The Impact of Contextualizing Board Structure on Firm Financial Performance in an Emerging Market

Abstract

The impact of the emerging markets context has been largely neglected in mainstream corporate governance research. The purpose of this paper is to conduct the first empirical study that investigates the relationship between board structure and firm financial performance through bundling theory with contextual considerations for economic, political, and social elements of the emerging Saudi Arabian market. This study uses archival data from a longitudinal sample of all listed firms in the Saudi market for years 2009 to 2013, taking into account the risks of endogeneity bias to OLS regression. The paper found that outside directors from a privileged regional background and government representative directors on the board of companies predict a better return on assets, while outside directors from the ruling royal family positively influence corporate performance only when they are joined by government representative directors. Integration between theory and context provided a more accurate diagnosis of board phenomena in Saudi Arabia. Optimising the recognition of board members by utilising informal institutions determines the actual boardroom players who influence firm profitability. Such an approach involves significant implications for corporate governance theories and practices. Whether this holds in the context of other emerging markets is an area worthy of further investigation.

Readability, governance and performance: a test of the obfuscation hypothesis in Qatari listed firms

“…Board size, board composition and ownership structure have garnered a significant amount of attention in their effects on a firm’s disclosure and performance (Migliardo and Forgione, 2018; Elmagrhi et al , 2018; Hanafi et al , 2018; Ali, 2018; Almadi, 2016; Haniffa and Cooke, 2002; Cheng and Courtenay, 2006; Ghazali, 2010; Hassan and Halbouni, 2013). Therefore, our study controls for these variables’ confounding influences on the dependent variables.…”

Ranking of Corporate Governance Dimensions: A Delphi Study

“…Chancharat et al (2019) and Umrani et al (2017) found that board structure attributes have positively related to firm performance. According to Almadi (2016), optimising board member recognition through informal institutions determines the actual boardroom players who influence firm profitability. Businesses that have a larger board structure, more independent directors, executive directors, prevent CEO duality, have a CFO chair, hold regular meetings, and have an effective board can perform better and lead to the application of strong corporate governance principles (MCCG 2021).…”

How Formal and Informal Institutional Environments Affect the Way Greenpeace Fights Genetically-Modified Organisms in Europe and the United States

“…The formal institutional dimension includes the political process from which the rules and regulations originate (Hillman & Keim, 1995) and the enforcement of the rules (Meyer et al, 2009). The informal institutional dimension includes acceptable behaviors, customs, and internalized beliefs of social actors, and both formal and informal institutional pressures may constrain strategic choice and behavior (Almadi, 2016;Hiatt & Park, 2013;Peng 2002Peng , 2003Peng , 2014.…”

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