The Role of Corporate Governance Principles on Improving Market Performance

Abstract

Purpose: The study aims to clarify the role of corporate governance principles on improving market performance at Jordanian industrial sector by measuring the governance principles through board of directors members size (BSIZE), number of independent members (BCOMP), existence of an audit committee (AUDCOM), and ratio of institutional ownership (InstitOwn) while the market performance represented in dependent variable has been measured through modern indicators in evaluating market performance; such as market value added (MVA), economic value added (EVA) and return on assets (ROA), which considered one of the traditional indicators in evaluating market performance. Theoretical Framework: Due to the great role played by corporate governance on stabilizing financial markets, increasing the competitiveness of public shareholding companies by enhancing transparency, improving the financial performance of companies, and achieving a balance of interests between the company's management, shareholders, employees, creditors, and other related parties, which means reducing capital cost and the possibility of obtaining less expensive sources to finance company's future projects. Design/Methodology/Approach: The study sample consisted of (70) industrial companies that formulate (79%) of study population, during the study period of year 2022 Findings: The study results showed a statistically significant relationship between the market value added ratio of institutional ownership and return on assets, and nonexistence of statistically significant relationship between the institutional ownership ratio and economic value added. On the other hand, study showed no statistically significant relationship between the financial performance of industrial companies’ measures and the independent factors of board of directors’ size, number of independent members, and the presence of auditing committee. Research, Practical & Social Implications: The study relied on multiple regression analysis models to identify most important variables that govern companies’ performance.