Title: How corporate governance affect firm value and profitability? Evidence from Saudi financial and non-financial listed firms

Authors: Ali M. Gerged; Ahmed Agwili

Addresses: Accounting and Finance Department, Leicester Castle Business School, De Montfort University, The Gateway, Leicester, LE1 9BH, UK; Faculty of Economics, Misurata University, Misurata City, P.O. Box 2478, Libya ' Accounting, Finance, and Economic Department, Huddersfield Business School, University of Huddersfield, Queensgate, Huddersfield HD1 3DH, UK

Abstract: This paper investigates the possible effects of corporate governance (CG) mechanisms on the firm market and accounting value (FV) in Saudi Arabia after the 2011 CG reforms using a sample of 300 annual reports of financial and non-financial companies listed on Tadawul from 2012 to 2016. Our results are suggestive of heterogeneous effects of CG mechanisms on firm value and profitability in that they might have either encouraged or discouraged FV in Saudi Arabia. This means that, averagely, better-governed firms tend to achieve better market value, but not necessarily a better accounting value. Our findings indicate that implementing a voluntary 'comply-or-explain' CG regime in Saudi Arabia has, so far, a limited impact on FV. This implies that developing other enforcement mechanisms for CG provisions, such as appending good CG practices to listing rules for companies to comply with, might lead to better financial results for those well-governed companies in Saudi Arabia. Despite the limitations, it is hoped that our study can inspire further examinations in this research area.

Keywords: corporate governance; firm value; panel data; profitability; Saudi Arabia; Tadawul.

DOI: 10.1504/IJBGE.2020.106338

International Journal of Business Governance and Ethics, 2020 Vol.14 No.2, pp.144 - 165

Received: 29 Jun 2018
Accepted: 06 Jun 2019
Published online: 02 Apr 2020 *

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