The relationship between corporate governance and financial performance

Abstract

Purpose The purpose of this paper is to attempt to fill a research gap in the relationship between corporate governance mechanisms and financial performance of family and non-family firms’ by using a sample of non-financial firms listed on Amman Stock Exchange (ASE) for the period 2009–2015. Design/methodology/approach This research employs a quantitative method using data that include corporate governance mechanisms, firm characteristics and financial ratios of a sample of Jordanian listed firms in the ASE over the period 2009–2015. The sample covers all companies that have been part of the ASE during the period including both family and non-family firms, part of total of 228 companies listed on the ASE as of 31 December 2015. The study used accounting-based measures such as return on asset (ROA) and market-based measures such as Tobin’s Q as proxies for corporate financial performance. Findings The study found that board size both in term of Tobin’s Q and ROA has a negative relationship with the performance of family firms. In non-family firms, there is no systematic relationship with corporate performance. There is a strong relationship between corporate performance and independent directors in non-family firms. In addition, the authors found some evidence for a relationship between performance and independent directors in family firms. Also, results indicated that ownership concentration has an insignificant correlation with corporate performance and in family firms has a negative and significant correlation with Tobin’s Q. There is a significant relationship between local investors’ ownership and corporate performance as measured by Tobin’s Q in family and non-family firms. Originality/value Studies concerned with the effect of corporate governance on firm performance remains comparatively under-researched in Middle East countries and Jordan in particular (Najib, 2007; Omet, 2004; Marashdeh, 2014). Moreover, studies investigating whether the practice of corporate governance has the same impact on family firm performance are still relatively less well known than those when ownership is distributed widely (non-family firms) (Jaggi, Leung and Gul, 2009; Prencipe and Bar-Yosef, 2011). This research is seeking to fill this current gap in Jordan, which is one of the developing countries with an emerging economics that are very poorly represented in the literature.

Impact of Ownership Characteristics on Modified Audit Opinion in Jordan

“…Also, those institutions managed by a family structure have less agency costs and are more effective [2,29]. To elaborate on this fact, Saidat, Silva and Seaman, revealed that structured companies are less probably to obtain modified audit opinions than non-family structured companies [30]. In Jordan, the predominant type of ownership characteristics is the family business class [31].…”

Impact of Corporate Governance on Financial Institutions’ Performance: A Board Composition Case

“…The findings of developed countries concerning corporate governance"s impact on financial performance do not apply to Jordan due to its significantly smaller firm size as compared to those in developed countries, and also as most firms are regulated as family businesses (Abbadi et al, 2016). The few studies that have been conducted in Jordan were either focused on the family financial firms (Saidat et al, 2019) or companies listed on a particular stock exchange (Mansur and Tangl, 2018). It lacks an examination of the impact of corporate governance, especially board composition on financial institutions" performance (Al Daoud et al, 2015;Abbadi et al, 2016;Al-Momani and Almomni, 2018).…”

“…The study results showed that corporate governance quality, as well as diversity, has a positive effect on the corporate dividend policy. Saidat et al (2019) study on family and nonfamily firms in Jordan showed that corporate governance mechanisms substantially impact the family firms" performance.…”

Board of Directors and Firm performance: the moderating effect of women directors

“…As a result, BOD could influence firm performance in many ways. Among them are corporate social responsibility (Sheela et al, 2016) and disclosure (Hussain, Rigoni & Orij, 2018;Omar & Amran, 2017), debt composition (Hussain, Ali, Thaker, & Ali, 2019) earning management (Abdullah, et al, 2018;, financial performance (Saidat, et al, 2019;Jubilee et al, 2018;Bhatt & Bhatt, 2017;Low et al, 2015), financial stability (Lassoued, 2018), investment (Badru et al, 2019), risk management (Poletti-Hughes & Briano-Turrent, 2019; Sanusi et al, 2017), stock market liquidity (Amer, Hussein, & Ali 2017), sustainability (Hussain et al, 2018), and tax aggressiveness (Kim & Zhang, 2016).…”

“…Among them are advice task (Westphal, 1999), control task (Daily, Dalton & Cannella, 2003), networking task service task (Åberg, 2019), and (Hillman & Dalziel, 2003), strategic participation task (Pugliese, Bezemer, Zattoni, Huse, Van Den Bosch, & Vol, 2009). Moreover, past studies showed BOD influences firm performance in various manners (Saidat, Silva, & Seaman, 2019;Jubilee, Khong, & Hung, 2018;Bhatt & Bhatt, 2017;Low, Roberts, & Whiting, 2015).…”