The Effect of Corporate Governance on Operating Performance of Jordanian Manufacturing Companies : Evidence from Amman Stock Exchange

Abstract

This study empirically examines the relationship between corporate governance mechanisms and firm performance using Return on Assets, Return on Equity, Total Assets Turnover ratio and Inventory Turnover ratio as performance measures. The population of this study consists of manufacturing companies listed in the Amman stock exchange; the total number of companies was 94 manufacturing companies. A sample of 69 industrial companies listed in Amman stock exchange for a period of five years from 2005-2009 are examined. Panel data methodology is employed; the method of analysis is multiple regressions and the method of estimation is OLS. This study mainly studied the effect of largest shareholders, foreign ownership, and state ownership, the separation between chairman of the board and the Chief executive officer (CEO) and the total number of the board members. The results of the study revealed that the performance of the companies measured by Return on Assets, Return on Equity, Total Assets Turnover and inventory turnover ratio is significantly positively affected by the corporate governance mechanisms. Further investigation is recommended to study the effect of other corporate governance mechanisms, the regulatory bodies should be aware of duality between CEO and chairman, and finally the corporate governance principles should become mandatory due to their importance