Corporate Governance and Financial Firm Performance: Evidences from Jordan

Abstract

Based on a sample of 105 listed companies in the financial sector on Amman Stock Exchange market over the period 2011 to 2013, this paper investigates the relationship between several attributes of corporate governance namely: board size, duality CEO, board experience, board independence, audit committee and managerial ownership, and financial firm performance. The results show that ownership structure and board composition have a strong impact on the financial companies' performance. Results indicate that financial firm performance with board independence has the highest performance and that as board size and board expertise increase the financial firm performance becomes more efficient. Furthermore, managerial ownership percentage has negative effect on financial firm performance.More interestingly, the current study used several sensitivity tests to verify the results and to provide further support for the main findings of this paper. The sensitivity tests are conducted as ways to mitigate the problems of endogeneity that can bias the interpretation of the results. The first set of tests estimated proposed model by using alternative measure of financial firm performance, including ROE and Tobin's Q, as both measures have been suggested by previous studies to influence the level of financial firm performance. However, the results which obtained by these analysis are similar to ones reported for the main analyze. This paper attempts add some valuable empirical evidence to the literature on Jordanian financial firm performance, helping to have an insight understanding of a significant determinant mostly associated with firm performance, namely corporate governance. According to the understanding of the importance of the existence of effective corporate governance mechanism in monitoring financial firm values, much progress and actions have to take place in Jordan to enhance the protection of financial firm ' shareholders and stakeholders' interests. Based on pertinent literature and empirical findings in other countries, this paper contributes to the financial firm performance literature in Jordanian context by investigating the relationship between performance and corporate governance mechanism in the financial sector, thus, provides an opportunity to look at various parts of the firm governance framework and the financial incentives that influence managers and owners.

Keywords: Corporate governance, Financial firms performance; Board size, Board Independence, Audit committee; Jordan.