The Role of Country Governance on the Relationship between Firm Governance and Firm Performance: Evidence from Emerging Countries

Abstract

This study examines the moderating effect of country governance on the relationship between firm governance and firm performance in emerging countries. We employ a panel regression model on 21 emerging countries over the period 2007 to 2016. We find that poor firm governance is negatively linked to Tobin's Q, but positively linked to return on assets (ROA) and return on equity (ROE), while country governance has a consistent positive moderating effect on all three performance variables. Specific country governance dimensions include voice and accountability, government effectiveness, regulatory quality, the rule of law and control of corruption also have significant positive moderating effects. We further find that only a strong legal environment can compensate for the ineffectiveness of firm governance but not in a weak legal environment and only countries with strong country governance can positively affect firm value.

Driving Digital Transformation: Analyzing the Impact of Internet Banking on Profitability in the Saudi Arabian Banking Sector

“…Measurement of bank profitability has been a subject of controversy in the literature. While Laallam et al (2017) argue for Return on Equity (ROE) as the optimal measure, Qing et al (2020) suggest the alternative use of Return on Assets (ROA). Hernando and Nieto (2007) contest the use of ROA because of its sensitivity to industry variations and dependence on credit allocation thresholds, proposing ROE as a more robust measure.…”

“…Acknowledging this tradeoff, our study incorporates both ROE and ROA. Researchers highlight the importance of distinguishing between online banking modes, with a particular focus on the impact of how bank profitability is measured (Abde Latif Awwad and Abdallh Salem 2019; Laallam et al 2017;Qing et al 2020).…”