Corporate governance effectiveness and firm performance in Libya: Moderating effect of shareholder activism

Corporate governance is the mechanism by which companies are directed and made accountable to shareholders. The Libyan Corporate Governance Code 2007 determines the mechanisms of corporate governance and the role of shareholders in improving governance policies. This study investigated the moderating effect of shareholder activism on the relationship between corporate governance effectiveness and firm performance. The finding provides evidence that shareholder activism can be considered as a corporate governance tool to enhance the performance of listed companies. A population of 64 companies based on the purposive sampling technique was used. Linear regression analysis was used to determine whether a relationship exists. Three models were developed based on the agency theory, the steward theory and the resource dependence theory. Model 1 aimed to determine the impact of board effectiveness and governance committee effectiveness on firm performance. Model2 designed to investigate the impact of corporate governance effectiveness on firm performance. In addition, shareholder activism was used as a moderating variable on this relationship. Model 3 used to determine the impact of minority shareholders on the board and private ownership on firm performance. The results support the notion that shareholder activism moderates the association between corporate governance effectiveness and firm performance. They also confirm the influence of the effectiveness of the audit committee and the nomination & compensation committee on the firm’s performance. However, the effectiveness of the board and the monitoring committees has negative effects on firm performance. This study also reinforces the positive influence of the minority shareholder in the board and the positive effect of private ownership on firm performance. In conclusion, the study provides empirical evidence for the positive impact of compliance with the Libyan corporate governance code 2007 on firm performance. The shareholder activism moderates positively this relationship between the corporate governance effectiveness and firm performance.