Corporate Governance Mechanisms and Firms’ Performance: An Empirical Analysis of Firms Listed on the Saudi Stock Exchange

Abstract

This study examines whether implementation of internal CG mechanisms have affected the performance of non-financial firms listed on the Saudi stock exchange “Tadawul”, since the implementation of Saudi CG code. A cross-sectional regression analysis is employed on a sample of 118 non-financial Saudi firms in 2014, to test the hypotheses set out in the study. Board characteristics assessed include, board size, board composition, board meetings and CEO duality. Ownership structures include managerial and concentrated ownership. The study's empirical findings show board size and CEO duality, are amongst those board characteristics with a positive influence on firm performance. In the case of the second internal mechanisms of CG ownership structures, the findings suggest only managerial ownership positively affects performance. The study findings conclude that CG structures differ in every country, as each has its own social and regulations situation. The study contributes to existing literature about the CG in Saudi Arabia by reviewing the impact of CG practices eight years after the CGC. It enhances understanding among practitioners of CG, and explains how it influences firm performance in Saudi.