Does family involvement on board of the directors contribute to firm profitability? An empirical evidence from Saudi Arabia

Abstract

Literatures view board of the directors as the cornerstone of firm’s success. Therefore, family involvement on the board and its impact on firm profitability is an issue of interest and need to be addressed. The purpose of this paper lies in the fact that it extracts new empirical evidence from a promising area in the world. The study proceeds with a cross-sectional time-series analysis based on a data of 75 Saudi non-financial public listed firms from 2007-2011(375 firm-year observations) to examine family representing on board of the directors, family chairman, and founder chairman and its impact on firm performance (ROA). The study concludes the outperformance of firms in which family represents heavily on the board. In addition, the results suggest that not all family members are good stewards. Strictly speaking, founder chairman only found to be beneficial to the firm profitability rather than others. However, the results confirmed its robustness against different indicator (EPS) and when family firms only being selected.