Abstract
This paper examines the relationship between corporate governance and firms’ performance (stock returns) in the emerging market. The paper fills the need for empirical evidence on governance issues in the scarce emerging markets compared to the developed world. Exploiting a unique dataset on the corporate governance index for the largest 90 companies listed on the Saudi stock market, we construct two portfolios. We compare the performance of good governed companies and poorly governed firms. We find that good governed portfolio outperforms the poor one. Nevertheless, regression results do not show any association between corporate governance score and performance. We interpret this as weak evidence for the link between corporate governance and firms’ performance.
Highlights
Corporate governance topic dominates the management literature for the past fifteen years and it is growing continuously
The main objective of this paper is to examine the relationship between corporate governance and stock returns in the emerging market
This paper examines the relationship between corporate governance scores and stock returns in the emerging market
Summary
Corporate governance topic dominates the management literature for the past fifteen years and it is growing continuously. There is a massive body of literature examines the relationship between corporate governance and firms performance. Gompers, Ishii and Metrick (2003) examine the association between corporate governance and stock returns and find that corporations with better shareholders rights outperform firms with weak shareholders rights by 8.5% in the 90s. Kouwenberg, Salomons and Thontirawong (2013) argue that firms with poor governance should have a higher risk and higher returns. They find that firms in Asia which are poorly governed have higher beta, higher expected returns and higher realized returns compared to good governed firms
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