Can ownership structure and board characteristics affect firm performance?

Nisreen Al-Qatanani,Youssef Abu Siam

doi:10.5267/j.ac.2021.4.006

Abstract

This research aimed to examine the association between board of directors’ characteristics as a composite measure, the performance of companies in Jordan and the influence of family ownership on this association. Using data on industrial companies indexed on the Amman Stock Exchange (ASE) from 2013 to 2017, a positive association between board characteristics and company performance was found, indicating that higher board effectiveness is associated with more effective monitoring of management behavior. In addition, the association between board characteristics and company performance was strong when there was an interaction with family ownership, as companies with boards with family members achieve higher performance than companies with boards run by external directors. The study findings could be useful to all regulators seeking to improve the quality of monitoring mechanism practices, especially in emerging economies.

Highlights

In response to recent economic crises and corporate scandals, a great deal of effort has been made to issue regulations and reforms that could help prevent such crises in the future
The present study aimed to investigate the influence of board characteristics as a composite measure capturing the combined impact of these characteristics on company performance
family ownership (FO) was studied as a moderate variable on the association between board characteristics as a composite measure and company performance in Jordan

Summary

Introduction

In response to recent economic crises and corporate scandals, a great deal of effort has been made to issue regulations and reforms that could help prevent such crises in the future. The present study used a composite measure to try to understand the influence of four board characteristics (board independence, board size, financial expertise, and board meetings) on company performance. Numerous recent studies have drawn attention to the second (and most prevalent) type of agency problem in which the majority shareholders seek to obtain special incentives and benefits by confiscating the rights of the minority shareholders (Chobpichien et al, 2008). This is an issue of concern in many countries, especially emerging countries, which feature a more centralized ownership structure and poor legal protection for small shareholders (Idris et al, 2018a).

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