BOARD SIZE AND FIRM PERFORMANCE: CASE OF KUWAIT
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Published
Jul 15, 2021
Abstract
This study examined the relationship between board size and firm performance using a sample of 110 non-financial listed firms on the Kuwait Stock Exchange (KSE) from 2009 to 2017 (9 years). Empirical tests were conducted using OLS and 2SLS regressions as well as two performance measures to control the issues of endogeneity and causality; the study found that board size negatively affected firm performance. Thus, a small board size is better for non-financial Kuwaiti listed firms, which is consistent with agency theory and the majority of previous studies conducted in developed and developing countries. However, the causality issue does exist. The study makes a number of contributions to the corporate governance literature-namely, it provides a good understanding of the relationship board size and firm performance. In addition, examining such variables without considering the issues of endogeneity and causality would lead to misleading results. Finally, this study provides clear evidence for regulators in Kuwait to design an optimal board size to improve listed firms
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Keywords
Kuwaitcorporate governanceboard sizeperformance
References
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Al-Faraih, M., Alanezi, F. & Al-Mujamed, H. (2012). The influence of institutional and government ownership on firm performance: Evidence from Kuwait. International Business Research, 5(10), 192–200.
Al-Saidi, M. & Al-Shammari, B. (2012). Corporate governance in Kuwait: An analysis in term of grounded theory. International Journal of Disclosure and Government, 11(2), 128–160.
Al-Shammari, B. & Al-Sultan, W. (2009). Corporate governance and corporate performance: evidence from Kuwait. Corporate Ownership and Control, 7(1–3), 334–349.
Al-Swidi, A., Fadzil, F. & Al-Matari, Y. (2012). The impact of board characteristics in firm performance: Evidence from nonfinancial listed companies in Kuwait Stock Exchange. International Journal of Accounting and Financial Reporting, 2(2), 310–332.
Ammari, A., Kadria, M. & Ellouze, A. (2014). Board structure and firm performance: Evidence from French firms listed in SBF 120. International Journal of Economics and Financial Issues, 4(3), 580–590.
Andres, P., Azofra, V. & Lopez, F. (2005). Corporate boards in OECD countries: board size, composition, functioning and effectiveness. Journal of Corporate Governance, 13(2), 197–210.
Anis, M., Chizema, A., Lui, X. & Fakhreldin, H. (2017). The impact of board characteristics on firms’ financial performance—Evidence from the Egyptian listed companies. Global Journal of Human-Social Science: H Interdisciplinary, 17(5), 1–21.
Arilyn, E., Beny, & Kharismar, E. (2019). The effect of corporate governance on financial performance in non-financial LQ-45 firms listed on the Indonesian Stock Exchange from 2012 to 2017. Accounting and Finance Review, 4(1), 21–27.
Badu, E. (2017). The impact of corporate board size on firm performance: evidence from Ghana and Nigeria. Research in Business and Management, 4(2), 1–15.
Beiner, S., Drobetz, W., Schmid, F. & Zimmermann, H. (2006). An integrated Framework of corporate governance and firm valuation: Evidence from Switzerland. ECGI Paper, 34.
Bhagat, S. & Black, B. (2002). The non-correlation between board independence and long-term firm performance. Journal of Corporation Law, 27, 231–274.
Bhagat, S. & Bolton, B. (2008). Corporate governance and firm performance. Journal of Corporate Finance, 14(3), 257–273.
Bozec, R. (2005). Boards of directors, market discipline, and firm performance. Journal of Business Finance & Accounting, 32, 1921–1960.
Brooks, C. (2002). Introductory econometrics for finance. Cambridge, UK: Cambridge University Press.
Brown, L. D. & Claylor, M. L. (2004). Corporate governance and firm performance [Working paper]. Georgia State University, GA.
Cho, M. H. (1998). Ownership structure, investment, and the corporate value: An empirical analysis. Journal of Financial Economics, 47, 103–121.
Coles, J. L., Daniel, N. D. & Naveen, L. (2008). Boards: Does one size fit all?. Journal of Financial Economics, 87, 329–356.
Conyon, M. J. & Peck, S. I. (1998). Board size and corporate performance: Evidence from European countries. European Journal of Finance, 4, 291–304.
Demeke, A. (2016). Corporate governance mechanisms and firm performance: The case of Ethiopian insurance industry. Journal of Investment and Management, 5(2), 6–16.
Hausman, J. (1978). Specification tests in econometrics, Econometrica, 46(6), 1251-1271.
Field, A. (2002). Discovering statistics using SPSS for Windows. London: Stage.
Guest, P. (2009). The impact of board size on firm performance: evidence from the UK. The European Journal of Finance, 15(4), 385–404.
Habbash, M. & Bajaher, M. (2015). An empirical analysis of the impact of board structure on the performance of large Saudi firms. Arab Journal of Administrative Sciences, 22(1), 91–105.
Haniffa, R. & Cooke, T. (2002). Culture, corporate governance and disclosure in Malaysian corporations. ABACUS, 38, 317–349.
Haniffa, R. & Hudaib, M. (2006). Governance structure and firm performance of Malaysian companies. Journal of Business Finance and Accounting, 33, 1034–1062.
Hermalin, B. E. & Weisbach, M. S. (1988). The determinants of board composition. Rand Journal of Economics, 19, 589–606.
Jakpar, S., Tinggi, M. & Hui, T. (2019). Analysis of corporate governance and firm performance: Evidence from Malaysian listed companies. International Journal of Business and Social Science, 10(1), 118–133.
Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. Journal of Finance, 48, 831–880.
Jensen, M. C. & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360.
Larcker, D. & Rusticus, T. (2010). On the use of instrumental variables in accounting research. Journal of Accounting and Economics, 49, 186–205.
Al-Faraih, M., Alanezi, F. & Al-Mujamed, H. (2012). The influence of institutional and government ownership on firm performance: Evidence from Kuwait. International Business Research, 5(10), 192–200.
Al-Saidi, M. & Al-Shammari, B. (2012). Corporate governance in Kuwait: An analysis in term of grounded theory. International Journal of Disclosure and Government, 11(2), 128–160.
Al-Shammari, B. & Al-Sultan, W. (2009). Corporate governance and corporate performance: evidence from Kuwait. Corporate Ownership and Control, 7(1–3), 334–349.
Al-Swidi, A., Fadzil, F. & Al-Matari, Y. (2012). The impact of board characteristics in firm performance: Evidence from nonfinancial listed companies in Kuwait Stock Exchange. International Journal of Accounting and Financial Reporting, 2(2), 310–332.
Ammari, A., Kadria, M. & Ellouze, A. (2014). Board structure and firm performance: Evidence from French firms listed in SBF 120. International Journal of Economics and Financial Issues, 4(3), 580–590.
Andres, P., Azofra, V. & Lopez, F. (2005). Corporate boards in OECD countries: board size, composition, functioning and effectiveness. Journal of Corporate Governance, 13(2), 197–210.
Anis, M., Chizema, A., Lui, X. & Fakhreldin, H. (2017). The impact of board characteristics on firms’ financial performance—Evidence from the Egyptian listed companies. Global Journal of Human-Social Science: H Interdisciplinary, 17(5), 1–21.
Arilyn, E., Beny, & Kharismar, E. (2019). The effect of corporate governance on financial performance in non-financial LQ-45 firms listed on the Indonesian Stock Exchange from 2012 to 2017. Accounting and Finance Review, 4(1), 21–27.
Badu, E. (2017). The impact of corporate board size on firm performance: evidence from Ghana and Nigeria. Research in Business and Management, 4(2), 1–15.
Beiner, S., Drobetz, W., Schmid, F. & Zimmermann, H. (2006). An integrated Framework of corporate governance and firm valuation: Evidence from Switzerland. ECGI Paper, 34.
Bhagat, S. & Black, B. (2002). The non-correlation between board independence and long-term firm performance. Journal of Corporation Law, 27, 231–274.
Bhagat, S. & Bolton, B. (2008). Corporate governance and firm performance. Journal of Corporate Finance, 14(3), 257–273.
Bozec, R. (2005). Boards of directors, market discipline, and firm performance. Journal of Business Finance & Accounting, 32, 1921–1960.
Brooks, C. (2002). Introductory econometrics for finance. Cambridge, UK: Cambridge University Press.
Brown, L. D. & Claylor, M. L. (2004). Corporate governance and firm performance [Working paper]. Georgia State University, GA.
Cho, M. H. (1998). Ownership structure, investment, and the corporate value: An empirical analysis. Journal of Financial Economics, 47, 103–121.
Coles, J. L., Daniel, N. D. & Naveen, L. (2008). Boards: Does one size fit all?. Journal of Financial Economics, 87, 329–356.
Conyon, M. J. & Peck, S. I. (1998). Board size and corporate performance: Evidence from European countries. European Journal of Finance, 4, 291–304.
Demeke, A. (2016). Corporate governance mechanisms and firm performance: The case of Ethiopian insurance industry. Journal of Investment and Management, 5(2), 6–16.
Hausman, J. (1978). Specification tests in econometrics, Econometrica, 46(6), 1251-1271.
Field, A. (2002). Discovering statistics using SPSS for Windows. London: Stage.
Guest, P. (2009). The impact of board size on firm performance: evidence from the UK. The European Journal of Finance, 15(4), 385–404.
Habbash, M. & Bajaher, M. (2015). An empirical analysis of the impact of board structure on the performance of large Saudi firms. Arab Journal of Administrative Sciences, 22(1), 91–105.
Haniffa, R. & Cooke, T. (2002). Culture, corporate governance and disclosure in Malaysian corporations. ABACUS, 38, 317–349.
Haniffa, R. & Hudaib, M. (2006). Governance structure and firm performance of Malaysian companies. Journal of Business Finance and Accounting, 33, 1034–1062.
Hermalin, B. E. & Weisbach, M. S. (1988). The determinants of board composition. Rand Journal of Economics, 19, 589–606.
Jakpar, S., Tinggi, M. & Hui, T. (2019). Analysis of corporate governance and firm performance: Evidence from Malaysian listed companies. International Journal of Business and Social Science, 10(1), 118–133.
Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. Journal of Finance, 48, 831–880.
Jensen, M. C. & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360.
Larcker, D. & Rusticus, T. (2010). On the use of instrumental variables in accounting research. Journal of Accounting and Economics, 49, 186–205.
How to Cite
Al-Saidi, Mejbel. 2021. “BOARD SIZE AND FIRM PERFORMANCE: CASE OF KUWAIT”. Studies in Business and Economics 23 (1):5-21. https://doi.org/10.29117/sbe.2020.0118.
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Articles