CORPORATE GOVERNANCE AND FIRMS VALUE IN EMERGING MARKETS: THE CASE OF JORDAN

Abstract

This paper empirically explores the relationship between the identity and concentration of different block holders and firm value for 89 industrial and service firms listed at the Amman Stock Exchange (ASE) over the period 1998–2001. The paper examines the role of block holders (institutional investors who are not on the board of directors, the institutional investors who are on the board of directors, the ownership of the board of directors, and the financial policy of the firm, such as the capital structure) in controlling the managerial actions which leads, on average, to better firm valuation in the emerging market of Jordan. The paper employs a piecewise regression specification methodology. The results of the piecewise regression analysis indicate a positive and significant relationship between the ownership of securities above 25% by the board of directors, institutional investors on the board of directors, the institutional investors not on the board of directors and firm value. There is no significant relationship between the above-mentioned ownership and firm value for ownership below 25%. The results also indicate a significant and negative relationship between ownership by the CEO below 5% and firm value. Leverage is significantly and positively related to firm value when we relate ownership by institutional investors not on the board of directors and firm value. This might imply that creditors work as complementary monitors of value along with institutional investors who are not on the board of directors. The paper concludes that block holders are important monitors of firm value especially if they own large amounts of securities to justify the high cost of monitoring.

Citation

Al-Khouri, R. (2005), "CORPORATE GOVERNANCE AND FIRMS VALUE IN EMERGING MARKETS: THE CASE OF JORDAN", Hirschey, M., John, K. and Makhija, A.K. (Ed.) Corporate Governance (Advances in Financial Economics, Vol. 11), Emerald Group Publishing Limited, Leeds, pp. 31-50. https://doi.org/10.1016/S1569-3732(04)11002-5