The Impact of Contextualizing Board Structure on Firm Financial Performance in an Emerging Market

  • Madi M Almadi RMIT University

Abstract

The impact of the emerging markets context has been largely neglected in mainstream corporate governance research. The purpose of this paper is to conduct the first empirical study that investigates the relationship between board structure and firm financial performance through bundling theory with contextual considerations for economic, political, and social elements of the emerging Saudi Arabian market. This study uses archival data from a longitudinal sample of all listed firms in the Saudi market for years 2009 to 2013, taking into account the risks of endogeneity bias to OLS regression. The paper found that outside directors from a privileged regional background and government representative directors on the board of companies predict a better return on assets, while outside directors from the ruling royal family positively influence corporate performance only when they are joined by government representative directors. Integration between theory and context provided a more accurate diagnosis of board phenomena in Saudi Arabia. Optimising the recognition of board members by utilising informal institutions determines the actual boardroom players who influence firm profitability. Such an approach involves significant implications for corporate governance theories and practices. Whether this holds in the context of other emerging markets is an area worthy of further investigation. Keywords: Board Structure, Contextual Consideration, Firm Financial Performance, Emerging Markets, Saudi Arabia To cite this document: Madi M Almadi, "The Impact of Contextualizing Board Structure on Firm Financial Performance in an Emerging Market", Contemporary Management Research, Vol.12, No.4, pp. 409-434, 2016. Permanent link to this document: http://dx.doi.org/10.7903/cmr.15752

Author Biography

Madi M Almadi, RMIT University
PhD candidate Graduate School of Business and Law RMIT University
Published
2016-12-05
How to Cite
Almadi, M. (2016). The Impact of Contextualizing Board Structure on Firm Financial Performance in an Emerging Market. Contemporary Management Research, 12(4). https://doi.org/10.7903/cmr.15752
Section
10: Other contemporary management issues