The impact of board independence and foreign ownership on financial and social performance of firms: evidence from the UAE

Abstract

PurposeThis study examines the impact of two different types of foreign ownership—by Arab and non-Arab investors on firms' financial and social performance. It then goes on to investigate how the degree of board independence affects the aforementioned relationship between these two types of foreign investors on firm performance.Design/methodology/approachThe sample for the study is a panel of all listed firms in the Dubai Financial Market (DFM) and the Abu Dhabi Securities exchange (ADX) from 2008 to 2012.FindingsResults indicate that while Arab foreign ownership affects firms' financial and social performance negatively, non-Arab foreign ownership does so, positively. Further tests indicate that board independence weakens the negative relationship between firm financial and social performance with foreign Arab ownership and deteriorate the relationship between firm financial and social performance and non-Arab foreign ownership.Research limitations/implicationsFuture studies may extend the coverage of the study by including other countries in the region and other identities of the foreign investors.Practical implicationsThis study may help policy makers in the UAE to improve the implementation and enforcement of existing regulations concerning corporate social responsibility (CSR) and board independence. It also highlights the need to look into the monitoring role of independent board members.Originality/valueThis is the first study to examine the role of board independence on the relationship between foreign ownership and firm's financial and social performance. To the best of our knowledge, this is the first paper that attempts to enrich the understanding of foreign ownership by classifying it into Arab versus non-Arab.