The impact of corporate governance and ownership structure on performance and financial decisions of firms : evidence from Jordan

Alwshah, Khaldoun Abd Allh Mahmoud

Abstract

The objective of this thesis is to investigate the role of corporate governance and agency conflicts in determining corporate performance, foreign investment and corporate financial decisions. For this purpose, it uses firm-level corporate governance and ownership data from Jordan. Jordan is an economy in which the prevailing corporate structures and regulatory mechanisms provide a data set that lends itself particularly well to the examination of these issues.

First, we provide a detailed and timely review of ownership and corporate governance structure characteristics for a unique database which we hand-collected from a sample of 519 firm-year observations of financial and non-financial Jordanian listed firms between 2004 and 2006. This work significantly contributes to the existing body of knowledge, by providing a detailed picture of firm-level corporate governance structures in Jordan as one of the Middle East and North African (MENA) countries.

Second, we investigate the relationship between internal corporate governance structure and firm performance. Our analysis reveals that traditional managerial agency explanations (i.e. conflict between managers and shareholders) do not appear to hold in the Jordanian context. Instead, the main agency concern for Jordanian firms seems to be the one between founding families and minority shareholders. Our findings support the view that CEO duality has an adverse effect on firm performance. However, CEO membership on the board and concentrated ownership tend to have a positive effect on company performance. The presence of strong foreign equity ownership in firms enhances their firm performance and complements the relatively weak monitoring by domestic institutional investors.

Third, we investigate the relationship between corporate governance and foreign investment decisions, by focusing on the influence of founding family ownership and control on foreign equity ownership. We document that founding family ownership and founding family control exert a significant influence on foreign investors‟ decisions. Our findings suggest that foreign investors are less likely to invest in Jordanian firms with higher founding family ownership and control. Institutional investors and board characteristics have a negative effect on foreign ownership. Additionally, we find that firms with greater growth potential and large firms seem to be more attractive to foreign investors and they avoid firms that pay high dividends.

Fourth, we analyse the potential links between corporate governance and corporate cash holdings. This work significantly contributes to the existing literature on cash holdings by investigating the impact of founding family ownership and large foreign ownership on corporate cash holdings. We find strong evidence that the levels of founding family ownership exert a significant influence on cash holding decisions of Jordanian firms. We document a non-linear relationship between founding family ownership and cash holdings. In addition, we provide evidence that the presence of large foreign investors leads to lower cash holdings. Finally, we detect that corporate cash holding is positively associated with market-to-book value and dividends and negatively associated with cash flow, leverage, size and tangibility.

Citation

Alwshah, K. A. A. M. The impact of corporate governance and ownership structure on performance and financial decisions of firms : evidence from Jordan. (Thesis). University of Hull. https://hull-repository.worktribe.com/output/4214216

• Thesis Type: Thesis
• Deposit Date: Jul 23, 2013
• Publicly Available Date: Feb 22, 2023
• Keywords: Business
• Public URL: https://hull-repository.worktribe.com/output/4214216
• Additional Information: Business School, The University of Hull
• Award Date: Jul 1, 2009