Corporate governance and firm performance: empirical evidence from Jordan

Ahmad Yuosef Alodat, Zalailah Salleh, Hafiza Aishah Hashim and Farizah Sulong

Journal of Financial Reporting and Accounting, 2021, vol. 20, issue 5, 866-896

Abstract: Purpose - This study aims to assess the effect of director board and audit committee attributes and ownership structure on firm performance. In general, resource dependency and agency theories have underlined the superior performance of firms equipped with stronger Corporate Governance (CG) versus those of deficient governance. Concurrently, the study delineated the provisions of ownership structure provision, specifically foreign ownership and institutional ownerships, thus describing the component denoting the structural significance in explicating firm performance. Design/methodology/approach - The current study implemented an empirical approach involving the construction of extensive CG measures thus, subjected to 81 non-financial firms listed on the Amman Stock Exchange spanning the period of 2014–2018. Findings - The current study identified the positive and significant relationship between the board of directors and audit committee characteristics with the firm performance measures tested, namely, return on equity (ROE) and Tobin’s Q. In terms of ownership structure, both foreign and institutional ownerships yielded a significant and positive relationship with ROE. Meanwhile, Tobin’s Q led to an insignificant and negative relationship between both ownership types and firm performance measures. Practical implications - The analytical outcomes substantiate the possibility of enhanced performance shown by growing global firms because of the implementation of CG mechanisms, specifically because of the practices resulting in minimised agency costs. Originality/value - The current study offers novel evidence detailing the impact of CG effectiveness towards performance and its implementation in emerging markets following the minimal amount of scholarly efforts on the topic. It is a timely contribution towards the current understanding of the relationship linking governance and performance for the purpose of ensuring the adoption and imposition of a strong corporate governance code by the government.

Keywords: Corporate governance; Jordan; Board effectiveness; Agency theory; Resource dependency theory; Audit committee effectiveness (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrapp:jfra-12-2020-0361

DOI: 10.1108/JFRA-12-2020-0361

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