Ownership Structure, Board Attributes and Firms Financial Performance: Empirical Evidence from Saudi Arabia
Creators: name: Rajhi, Mohammed Hassan M
Publisher: name: RMIT University
Year: 2025
Subjects: classificationCode: 350202
subject: Finance
classificationCode: 350701
subject: Corporate governance

description: Although many studies have focused on diverse aspects of ownership and board structures, some limitations still exist. The vast bulk of these studies has been undertaken within the framework of developed markets; there is a lack of research about emerging markets, specifically the Saudi Arabian market. Several theories and studies have investigated ownership and board structures; however, no single theory can fully interpret the effect of ownership and board structures on firm performance. Specifically, empirical evidence demonstrates different and contradictory results and indicates that this relationship depends significantly on the country's setting. Since Saudi Arabia has unique cultural, economic and political features, this study aims to explore internal corporate governance mechanisms in Saudi Arabia by adopting multiple theoretical frameworks, including agency, stewardship and resource dependency theories.
This study seeks to examine the influence of ultimate ownership structure and board attributes on firm performance as measured by ROA (Return on Assets), ROE (Return on Equity) and Tobin's Q, focusing on government, family and royal ownership, CEO duality, board independence, and board committees. The study controlled for other corporate governance mechanisms such as board size, board meetings frequency and board ownership, and several firm characteristics, including firm size, age, leverage, capital expenditure and industry. To achieve this objective, the research used panel data from all non-financial listed firms in the Saudi stock market from 2006 to 2016 and employed pooled ordinary least squares and fixed effects regression methods and the two-step system generalised method-of-moments regression (sGMM). Although various approaches were applied, the results are generally consistent.
Specifically, the study found that government ownership positively affects firm performance measured by ROA, ROE and Tobin's Q. Family ownership negatively impacts Tobin's Q, but it has no significant influence on ROA and ROE. Similarly, royal ownership harms ROE and Tobin's Q, but it does not impact ROA. Interestingly, the family control structure is a significant factor in firm performance. The results indicated that firms controlled by a family with unequal control rights exhibited higher ROA and ROE than their counterpart (firms controlled by a family with equal control rights).
Regarding board attributes, the results revealed that CEO duality positively influences ROA and ROE but has no effect on Tobin's Q. In contrast, board independence is detrimental to ROA and ROE but has no impact on Tobin's Q. However, board independence influences the relationship between ownership structure and firm performance. The number of board committees is negatively related to Tobin's Q but has no connection with ROA and ROE. Also, firms with supportive board committees perform lower than those without. Finally, the revised corporate governance code (CGC) cannot mitigate the effects of ownership concentration, CEO duality, and board independence on firm performance, indicating that the GCC is still unsuited for the corporate environment in Saudi Arabia, probably because the CGC was initially taken from western cultures. 
A significant implication of this thesis is that the Saudi corporate governance code (CGC) should be updated to suit the Saudi business environment better. Generally, the CGC focuses on the quantity rather than the quality of the board members. The influence of social and cultural factors and large shareholders' domination of the board reduces the effectiveness of the CGC. The findings of this study provide practical implications for policymakers, companies, shareholders and investors in Saudi Arabia and other emerging markets with similar institutional settings, particularly in the Middle East and North Africa.