The Impact of Corporate Governance on the Financial Performance of Listed Companies: Evidence from Saudi Arabia

Abstract

This study investigates the role of corporate governance regulations on the financial performance within listed companies in Saudi Arabia. 120 organisations were selected from Saudi Stock Exchange, Tadawul, over a period of four years between 2016 to 2019 for 565 observations. The data were gathered about the intendent variable of board independence, board size, board meeting, board interlocking, in addition to firm size and leverage as moderators. The independent variable was Tobin’s q. The result of this study shows that there is a negative relationship between board size and board interlocking on one hand and financial performance of the listed companies on the other hand. Other independent variables of independent directorships and frequency of board meeting were shown to have a positive effect on financial performance. The outcome of this study supports the theoretical foundations of stakeholder theory about the importance of reducing the monopoly of the agents (directors on board) over the decisions of the company. Such reduction of the effect of directors can be done through maximising the number of meetings accompanied by maximising the number of independent directors on board. Also, by reducing board interlocking, the influence of directors will shrink while increasing board size will slow down the process of taking decisions which affect companies’ performance.