Do characteristics of the board of directors and top executives have an effect on corporate performance among the financial sector? Evidence using stock

Pages16-43
DOIhttps://doi.org/10.1108/CG-11-2018-0358
Date18 September 2019
Published date18 September 2019
AuthorEbrahim Mohammed Al-Matari
Subject MatterStrategy
Do characteristics of the board of directors
and top executives have an effect on
corporate performance among the
f‌inancial sector? Evidence using stock
Ebrahim Mohammed Al-Matari
Abstract
Purpose Consistent with the boardof directors and top executive management’s role in ensuringand
promoting investments for economic development, this paper aims to examine Omani executive
management’s rolein helping goals achievementin firms. This paper examines the relationships among
the study variables,which are top executive management characteristics and corporateperformance in
the contextof Omani listed firms, with the helpof two control variables.
Design/methodology/approach The study focused on a unique context,a developing nation, Oman
and its exchange marketfor the past seven years (2011-2017). In addition,the data were collected from
annual reportaccording to board of directorsand top executive management variables,and the financial
data were obtained from DataStream. The study used the paneldata approach to test the relationships
characteristicsof board of directors, top executive managementand corporate performance.
Findings Based on the obtained results, showed positive and significant positive relationships
between somecharacteristics of top executive managementand corporate performance, and significant
negative relationships betweenothers and the same. Specifically, board size, non-executive directors,
general experienceand account experience were in the formercategory, while board meeting was in the
latter category. Finally, size and professional certificate of top executive management did not have a
significantrelationship with corporate performance.
Research limitations/implications This study, like previous studies has some limitations such as
sample, country, variables and years; therefore, at the end of this study, many limitations and
suggestions for future researchstudies are provided. Moreover, the study findings can be used by the
marketto assist managers to enhance corporateweaknesses.
Originality/value The focus of the study was placed on the top executive managementand corporate
governance of Omani listed firms that has implications for practitioners particularly concerning the top
executive management role. Added to this, the study conducted an investigation of the integration
between board of directors andtop executive management, with corporate governance amongOmani
listed firms. The study also provided information that has implications to academics when it comes to
board of directors and top executive management strategies to encourage consideration of the
relationshipto develop best practices.
Keywords Board of directors, Corporate performance, Oman market, Top executive management
Paper type Research paper
1. Introduction
Increasing attention has been placed in corporate governance in recent years because of
the major corporation collapsesthat occurred, which included the following businesses and
their period of collapse in alphabetical order; Adelphia in 2002, Arthur Anderson in 2001,
Commerce Bank in 1991, Enron in 2001, Fanny Mae in 2008, Freddy Mac in 2008, Global
Ebrahim Mohammed
Al-Matari is Assistant
Professor of Accounting,
Department of Accounting,
College of Business, Jouf
University, Kingdom of
Saudi Arabia and Amran
University, Amran, Yemen.
Received 26 November 2018
Revised 22 April 2019
24 July 2019
Accepted 5 August 2019
The author would like to
express great thanks to the
editor and also to two
anonymous reviewers of the
journal for their fruitful and
helpful comments that
extremely improve the value of
the paper.
PAGE 16 jCORPORATE GOVERNANCE jVOL. 20 NO. 1 2020, pp. 16-43, ©Emerald Publishing Limited, ISSN 1472-0701 DOI 10.1108/CG-11-2018-0358
Crossing in 2002, Goldman Sachs in 2007, Harris Scarfe in 2001, HIH in 2001, Lehman
Brothers in 2008, Marconi in 2005, Northern Rock in 2007, One.Tel in 2001, Tyco in 2002,
WorldCom in 2002, and Parmalat and Yukos in the U.S, European and other countries
around the world. These corporations have been mentioned in several studies in literature
such as (Al-Matari et al., 2012a,2012b;Duke et al., 2012;Jackling and Johl, 2009;Obiyo
and Lenee, 2011).
Oman is a country that has experienced several issues of corporate governance that
affected many companies in the country including National Rice Mills, SADGI and Omani
National Investment Company Holding, and SAOG, but also their smaller counterparts that
had to be assisted by government to get back on their feet. Over the years, charges have
been laid, indicating that companies are not as transparent about their published
information, particularly regarding their ineffective internal controls and inept directors.
Instances show that fraud cases have been claimed on the part of directors. In this regard,
companies’ mismanagement and ineffective directors have been largely blamed for the
sharp decrease in share prices in 1998, and the following investor confidence loss. These
underlines the requirement for better and more effective governance standards as
advocated by Al-Matari et al. (2014b)andDry (2003).
Therefore, the corporation’s financial performance is significant to stakeholders, particularly
shareholders, in their maintenance of going concern, in increasing business value, and in
providing the platform for dividends distribution, to attract potential investors (Al-Matari
et al., 2012a,2012b). In this regard, a Tobin’s Q value that exceeds 1 indicates highmarket
value in light of the assets and growth of the firm.
Added to the above, a higher Q ratio value, on the basis of (Al Matari et al., 2014b;
Kapopoulos and Lazaretou, 2007), indicates successful leveraging of the firm of its
investment on developing firm value in light of market-value against the book-value.
Eberhart (2012) and Lang and Litzenberger (1989) showed that firmsthat displayed Tobin’s
Q value exceeding 1, increased their investment opportunities, which shows that
management used its assets effectively to create greater potential for development.
Nevertheless, in the context of Oman, the firm performance percentage in the MSM, as
gauged via Tobin’s Q remained as less than one, were 28 per cent, 30 per cent, 35 per
cent, 35 per cent, 28 per cent, 30 per cent, 32 per cent and 32 per cent corresponding to
the years 2010 to 2017. This shows that the companiespoorly performed (Table I).
On the basis of the above statistics and facts, Omani Stock Market firms poorly performed,
and this provides justification to examine the relationship between mechanisms that board
of directors (BOD) and top executive management (TEM) uses and market-based
performance of listed firms as suggestedby Certo et al. (2006).
More importantly, internal governance mechanisms are primarily used to ensure that
shareholders’ goals are consistent with the goals of management (Walsh and Seward,
1990) and thus, such mechanismsare largely dependent on the effective board structureto
Table I Indicators of poor performance
Year Tobin-Q (%) Criterion Citation
2010 28 1Nuryanah and Islam (2011)
2011 30 1
2012 35 1
2013 35 1
2014 28 1
2015 30 1
2016 32 1
2017 33 1
VOL. 20 NO. 1 2020 jCORPORATE GOVERNANCE jPAGE 17

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