The effect of corporate governance characteristics on performance and capital structure: an empirical study of Saudi listed companies

AlJanoubi, Sara (2019) The effect of corporate governance characteristics on performance and capital structure: an empirical study of Saudi listed companies. PhD thesis, Middlesex University. [Thesis]

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This thesis examines corporate governance in Saudi listed companies. Specifically, three main topics are empirically examined: the relationship between board structure and performance, the relationship between ownership structure and performance and the determinants of capital structure with respect to corporate governance.

Saudi Arabia is a special case in which companies do not pay income tax and the bond market is illiquid and in its early stages. Ownership is concentrated and based on wealthy families and the government. Furthermore, the Saudi society has some distinctive features such as the strong relationship between family members, furthermore, a significant number of shares are owned by some wealthy families and the government. Therefore, this thesis attempts to reflect these social aspects into examining the performance and the financing decisions of Saudi listed firms. Furthermore, bank connection is a new variable that has not been examined before, it is an important feature in the Saudi markets as it represents the connection of listed companies with banks and it will be used in this thesis to measure the effect of this connection on the level of leverage.*

The sample of analysis is comprehensive, it includes all non-financial listed companies on Saudi stock exchange (TADAWUL) covering a six-year period from 2009-2014, following the most recent revision of the Saudi corporate governance code in 2009. The analysis is done by applying three different econometric techniques including ordinary least squares, fixed-effects and system generalized method of moments. Ordinary least squares and fixed-effects are applied to compare the findings with previous studies as those studies have applied those models. Hence, this thesis applies the ordinary least squares and the fixed-effects models to compare our results with previous studies in order to verify our sample data. Furthermore, dynamic system generalized method of moments is also applied as the main model to control for endogeneity since it has been argued that controlling for endogeneity would present different results. Furthermore, the relationship between corporate governance and performance in addition to the determinants of capital structure is revised using the generalized method of moments technique to control for endogeneity.

Based on the generalized method of moments, board characteristics do not affect performance and this could be due to the inapplicability in the Saudi corporate governance code in defining independent directors. Also, there is no relationship between insider, government and institutional ownership, and performance whereas family ownership produces significant and cubic relationship with performance. In term of the determinants of capital structure, the results show that liquidity, tangibility and firm size positively affect leverage. Profitability and growth have insignificant effects on leverage. Government ownership has significant negative effect on leverage only in companies where family ownership is controlled for. Insider, family and institutional ownership do not affect the level of debt. Bank connection has a significant positive impact on leverage; this suggests that when a board member is also a member on a bank’s board, it might render getting debt from the bank.

* More details on the variable are found in chapter 5

Item Type: Thesis (PhD)
Research Areas: A. > Business School
B. > Theses
Item ID: 26409
Depositing User: Brigitte Joerg
Date Deposited: 16 Apr 2019 09:14
Last Modified: 29 Nov 2022 19:19

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