Corporate governance and the characteristics of the board of directors: Evidence from an emerging market

Abstract

The aim of this paper is to investigate the impact of the characteristics of the board of directors on the quality of corporate governance. The paper attempts to uncover the board characteristics that contribute to better corporate governance quality. The paper exploits a unique dataset of the corporate governance index developed by the Corporate Governance Centre for the 92 largest Saudi listed firms for the fiscal year of 2015. Several board characteristics are regressed on the corporate governance scores to find an association. The size of the board of directors is positively associated with better corporate governance quality. In other words, large boards have better corporate governance. Furthermore, large block-holders and government ownership contribute significantly to better corporate governance quality. Contrary to expectations, independent members are negatively linked to corporate governance quality. Companies with a large number of independent members show lower corporate governance quality. Finally, other characteristics of board committees and boards meetings do not show links to corporate governance quality. To the best of the author’s knowledge, this is the first paper to attempt to uncover the association between the characteristics of the board of directors and corporate governance quality in the Middle-East (the emerging market of Saudi Arabia). Several papers attempted to study governance issues in the Middle-East, but no direct examination of board characteristics and governance quality was conducted. Most studies investigated the issue of corporate governance and firm performance.