The role of corporate governance strength in crisis and non-crisis times

Abstract

ABSTRACTThis study evaluates corporate governance practices of listed firms in the United Arab Emirates and investigates whether corporate governance mitigates/exacerbates the impact of leverage and risk on firm performance during crisis and non-crisis times. The study constructs a corporate governance index not only to examine the dispute of the role of corporate governance during the crisis but also its influence on other factors that fuelled the crisis. A firm-level panel data is used that spans the period 2008–2012 of all listed firms on Abu Dhabi Securities Exchange (ADX) and Dubai Financial Market (DFM). The study finds a positive influence of corporate governance strength on the accounting performance, but a negative influence on the firms’ economic performance. In normal times, corporate governance mitigates the negative influence of leverage and risk on the accounting and economic firm performance. However, this synergy effect varies across performance indicators during crisis.