Internal Corporate Governance Mechanisms and Firm Performance: Evidence from GCC Countries

Abstract

Across three empirical studies, this thesis investigates the relationship between internal corporate governance mechanisms and firm performance, measured by Tobin‟s Q and market to book value of total equity, in the six Gulf Co-operation Council (GCC) countries. The thesis is motivated by central theories of corporate governance, several gaps in the literature, and the recent rapid growth of the GCC stock markets. The research employs data samples covering all GCC listed companies between the years 2012 and 2016, for which data are available. The first empirical study investigates the impact of overall ownership concentration on firm performance and finds a significant positive impact. As the objectives of share ownership vary by owner identity, ownership concentration is divided into four identity categories, namely: government, institutional, corporate, and individual/family. While government ownership concentration is found to have a significant negative performance effect, institutional ownership concentration, corporate ownership concentration, and individual/family ownership concentration are all found to have a significant positive performance effect. The second empirical study examines the effect of five board characteristics on firm performance. The results indicate that board activity and CEO duality do not have a significant effect on firm performance, while board size and board remuneration have a significant positive effect on firm performance. In contrast, board independence is found to have a negative performance effect. The relationships between the main variables in the first two studies suffer from endogeneity, reverse causality bias in particular, and this is controlled for with an instrumental variables approach, using a two-stage least squares estimator. In the third study, endogeneity bias is caused by unobserved heterogeneity, and this is controlled for using a two-way fixed effects estimator. The third empirical study investigates the impact of founder ownership concentration and founder board of director presence on firm performance. The results indicate that founder ownership concentration has no significant effect on firm performance when the founders are the government, institutions, or mixed. However, family founder ownership concentration has a significant positive performance effect, and royal family founder ownership concentration has a significant negative performance effect. The presence of family founders and royal family founders on boards of directors is found to have no significant effect on firm performance. Notably, the third empirical study contributes to the corporate governance field of research in general by introducing the dimensions of royal family founder ownership and royal family founder board of director presence.