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Article
Publication date: 18 August 2023

Mahmoud Arayssi and Noura Yassine

This paper aims to estimate a statistical model of the country risk determination as represented by the country price earnings ratio (PE) to identify potentially mispriced…

Abstract

Purpose

This paper aims to estimate a statistical model of the country risk determination as represented by the country price earnings ratio (PE) to identify potentially mispriced countries. It uses the gross domestic product (GDP) growth rate and a dummy indicator for market-related events (i.e. financial crises), both approximating the business cycle. The model is used to compare a major Asian country’s (i.e. Japan) risk with Western countries’ risk.

Design/methodology/approach

The model used finance variables such as the systemic, non-diversifiable, risk and foreign direct investments to characterize any country risk. A random effects model with panel data estimated the effects of macroeconomic and financial variables on PE. The simultaneity problem was checked using two stage least squares and some lagged independent variables.

Findings

The results explained to investors the country risk contributing factors: PE was positively correlated with variables that may increase dividends and market risk premia similar to GDP growth rates and total risk and negatively correlated with variables that increase market risk, namely, nominal risk-free interest rates and financial crises. Japan’s PE seemed to exceed most of the Western countries considered here, implying lower risks, lower interest rates and higher growth in the major Asian country Japan.

Originality/value

This paper focuses on the effectiveness of country risk measures in predicting periods of intense instability, similar to financial crises. This study contributes a model to measure market risk premium, using PE (or inversely, the earnings yield) as a proxy variable. Investors can use this risk measure in picking less risky stocks to include in their portfolio, calling for liberalizing Asian countries’ financial markets to improve their stock market capitalization.

Details

Journal of Asia Business Studies, vol. 18 no. 1
Type: Research Article
ISSN: 1558-7894

Keywords

Article
Publication date: 24 March 2023

Mahmoud Arayssi and Mohammad Jizi

This study aims to examine the role of royal family members’ board of directors, as a specific aspect of corporate governance, on the firm’s environmental, social and governance…

Abstract

Purpose

This study aims to examine the role of royal family members’ board of directors, as a specific aspect of corporate governance, on the firm’s environmental, social and governance (ESG) disclosures. Many firms in the world enjoy special political connections, benefit from tax exemptions and favorable treatments that are largely responsible for their economic endurance and strong performance.

Design/methodology/approach

The authors collect data from Thomson Reuters database on Gulf Cooperation Council (GCC)-listed firms for 2010–2018. Royal family board directors’ data is manually collected using a systematic approach to ensure accuracy. Fixed effects’ panel regression model is used to estimate relationships. The authors interact variables to test the moderating effect of board independence and sustainability committee on the influence of royal family board directors.

Findings

This study finds that royal family directors on GCC boards negotiate fewer ESG reporting in firms. While board independence, board gender diversity, sustainability committee and governance committee increase the level of ESG-disclosures in the traditional way of reducing agency costs to stakeholders, this study finds that royal family board members convey beneficial consequences on firms without perceiving the need to disclose their ESG activities. Additionally, these firms do not show a spillover effect from the royal family members on the board’s independence or the existence of a sustainability committee; rather these members use a different channel for protecting and building the business value. These results are robust with respect to controls for company size, leverage, return on assets and growth. Instrumental variables are then introduced in the analysis to perform a sensitivity test.

Originality/value

The study results indicate the need to improve GCC market transparency over supplementary limitations that exist on their corporate governance condition. This may be consequential to regulators, lenders and investors. The results suggest the need to raise awareness of the importance of governance and balancing firms’ financial and social performance in the presence of royal family board directors. Policymakers and governance agencies are responsible for promoting the importance of forming sustainability committees and having a set of performance indicators that measure the effectiveness of their actions.

Details

Journal of Accounting & Organizational Change, vol. 20 no. 1
Type: Research Article
ISSN: 1832-5912

Keywords

Article
Publication date: 27 November 2018

Mahmoud Arayssi and Mohammad Issam Jizi

The aim of the paper is to examine the association of corporate governance (CG), the firms’ characteristics and the financial performance of firms operating in the Middle East and…

1858

Abstract

Purpose

The aim of the paper is to examine the association of corporate governance (CG), the firms’ characteristics and the financial performance of firms operating in the Middle East and North Africa (MENA) region after Arab Spring. The study focuses on CG, exemplified by boards’ composition and ownership structure. It also explores the possible moderating effects of environmental social and governance characteristics (ESG), leverage and size on the relationship between CG and the company’s performance.

Design/methodology/approach

Using Thomson-Reuters database, a sample of 67 firms was extracted in the MENA region to measure CG and financial performance post Arab Spring from 2012 to 2016. Panel GLS regression random effects is used to quantify the relationship; robustness is checked by using several alternative regressions and specifications to the performance measure.

Findings

The results reveal that board independence (BI) is negatively correlated with firm profitability but ownership concentration and board gender diversification contribute to profits. When firms that voluntarily form a governance committee are examined, ownership is less concentrated. We obtain a stronger impact of good governance on performance in these firms: board composition, in general, and workers’ satisfaction generate more profits; and undertaking ESG activities become a more dispensable activity. The effect of board size (BS) and forming a governance committee are studied and ensuing recommendations are drawn. In addition, relevant internal control of firms’ characteristics that strongly predict firms’ market values are discussed in the context of agency and stewardship theories.

Originality/value

Despite the fact that governance-performance nexus has been extensively discussed and examined, the focus of this volume of research is on western developed countries. The growing economies of the MENA countries, and the limited governance-performance literature in the MENA context have created a demand to understand the governance environment in these countries and its influence on firm’s performance. In this region where firms’ owners are mainly family members, governments and/or institutions, governance is typically weak; moreover, ownership concentration is expected to guarantee good performance, as the role of independent directors becomes ineffective. For firms where ownership is more diluted, a sound governance system should be established to replace ownership concentration, and to more efficiently monitor management, and consequently improve firm performance. Therefore, this study not only contributes a summary of the prevailing corporate structure in MENA. Moreover, it explains the settings where both the stewardship and agency theories apply in MENA firms. Some recommendation on the importance of changes to the existing governance rules are highlighted in terms of more rules requiring board independence, board gender diversity, limits on board size and establishing governance committees.

Details

Social Responsibility Journal, vol. 15 no. 5
Type: Research Article
ISSN: 1747-1117

Keywords

Article
Publication date: 28 October 2019

Mahmoud Arayssi, Mohammad Jizi and Hala Hussein Tabaja

This paper aims to investigate the impact of board composition on environmental, social and governance (ESG) reporting in the Gulf countries. Despite the vast literature on the…

6293

Abstract

Purpose

This paper aims to investigate the impact of board composition on environmental, social and governance (ESG) reporting in the Gulf countries. Despite the vast literature on the significance of ESG disclosure on firms’ performance, trust and reputation, there are relatively few studies on the influence of board structure on ESG disclosure in the Gulf Cooperation Council (GCC) countries. Gulf countries are witnessing a fast growing capital markets and having serious efforts to attract foreign investments to divert their economies from the oil and gas reliance. This could be facilitated by illustrating firms’ good citizenship and communicating the fulfillment of their social obligation.

Design/methodology/approach

The study examines publically listed companies between 2008 and 2017. Thomson Reuter’s database is used to collect the ESG disclosure scores and governance information. The authors apply multiple panel data regressions and sensitivity testing to ensure the robustness of the results.

Findings

Examining publically listed companies for a 10-year period shows that higher board independence and female board participation facilitate the transmission of a firm’s positive image by improving social responsibility. Independent boards of directors and participation among women serve as catalysts to strike an effective balance between firms’ financial targets and social responsibilities. In contrast, boards chaired by chief executive officers are less supportive in executing a social agenda and consequently reporting their ESG activities.

Practical implications

The results suggest that firms that appoint a sustainability and/or governance committee tend to engage in more impactful social and environmental activities and communicate their societal engagements more effectively.

Social implications

The paper recommends that policymakers, executives and shareholders in the GCC countries support board participation among women, independent directors and formation of sustainability committees to facilitate engaging in effectual social activities.

Originality/value

Empirical evidence regarding the relationship between board composition and ESG disclosure in the Gulf countries is limited. Prior literature mainly provides results on developed countries in which the governance system is mature and well structured. This study provides useful evidence regarding the Gulf countries that lack privatization and where corporate boards tend to be dominated by families and governments.

Details

Sustainability Accounting, Management and Policy Journal, vol. 11 no. 1
Type: Research Article
ISSN: 2040-8021

Keywords

Article
Publication date: 5 September 2016

Mahmoud Arayssi, Mustafa Dah and Mohammad Jizi

As pressures mount for women directors on corporate boards (WDOCBs) from different stakeholders, companies become more interested in finding out how WDOCBs impact sustainability…

7290

Abstract

Purpose

As pressures mount for women directors on corporate boards (WDOCBs) from different stakeholders, companies become more interested in finding out how WDOCBs impact sustainability disclosure. The purpose of this paper is to investigate the effect of gender-diverse boards on the association between sustainability reporting and shareholders’ welfare.

Design/methodology/approach

This paper examines the implications of women on board for firm-related factors, particularly environmental, social and governance (ESG) disclosure and firm performance. The firms studied are all listed in the Financial Times Stock Exchange 350 index between 2007 and 2012. Bloomberg social disclosure score is used and panel data through a regression model are applied.

Findings

The results reveal that the presence of WDOCBs favorably influences on firm’s risk and performance through promoting a firm’s investment in effectual social engagements and reporting on them. The desirable effect of WDOCB on the ESG-performance relationship leads to increased risk-adjusted and buy-and-hold abnormal returns and reduced firm risks, measured by both volatility of returns and systematic risk.

Originality/value

The research contributes to the literature on the relationship between women participation on corporate boards and firms’ good citizenship and enhanced shareholders’ welfare. The empirical findings contribute to providing statistical and economical validity to the UK Corporate Governance Code 2014 recommendation on the importance of board gender diversity for effective board functioning.

Details

Sustainability Accounting, Management and Policy Journal, vol. 7 no. 3
Type: Research Article
ISSN: 2040-8021

Keywords

Article
Publication date: 10 August 2015

Mahmoud Arayssi and Ali Fakih

The purpose of this paper is to study the role of institutions (including civil law origin), financial deepening and degree of regime authority on growth rates in the Middle East…

Abstract

Purpose

The purpose of this paper is to study the role of institutions (including civil law origin), financial deepening and degree of regime authority on growth rates in the Middle East and North Africa region.

Design/methodology/approach

This paper examines the implications of industrial firm-related and national factors for the determinants of economic growth using panel data through a fixed effect model.

Findings

The results reveal that English civil law origin and the establishment of the rule of law work with the development of financial institutions to increase economic growth in these economies; however, the democratization of the political institutions and foreign direct investment do not assist financial development in promoting economic growth.

Research limitations/implications

Data covered is limited to four years.

Social implications

The findings emphasize the prominence of overcoming institutional weaknesses and establishing transparent public policy governing businesses as a pre-requisite for successful universal integration in developing countries.

Originality/value

This paper contributes to the literature on the relationship between finance and economic growth in two aspects. First, the authors focus on the contribution of the institutional setting and its interaction with the financial development and how this affects economic growth of the manufacturing firms. Second, the authors explore the relationship between the role of institutions, governance, the country civil law origin and the economic growth.

Details

International Journal of Social Economics, vol. 42 no. 8
Type: Research Article
ISSN: 0306-8293

Keywords

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