Corporate Governance Mechanisms and Their Influence on Saudi Firm Performance

Abstract

This study explores the relationship between internal corporate governance mechanisms, specifically focusing on the board of directors and audit committee characteristics, and the performance of Saudi companies listed on the Saudi stock exchange in 2010, with the exclusion of financial companies. The findings of the study diverge from the predictions of agency theory, which suggests that the board of directors and audit committees play a role in reducing agency problems and minimizing agency costs by aligning the interests of controlling owners with those of the company. One notable result is that audit committee size shows a significant relationship with firm performance, although this relationship is in the opposite direction to what was anticipated. In contrast, other hypothesized variables, such as the proportion of non-executive directors, CEO duality, board size, audit committee independence, and audit committee meetings, were found to align with the expected directions but were not significantly related to firm performance. Additionally, the proportion of non-executive directors displayed a relationship opposite to the expected direction. Despite the lack of significant findings for most variables, the study highlights the complexity of corporate governance mechanisms and their varying effects on firm performance in the Saudi context.