Corporate governance and firm performance: Evidence from an emerging market

Ahmed S Alanazi

doi:10.22495/rgcv9i1p4

Abstract

The paper investigates the link between corporate governance scores and firm performance among the largest 90 listed companies on the Saudi Stock market. The sample of 90 listed firms is split into two samples: firms with high governance scores and firms with low governance scores. The research compares and contrasts the operating performance of the two samples. In addition, regression models are used to test the link between governance scores and performance. No link between the companies’ corporate governance scores and operating performance is found. It is difficult to capture all elements of the complex corporate governance topic in corporate governance scores. It seems that corporate governance in emerging markets lags far behind that of developed markets. This is the first paper to examine the link between corporate governance scores and operating performance in the Saudi market, a new emerging market that has not been examined. The paper adds to the debate in the literature whether there is a link between corporate governance scores and performance. The evidence in the literature is inconclusive.

Highlights

Good corporate governance is considered to have a considerable impact on economic growth and companies’ performance
This paper aims to fill the gap by investigating the link between corporate governance and firm operating performance in Saudi Arabia, an emerging market
The main research question is as follows: Is there a link between corporate governance and firms operating performance? Exploiting a unique data set from the Saudi Stock market (Tadawul) for the Corporate Governance Index, the paper examines the relation between the index scores and firm performance

Summary

Introduction

Good corporate governance is considered to have a considerable impact on economic growth and companies’ performance. Claessens and Yourtoglu (2013) highlight the need for much research on corporate governance in emerging and developing markets. Studies on corporate governance in emerging markets are scarce compared to developed economies (Arura & Bodhanwala, 2018). This is a clear gap in the corporate governance literature. This paper aims to fill the gap by investigating the link between corporate governance and firm operating performance in Saudi Arabia, an emerging market. The main research question is as follows: Is there a link between corporate governance and firms operating performance? Exploiting a unique data set from the Saudi Stock market (Tadawul) for the Corporate Governance Index, the paper examines the relation between the index scores and firm performance The main research question is as follows: Is there a link between corporate governance and firms operating performance? Exploiting a unique data set from the Saudi Stock market (Tadawul) for the Corporate Governance Index, the paper examines the relation between the index scores and firm performance

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Conclusion