Correlations Between Corporate Governance, Financial Performance, and Market Value

• Main Author: Darweesh, Mohamed Saleh
• Format: Others
• Language: en
• Published: ScholarWorks 2015
• Subjects: corporate governance; corporate governance mechanisms; corporate governance theories; financial performance; market value; publicly listed companies; Finance and Financial Management
• Online Access: https://scholarworks.waldenu.edu/dissertations/1618; https://scholarworks.waldenu.edu/cgi/viewcontent.cgi?article=2617&context=dissertations

Corporate governance can play a significant role in financial market stability and economic development. Corporate governance scholars have provided controversial results with respect to the relationships between corporate governance and both corporate financial performance and market value. Based on agency theory and institutional theory, the purpose of this correlational study was to investigate the relationship between corporate governance mechanisms, financial performance, and market value in Kingdom of Saudi Arabia's 116 firms from 2010 to 2014. Financial performance was measured by return on assets and return on equity, while market value was measured by Tobin's q. Corporate governance mechanisms involved in this study were board size, board independence, board committees, ownership structure, and executive compensation. The financial statements and corporate governance mechanisms collected from the websites of sampled firms and the Saudi stock market (Tadawul). The findings of multiple regression tests revealed a statistically significant relationship between corporate governance mechanisms and both corporate financial performance and market value. This study may contribute to social change by building confidence in the Saudi capital market and improving the lives of stakeholders and community in general. The results may help business leaders understand the influence of corporate governance on their firms' success and the country's growth. Academic researchers, investors, regulatory bodies, practitioners, and experts in the area of corporate governance may benefit as well.