The relationship between corporate governance and financial performance: Evidence from Jordanian family and nonfamily firms

Abstract

Purpose

The purpose of this paper is to attempt to fill a research gap in the relationship between corporate governance mechanisms and financial performance of family and non-family firms’ by using a sample of non-financial firms listed on Amman Stock Exchange (ASE) for the period 2009–2015.

Design/methodology/approach

This research employs a quantitative method using data that include corporate governance mechanisms, firm characteristics and financial ratios of a sample of Jordanian listed firms in the ASE over the period 2009–2015. The sample covers all companies that have been part of the ASE during the period including both family and non-family firms, part of total of 228 companies listed on the ASE as of 31 December 2015. The study used accounting-based measures such as return on asset (ROA) and market-based measures such as Tobin’s Q as proxies for corporate financial performance.

Findings

The study found that board size both in term of Tobin’s Q and ROA has a negative relationship with the performance of family firms. In non-family firms, there is no systematic relationship with corporate performance. There is a strong relationship between corporate performance and independent directors in non-family firms. In addition, the authors found some evidence for a relationship between performance and independent directors in family firms. Also, results indicated that ownership concentration has an insignificant correlation with corporate performance and in family firms has a negative and significant correlation with Tobin’s Q. There is a significant relationship between local investors’ ownership and corporate performance as measured by Tobin’s Q in family and non-family firms.

Originality/value

Studies concerned with the effect of corporate governance on firm performance remains comparatively under-researched in Middle East countries and Jordan in particular (Najib, 2007; Omet, 2004; Marashdeh, 2014). Moreover, studies investigating whether the practice of corporate governance has the same impact on family firm performance are still relatively less well known than those when ownership is distributed widely (non-family firms) (Jaggi, Leung and Gul, 2009; Prencipe and Bar-Yosef, 2011). This research is seeking to fill this current gap in Jordan, which is one of the developing countries with an emerging economics that are very poorly represented in the literature.

Citation

Saidat, Z., Silva, M. and Seaman, C. (2019), "The relationship between corporate governance and financial performance: Evidence from Jordanian family and nonfamily firms", Journal of Family Business Management, Vol. 9 No. 1, pp. 54-78. https://doi.org/10.1108/JFBM-11-2017-0036