah & Tursoy, 2023;Al-Faryan & Alokla, 2023;Waris et al, 2023). In conclusion, effective corporate governance practices are crucial for the long-term sustainable performance of the banks and for preserving the integrity, stability, and sustainability of the whole financial system.…”

Revisiting the relationship between corporate governance mechanisms and ESG disclosures in Saudi Arabia

“…Hence, following earlier studies like Barth et al (2012), Andersen et al (2022), Umar (2022) and Umar et al (2022), the variable was winsorized at 5% to limit the influence of its extreme value. Besides, the VIF statistics are much less than 10, indicating the nonexistence of multicollinearity in our model (Al-Faryan and Alokla, 2023; Gujarati and Porter, 2009). In addition, the tolerance values range between 0.512 and 0.867, which are within the ranges of 1 and 0 established in the literature as the acceptable range (Saidu, 2019).…”

“…The country released the strategic Saudi Vision 2030 in 2016 to diversify its economy from relying on oil (Al-Faryan and Shil, 2022; Bamahros et al , 2022). It has also recently opened its markets to international investors to diversify its economy and wean itself off reliance on oil (Al-Faryan and Alokla, 2023). Hence, ESG disclosure by firms in Saudi Arabia is believed to be a vital instrument that can lead to achieving sustainability (Adileh, 2022).…”