The effect of corporate governance mechanisms on Jordanian listed companies’ performance

Following the collapse of a number of companies listed on Amman Stock Exchange (ASE) during the period since 2001, the issue of corporate governance and firm performance has become a major concern in Jordan. There is an increasing attention among the various stakeholders, including the government and investors, towards reforms and practices of corporate governance that can enhance firm performance. Thus, this study is set to investigate the effects of corporate governance mechanisms (i.e. ownership structure, board characteristics, audit committee, internal audit and auditor quality) on the performance of Jordanian listed companies. The theoretical foundation of such a relationship is explained by agency theory, the resource dependence theory and the signalling theory. The Dynamic GMM estimator was used to estimate the relationship based on the data of 204 companies listed on ASE during the period 2009 to 2013. The findings suggest that performance is influenced significantly by board size, board independence, board meeting, CEO duality, political connectivity, auditor’s brand name and independence. However, this association is not unique across measures of performance, namely accounting and market based measures. The relationship also varies between financial and non-financial industries, reflecting their uniqueness and significant difference in their structure. Overall, the impact of corporate governance on performance is shaped differently for financial and non-financial sectors as well as across the performance measures. The results of the study provide insight and significant implications for the stock market, industry players and policy makers in Jordan. It may pave way for those parties to consider a different governance structure within the boundaries of regulations which might help in enhancing the firm performance. Future research may adopt other governance factors as predictors of performance. Also, future research may apply primary data to examine the reasons why some
governance variables are ineffective in performance enhancement. However, this study is limited by the time and resources available, hence, care need to be taken into consideration while interpreting the result of the study.