Corporate Governance and Corporate Performance: Evidence from Jordanian Family and Non-Family Firms
Corporate governance and corporate performance are two concepts that have been extensively examined in finance and management literature. However, most studies have been conducted in developed countries, particularly the UK and the US, while there is relatively little work carried out on the Middle East, specifically Jordan. Many Jordanian companies are characterised by concentrated ownership (generally family firms), which forms a considerable part of its economy (ROSC Jordan, 2004). Few researchers have examined family firms’ performance from a corporate governance perspective. This study investigates the influence of corporate governance on the performance of Jordanian family and non-family firms from 2009 to 2015, employing agency theory and resource-dependency theory to investigate the relationship between corporate governance and performance of family and non-family firms. Agency theory is concerned with problem of agency between principals and agents as well as principals and principals, which undermines value maximisation. Due to complexity within the corporate governance and performance phenomena, agency theory is supplemented with predictions from resource dependence theory, since this theory asserts that the resources provided by the shareholders and the directors are likely to improve performance. It has been suggested that the board of directors and ownership structure are effective corporate governance mechanisms to improve firm performance. Multivariate pooled-OLS regression analyses were the main tool of analysis. Secondary data obtained from published firm annual reports, firm financial reports and the Thomson One database was analysed to test the effect that board of directors and ownership structure have on corporate performance and the performance of family firms. To ensure confidence in these estimates, this thesis uses two-stage least squares (2SLS) to address the issues of endogeneity. The focus of the investigation was firms listed on the Amman Stock Exchange (ASE). The dataset is a panel of all firms on the ASE from 2009 to 2015, excluding financial firms with a sample of 103 firms, including 56 family-firms (about 55%) and 47 non-family firms. Major findings include (i) board mechanisms; board size, independent directors and family CEO negatively influence family firm performance while CEO duality tends to have a positive effect on performance, (ii) female board member, ownership concentration and local institutional investors have no effect on corporate performance, (iii) in non-family firms, there are positive relationships between governance mechanisms (independent directors and local institutional investors) and corporate performance. However, board size and concentrated ownership have no effect on performance, (iv) female board member has a negative effect, and (v) the proportion of foreign shareholders has a positive effect on the performance of family and non-family firms. Overall, there is a difference between the impact of corporate governance mechanisms on family and non-family firms’ performance. In terms of practical implications, this study illustrates (i) The importance of corporate governance in the broader sense, especially in emerging economies such as Jordan, where ownership is concentrated in Jordanian companies; (ii) signs policymakers and regulatory bodies can use to monitor companies that are more likely to confiscate investors and/or introduce governance problems; (iii) a potentially productive method for professional investors to select companies with superior governance structures and performance to improve returns on their investments, particularly in the long term.