Boards of directors and firm performance: A study of non-financial listed firms on the Kuwait Stock Exchange

Mejbel Al-Saidi

doi:10.22495/cocv18i2art3

Abstract

Prior to 2017, there were no corporate governance rules in Kuwait. The previous rules were silent regarding boards of directors, shareholders’ rights, disclosure, and auditing. However, at the beginning of 2017, the Kuwaiti government introduced new governance rules and required all firms listed on the Kuwait Stock Exchange (KSE) to comply with these rules. This study examined the impact of boards of directors on firm performance following the implementation of these new rules using a sample of 89 non-financial listed firms from 2017 to 2019. The study used four board variables – namely, board size, board independence, family directors, and board diversity – and found that, based on Tobin’s results, board size, board independence, and board diversity significantly impact firm performance whereas the ROA results indicate that only family directors significantly impact firm performance

Highlights

Financial crises around the world beginning in 1997, the year of the Asian crisis, and extending to the current coronavirus pandemic have helped governments understand that strong corporate governance rules reduce the impact of these crises
In terms of family directors, this study argues that family directors positively impact firm performance, which is consistent with agency theory
The results indicate that board size positively impacts firm performance in a significant way based on Tobin’s Q (p < 0.05) and positively insignificantly impacts firm performance based on Return on assets (ROA) (p > 0.10)

Summary

Introduction

Financial crises around the world beginning in 1997, the year of the Asian crisis, and extending to the current coronavirus pandemic have helped governments understand that strong corporate governance rules reduce the impact of these crises. Having strong corporate governance rules will protect firms and economies in general in the face of financial crises. This study will examine the impact of boards of directors on firm performance from 2017 to 2019 using a sample of 89 non-financial listed firms. This period was selected because, prior to 2017, there were no governance rules in Kuwait, as documented in Appendix, Table A.1. The situation now is obviously different, and these changes provide this study with strong motivation to examine the impact of boards of directors on firm performance following the implementation of the new rules.

Methods

Results

Conclusion