Board of directors and financial performance: the role of risk management in Palestinian-listed companies

Abstract

PurposeThis study aims to investigate the effect of the board of directors on financial performance, either directly or indirectly through the existence of risk management after the issuance of the Palestinian Code on Corporate Governance (PCCG) in Palestine.Design/methodology/approachThis study presents an empirical investigation of 31 nonfinancial Palestinian-listed companies from 2010 to 2016. This study utilizes the structural equation modeling (SEM) model.FindingsThe results of the SEM model find that there is a significant positive effect of the existence of risk management and the tenure-Chief Executive Officer (CEO) on financial performance. However, CEO duality has a significant negative effect on financial performance. The results also find that the effect of CEO duality and board size are significantly positive on financial performance through the existence of risk management.Research limitations/implicationsThis study adds to the existing literature by investigating the effect of the board of directors on financial performance, either directly or indirectly through the existence of risk management in Palestine as one of the youngest stock exchanges in the region that assists in testing the validity of agency theory in a young and small emerging Islamic market context.Practical implicationsThe results of this paper are significant to shareholders and managers of companies to make proper choices in order to secure the interests of stakeholders and increase the flow of capital and foreign investment.Originality/valueTo the best of the authors’ knowledge, it is one of the first papers to investigate the effect of the board of directors and financial performance, either directly or indirectly through the existence of risk management in Palestine.