The Impact of Corporate Governance on Firm Performance: Evidence from the UAE

Abstract

This study seeks to examine the relationship between corporate governance and firm performance of companies listed in Abu Dhabi stock exchange. It is argued in this paper that strong corporate governance mechanisms are expected to have a positive impact on performance measures.

The dataset is drawn from the Abu Dhabi exchange Shareholding Company’s guide for years 2007-2011.The study uses pooled regression analysis on 281 firm/year observations.In this regard, two measures of firm performance are used; Tobin’s Q score and Return on Assets (ROA), on the other hand independent variables include institutional ownership, governmental ownership, board size, and audit quality. The study controls for the relationship between the dependent and independent variables by including firm size, debt ratio, dividend yield, and age as control variables.

Results showed significant positive impact of corporate governance measures on firm performance (except for Audit quality). Results obtained inthis research paper provide further evidence on the importance of corporate governance mechanisms on stock market participants’ valuation of listed companies. In addition, it makes us understand to some extent the attitudes of shareholders toward good corporate governance practices.The importance of this research paper stems from the fact that it is conducted in an emerging economy which has recently adopted a corporate governance code. In this regard, the UAE has put into action the new corporate governance code on 2007 and made it mandatory on all listed companies as on 2010, the current study focus on this period. As far as the current researcher is aware of, prior studies conducted in the UAE context were cross-sectional in nature and conducted before the implementation of the new code.

Key words: Corporate Governance, Firm Performance, Ownership Structure, Emerging Markets.