Investigating the influence of corporate governance on listed companies performance: evidence from the palestine stock exchange

Raed Abueid,Mukhtar Danladi Galadima,Ibrahim Muhammad Adam

doi:10.26524/jms.11.10

Raed Abueid, Mukhtar Danladi Galadima + Show 1 more

Open Access

https://doi.org/10.26524/jms.11.10

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Abstract

The purpose of this studyis to determine the relationship between corporate governance and return on equity (ROE);to examine the relationship between corporate governance and return on assets (ROA); and to analyze the relationship between corporate governance and earnings per share (EPS). To achieve the objective of the study, Fixed and Random Effect Models were employed to analyze the data.The findings revealed a negligible relationship between corporate governance and firm performance. However, when the study is controlled for financial leverage and total assets, a significant relationship between corporate governance and firm performance has been found.The practical implication of the results is that listed firms in Palestine should pay significant attention on enhancing the application of CG principles, uphold and ensure the board’s commitment to its responsibilities, and ensure that adequate disclosure procedures are in place including the evaluation mechanism used for assessing the performance of the board.Based on the findings, the study recommends that listed firms in Palestine should pay significant attention on enhancing the application of CG principles so as to better protect shareholder rights; uphold and ensure the board’s commitment to its responsibilities; and ensure that adequate disclosure procedures are in place including the evaluation mechanism used for assessing the performance of the board, its committees, and individual directors. Likewise, improving good CG practice should offer investor safety, reduce risk investment and sustain positive relationships between the company and its stakeholders which could result in higher growth in stock costs. It also recommends to the Palestinian Capital Market Authority (PCMA) to issue a stricter enforcement of CG legislation with special measures to be taken against those evading them.

Highlights

The worldwide spread of globalization, the conflict between company management and stockholders, and global financial scandals as well as the financial crises that took place in Asia in 1998 and in the USA during the third quarter of 2008 have all devastated the global financial markets
The analysis result from both fixed and random effect model are summarized in the table reveals that, while the Hausman test shows that random effect model is most suitable for the analysis of hypothesis one, and fixed effect is best suited for hypothesis 2 and 3, the result indicates that as far as the Palestine listed companies are concerned, the relationship between corporate governance and firm’s performance (ROE, return on assets (ROA), and earnings per share (EPS)) could not be established
This research intended to shed light on the extent to which corporate governance (CG) compliance impacts firm performance among Palestinian companies listed in the Palestine Stock Exchange (PSE)

Summary

1.INTRODUCTION

The worldwide spread of globalization, the conflict between company management and stockholders (agency theory results), and global financial scandals as well as the financial crises that took place in Asia in 1998 and in the USA during the third quarter of 2008 have all devastated the global financial markets. By highlighting the issues presently facing Palestinian firms in terms of CG practices, the study will, be of relevance to other stakeholders including regulators, teachers, the Corporate Governance Institute, companies indexed in the Palestine Securities Exchange (PSE) as well as policy makers in other Middle Eastern nations with comparable financial environments. CG can act as a powerful counterweight to the agency problem whilst maintaining the established order of board Both the above mentioned theories relate to thisstudy in such a way that it needs to investigate the influence of corporate governance on listed companies performance in the Palestine Stock Exchange (PSE). Being at risk of financial distress is only weakly related to CG practices. [36,37,38] To measure company performance and evaluate its relation with CG, researchers have used standards which include return on assets (ROA), return on equity (ROE), and income in line with share (earnings per share; EPS;). [39]

Data: Types and Sources

Findings

Conclusion and Recommendations