Essays on corporate governance in Saudi Arabia

  • Mamdouh Abdulaziz Saleh Al-Faryan

Student thesis: Doctoral Thesis


This thesis includes four studies on corporate governance in Saudi Arabia. Specifically, these studies (corresponding to four chapters) focus on corporate governance developments and how they influence the corporate landscape of Saudi Arabia. The key motivation in conducting this study is to fill a gap in the literature, which has largely overlooked the issues addressed in this thesis. The research aims and objectives are divided among the four empirical chapters. The first chapter investigates the efficiency of the Saudi Stock Exchange, the impact of corporate governance changes on its institutional structure, and whether corporate governance matters to the development and efficiency of the stock market. Using several methodologies, the findings affirm that the Saudi stock market is informationally inefficient, although the findings from both weekly and monthly data indicate a slight improvement in market efficiency over the period during which the Corporate Governance Code was implemented, which suggests that corporate governance is significant. The second chapter examines the determinants of the ownership concentration and structure in Saudi Arabia, a key external governance mechanism. These were studied using a model of three key endogenous factors, which are well-known in the literature to impact ownership: firm size, systematic regulation, and instability. The empirical findings indicate that, for the majority of ownership structures, firm size, regulation, and instability affect the existing ownership structure. Size is shown to have a positive effect on ownership concentration, while instability had some effect on ownership concentration and structure when using a non-linear specification, particularly for firm-specific instability. However, the effect was stronger when the instability measure was accounting for profit returns. The findings also indicate that government-owned firms were mainly affected by regulations, while diffused-owned firms were primarily affected by instability, more so than non-government owned ones. The third chapter addresses the main internal corporate governance mechanisms – the board of directors, board independence, managerial pay, and their relationship with firm performance, in addition to the effect of the 2009 exogenous regulatory shock for board independence to learn if they had an impact on firm performance. This chapter uses five empirical methods to account for endogeneity issues: RE, FE, DID, dynamic GMM, and 2SLS. The results show that the board composition–performance relationship is endogenous, with strong evidence found in the dynamic GMM estimation. This indicates that board composition has a positive relationship with ROA, while the poor past performance of listed firms had a negative impact on the current performance level. The DID approach showed a positive relationship between board composition, stock returns, and Tobin’s Q. Using the RE and FE methods, managerial had a positive relationship with firm performance. However, when endogeneity is considered under the dynamic GMM method, a smaller and positive relationships with performance and a fall in significance levels resulted. The results based on the IV-2SLS method show the CEO’s and top executives’ pay has a more significant positive relationship with performance relative to RE and FE models. The final chapter investigates the effectiveness of corporate governance as a whole and examines the relationship between CEO turnover and firm performance using various methods. The results indicate that CEO turnover is negatively related to firm performance; these were robust in distinguishing between voluntary and forced dismissals, which reaffirmed the negative turnover-performance sensitivity. The findings also show that CEOs with less than 5% of company shares faced a greater likelihood of dismissal, while the positions of CEOs with larger shareholdings were better entrenched. Finally, CEOs in government-owned firms faced higher performance-related turnover, while those in family or foreign firms displayed no relationship.
Date of Award2019
Original languageEnglish
SupervisorEverton Dockery (Supervisor), Arief Daynes (Supervisor) & Paraskevas Pagas (Supervisor)

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