Corporate governance in the GCC countries: Empirical assessment using conventional and non-conventional indices

Rekha R. Pillai and Husam-Aldin Nizar Al-Malkawi
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Husam-Aldin Nizar Al-Malkawi: Emirates Aviation University, Dubai, United Arab Emirates

Journal of Developing Areas, 2016, vol. 50, issue 6, 69-88

Abstract: The current study focuses on assessing the quality of corporate governance (CG) in the Gulf Cooperation Council (GCC) countries using conventional and non-conventional indices. The purpose of this paper is threefold. Firstly, to extend the conventional equally-weighted Corporate Governance Index (CGI) developed in Al-Malkawi, Pillai and Bhatti (2014) to include both financial and non-financial companies listed in the GCC stock markets, as the former study limited its CGI application to the non-financial companies. Secondly, apart from computing the CGI for all GCC companies, the present research applies a non-conventional Corporate Governance Deviation Index (CGDI), the first attempt of its kind in the GCC setting, proposed by Fan and Yu (2012) to further underpin the results obtained by the CGI and to provide another dimension to comprehend the governance quality of the GCC countries. Finally, the paper also makes an effort to investigate if any differences persist in CG adherence levels between financial (FIN) and non-financial (NFIN) companies. The result shows that most of the firms operating in the GCC countries adhere to factors considered as ideal for ensuring proper disclosure, board effectiveness and shareholders rights. The outcome of the un-weighted CGI indicates that the UAE tops the position, among the GCC countries, as the country best adopting the internal governance mechanisms studied followed by Oman and Saudi Arabia, respectively. Furthermore, the CGDI result affirms that a higher governance score leads to a lower deviation index and vice versa. The paper also observes that there is a statistically significant difference in CG adherence levels between FIN and NFIN in the GCC setting, with FIN displaying higher levels of CG compliance than NFIN. The findings of this study provide some important implications for managers, policy makers and future research.

Keywords: corporate governance index (CGI); corporate governance deviation index (CGDI); GCC countries (search for similar items in EconPapers)
JEL-codes: G30 G34 G38 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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