IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v14y2022i17p10525-d895853.html
   My bibliography  Save this article

The Relationship between Corporate Governance Quality and Firm Performance: The Moderating Role of Capital Structure

Author

Listed:
  • Marwan Mansour

    (Faculty of Business, Economics and Social Development, Universiti Malaysia Terengganu, Kuala Nerus 21030, Malaysia)

  • Hamzeh Al Amosh

    (Ministry of Education and Higher Education, Doha P.O. Box 35111, Qatar
    Faculty of Business and Management, University Sultan Zainal Abidin, Campus Gong Badak, Kuala Nerus 21300, Malaysia)

  • Ahmad Yuosef Alodat

    (Faculty of Business, Economics and Social Development, Universiti Malaysia Terengganu, Kuala Nerus 21030, Malaysia)

  • Saleh F. A. Khatib

    (Azman Hashim International Business School, Universiti Teknologi Malaysia, Johor Bahru 81310, Malaysia)

  • Mohammed W. A. Saleh

    (Department of Accounting Information System, Palestine Technical University-Kadoorie, Tulkarm P304, Palestine)

Abstract

This study aims to explore whether capital structure (CS) has a contingent role in the relationship between corporate governance (CG) quality and firm performance. The empirical findings indicate that CG quality had a positive and significant effect on the performance of Jordanian non-financial firms listed on the Amman Stock Exchange (ASE) from 2014 to 2019. Additionally, the moderate effect of the CS reinforces this relationship. These results are robust to alternative econometric specifications and variable definitions. This study utilizes certain firm-specific characteristics to represent the CS to assess its role as a moderating variable in the relationship between CG quality and firm performance. This study makes a contribution to the literature by showing that CS can strengthen the relationship between CG quality and firm performance. The results have important managerial implications for the practice of CG in developing countries. Firms in developing countries can enhance performance by implementing and abiding by good governance practices. Moreover, firms in developing countries should adopt effective financial strategies regarding CS to enhance the relationship between CG quality and firm performance. Finally, potential investors should consider the debt level in the CS of non-financial firms in Jordan when making investment decisions.

Suggested Citation

  • Marwan Mansour & Hamzeh Al Amosh & Ahmad Yuosef Alodat & Saleh F. A. Khatib & Mohammed W. A. Saleh, 2022. "The Relationship between Corporate Governance Quality and Firm Performance: The Moderating Role of Capital Structure," Sustainability, MDPI, vol. 14(17), pages 1-25, August.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:17:p:10525-:d:895853
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/14/17/10525/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/14/17/10525/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Khaled Elsayed, 2011. "Board size and corporate performance: the missing role of board leadership structure," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 15(3), pages 415-446, August.
    2. Bauer, Rob & Frijns, Bart & Otten, Rogér & Tourani-Rad, Alireza, 2008. "The impact of corporate governance on corporate performance: Evidence from Japan," Pacific-Basin Finance Journal, Elsevier, vol. 16(3), pages 236-251, June.
    3. Michail Nerantzidis, 2018. "The role of weighting in corporate governance ratings," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 22(3), pages 589-628, September.
    4. Omar Farooq & Ziya Asgarov & Ayaz Guliyev & Toghrul Islam & Yuliya Kalinina & Zakir Pashayev, 2017. "Capital structure and value of reported earnings: evidence from an emerging market," Applied Economics Letters, Taylor & Francis Journals, vol. 24(10), pages 690-694, June.
    5. Epps, Ruth W. & Cereola, Sandra J., 2008. "Do institutional shareholder services (ISS) corporate governance ratings reflect a company's operating performance?," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 19(8), pages 1135-1148.
    6. Lawrence Brown & Marcus Caylor, 2009. "Corporate governance and firm operating performance," Review of Quantitative Finance and Accounting, Springer, vol. 32(2), pages 129-144, February.
    7. Subba Reddy Yarram, 2015. "Corporate governance ratings and the dividend payout decisions of Australian corporate firms," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 11(2), pages 162-178, April.
    8. Al-Najjar, Basil & Clark, Ephraim, 2017. "Corporate governance and cash holdings in MENA: Evidence from internal and external governance practices," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 1-12.
    9. Tang, Jianyun, 2017. "CEO duality and firm performance: The moderating roles of other executives and blockholding outside directors," European Management Journal, Elsevier, vol. 35(3), pages 362-372.
    10. Saddam A. Hazaea & Ebrahim Mohammed Al-Matari & Khaled Zedan & Saleh F. A. Khatib & Jinyu Zhu & Hamzeh Al Amosh, 2022. "Green Purchasing: Past, Present and Future," Sustainability, MDPI, vol. 14(9), pages 1-28, April.
    11. Yan‐Leung Cheung & J. Thomas Connelly & Ping Jiang & Piman Limpaphayom, 2011. "Does Corporate Governance Predict Future Performance? Evidence from Hong Kong," Financial Management, Financial Management Association International, vol. 40(1), pages 159-197, March.
    12. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    13. Detthamrong, Umawadee & Chancharat, Nongnit & Vithessonthi, Chaiporn, 2017. "Corporate governance, capital structure and firm performance: Evidence from Thailand," Research in International Business and Finance, Elsevier, vol. 42(C), pages 689-709.
    14. Sami, Heibatollah & Wang, Justin & Zhou, Haiyan, 2011. "Corporate governance and operating performance of Chinese listed firms," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 20(2), pages 106-114.
    15. Burks, Jeffrey J. & Randolph, David W. & Seida, Jim A., 2019. "Modeling and interpreting regressions with interactions," Journal of Accounting Literature, Elsevier, vol. 42(C), pages 61-79.
    16. Pillai, Rekha & Al-Malkawi, Husam-Aldin Nizar, 2018. "On the relationship between corporate governance and firm performance: Evidence from GCC countries," Research in International Business and Finance, Elsevier, vol. 44(C), pages 394-410.
    17. Fosu, Samuel & Danso, Albert & Ahmad, Wasim & Coffie, William, 2016. "Information asymmetry, leverage and firm value: Do crisis and growth matter?," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 140-150.
    18. Almaskati, Nawaf & Bird, Ron & Lu, Yue, 2020. "Corporate governance, institutions, markets, and social factors," Research in International Business and Finance, Elsevier, vol. 51(C).
    19. Godfred A. Bokpin & Zangina Isshaq, 2009. "Corporate governance, disclosure and foreign share ownership on the Ghana Stock Exchange," Managerial Auditing Journal, Emerald Group Publishing, vol. 24(7), pages 688-703, July.
    20. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 107-156.
    21. Ardalan, Kavous, 2017. "Capital structure theory: Reconsidered," Research in International Business and Finance, Elsevier, vol. 39(PB), pages 696-710.
    22. Zeitun Rami, 2014. "Corporate Governance, Capital Structure and Corporate Performance: Evidence from GCC Countries," Review of Middle East Economics and Finance, De Gruyter, vol. 10(1), pages 75-96, April.
    23. Black, Bernard S. & de Carvalho, Antonio Gledson & Sampaio, Joelson Oliveira, 2014. "The evolution of corporate governance in Brazil," Emerging Markets Review, Elsevier, vol. 20(C), pages 176-195.
    24. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    25. Rezvan Pourmansouri & Amir Mehdiabadi & Vahid Shahabi & Cristi Spulbar & Ramona Birau, 2022. "An Investigation of the Link between Major Shareholders’ Behavior and Corporate Governance Performance before and after the COVID-19 Pandemic: A Case Study of the Companies Listed on the Iranian Stock," JRFM, MDPI, vol. 15(5), pages 1-30, April.
    26. Al-Akra, Mahmoud & Jahangir Ali, Muhammad & Marashdeh, Omar, 2009. "Development of accounting regulation in Jordan," The International Journal of Accounting, Elsevier, vol. 44(2), pages 163-186, June.
    27. Black, Bernard S. & de Carvalho, Antonio Gledson & Gorga, Érica, 2010. "Corporate governance in Brazil," Emerging Markets Review, Elsevier, vol. 11(1), pages 21-38, March.
    28. Al-Malkawi, Husam-Aldin N. & Pillai, Rekha & Bhatti, M.I., 2014. "Corporate governance practices in emerging markets: The case of GCC countries," Economic Modelling, Elsevier, vol. 38(C), pages 133-141.
    29. Bhagat, Sanjai & Bolton, Brian, 2019. "Corporate governance and firm performance: The sequel," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 142-168.
    30. Akbar, Saeed & Poletti-Hughes, Jannine & El-Faitouri, Ramadan & Shah, Syed Zulfiqar Ali, 2016. "More on the relationship between corporate governance and firm performance in the UK: Evidence from the application of generalized method of moments estimation," Research in International Business and Finance, Elsevier, vol. 38(C), pages 417-429.
    31. Herenia Gutiérrez-Ponce & Julian Chamizo-González & Nuria Arimany-Serrat, 2022. "Disclosure of Environmental, Social, and Corporate Governance Information by Spanish Companies: A Compliance Analysis," Sustainability, MDPI, vol. 14(6), pages 1-19, March.
    32. Black, Bernard S. & Kim, Woochan & Jang, Hasung & Park, Kyung-Suh, 2015. "How corporate governance affect firm value? Evidence on a self-dealing channel from a natural experiment in Korea," Journal of Banking & Finance, Elsevier, vol. 51(C), pages 131-150.
    33. Philip Brown & Wendy Beekes & Peter Verhoeven, 2011. "Corporate governance, accounting and finance: A review," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 51(1), pages 96-172, March.
    34. Bruno Faustino Lima & Antonio Zoratto Sanvicente, 2013. "Quality of Corporate Governance and Cost of Equity in Brazil," Journal of Applied Corporate Finance, Morgan Stanley, vol. 25(1), pages 72-80, March.
    35. Erick Rading Outa & Nelson M. Waweru, 2016. "Corporate governance guidelines compliance and firm financial performance: Kenya listed companies," Managerial Auditing Journal, Emerald Group Publishing, vol. 31(8/9), pages 891-914, September.
    36. repec:eme:arapps:v:23:y:2015:i:3:p:206-231 is not listed on IDEAS
    37. Kamran Ahmed & Mahmud Hossain & Mike B. Adams, 2006. "The Effects of Board Composition and Board Size on the Informativeness of Annual Accounting Earnings," Corporate Governance: An International Review, Wiley Blackwell, vol. 14(5), pages 418-431, September.
    38. Bhagat, Sanjai & Bolton, Brian, 2008. "Corporate governance and firm performance," Journal of Corporate Finance, Elsevier, vol. 14(3), pages 257-273, June.
    39. Szymon Kaczmarek & Satomi Kimino & Annie Pye, 2014. "Interlocking directorships and firm performance in highly regulated sectors: the moderating impact of board diversity," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(2), pages 347-372, May.
    40. Ahmed A. Sarhan & Collins G. Ntim & Basil Al‐Najjar, 2019. "Board diversity, corporate governance, corporate performance, and executive pay," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(2), pages 761-786, April.
    41. Felipe Arenas-Torres & Miguel Bustamante-Ubilla & Roberto Campos-Troncoso, 2021. "Diversity of the Board of Directors and Financial Performance of the Firms," Sustainability, MDPI, vol. 13(21), pages 1-11, October.
    42. Ciftci, Ilhan & Tatoglu, Ekrem & Wood, Geoffrey & Demirbag, Mehmet & Zaim, Selim, 2019. "Corporate governance and firm performance in emerging markets: Evidence from Turkey," International Business Review, Elsevier, vol. 28(1), pages 90-103.
    43. Hania Rehman & Muhammad Ramzan & Muhammad Zia Ul Haq & Jinsoo Hwang & Kyoung-Bae Kim, 2021. "Risk Management in Corporate Governance Framework," Sustainability, MDPI, vol. 13(9), pages 1-17, April.
    44. Abdallah, Abed Al-Nasser & Ismail, Ahmad K., 2017. "Corporate governance practices, ownership structure, and corporate performance in the GCC countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 46(C), pages 98-115.
    45. Hussain Muhammad & Stefania Migliori & Sana Mohsni, 2021. "Capital structure and firm performance: the role of corporate governance," International Journal of Business Governance and Ethics, Inderscience Enterprises Ltd, vol. 15(4), pages 436-458.
    46. Daniel Hoechle, 2007. "Robust standard errors for panel regressions with cross-sectional dependence," Stata Journal, StataCorp LP, vol. 7(3), pages 281-312, September.
    47. Ararat, Melsa & Black, Bernard S. & Yurtoglu, B. Burcin, 2017. "The effect of corporate governance on firm value and profitability: Time-series evidence from Turkey," Emerging Markets Review, Elsevier, vol. 30(C), pages 113-132.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yongrong Xin & Muhammad Sajid Amin & Hashim Khan & Jiyuan Zheng & Muhammad Umer Quddoos, 2023. "Unleashing the Moderating Influence of Firms’ Life Cycle Stages and National Income on Capital Structure Targeting Behavior: A Roadmap towards Sustainable Development," Sustainability, MDPI, vol. 15(4), pages 1-21, February.
    2. Aleksandra Stoiljković & Slavica Tomić & Bojan Leković & Milenko Matić, 2022. "Determinants of Capital Structure: Empirical Evidence of Manufacturing Companies in the Republic of Serbia," Sustainability, MDPI, vol. 15(1), pages 1-19, December.
    3. Nguyen Vinh Khuong & Vu Tran Trong Tai & Nguyen Thi Phuong Thao & Pham Minh Tuan & Tran Tuan Dung & Vo Tuong Khanh, 2024. "Corporate governance and corporate carbon disclosures: The moderating role of earnings management," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 4596-4611, September.
    4. Tripathi, Vibha & Goodell, John W. & Madhavan, Vinodh & Kumar, Satish, 2024. "Moderating effect of capital structure on the relationship between corporate governance mechanisms and firm value: Evidence from India," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 1336-1350.
    5. Ahmad Yuosef Alodat & Zalailah Salleh & Haitham Nobanee & Hafiza Aishah Hashim, 2023. "Board gender diversity and firm performance: The mediating role of sustainability disclosure," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(4), pages 2053-2065, July.
    6. Saleh F. A. Khatib & Hamzeh Al Amosh & Husam Ananzeh, 2023. "Board Compensation in Financial Sectors: A Systematic Review of Twenty-Four Years of Research," IJFS, MDPI, vol. 11(3), pages 1-22, July.
    7. Wajdi Affes & Anis Jarboui, 2023. "The impact of corporate governance on financial performance: a cross-sector study," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 20(4), pages 374-394, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michail Nerantzidis, 2018. "The role of weighting in corporate governance ratings," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 22(3), pages 589-628, September.
    2. Akbar, Muhammad & Hussain, Shahzad & Ahmad, Tanveer & Hassan, Shoib, 2020. "Corporate Governance and Firm Performance in Pakistan: Dynamic Panel Estimation," CAFE Working Papers 6, Centre for Accountancy, Finance and Economics (CAFE), Birmingham City Business School, Birmingham City University.
    3. Marwa Elnahass & Kamil Omoteso & Aly Salama & Vu Quang Trinh, 2020. "Differential market valuations of board busyness across alternative banking models," Review of Quantitative Finance and Accounting, Springer, vol. 55(1), pages 201-238, July.
    4. Abdallah, Abed Al-Nasser & Ismail, Ahmad K., 2017. "Corporate governance practices, ownership structure, and corporate performance in the GCC countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 46(C), pages 98-115.
    5. Al-ahdal, Waleed M. & Alsamhi, Mohammed H. & Tabash, Mosab I. & Farhan, Najib H.S., 2020. "The impact of corporate governance on financial performance of Indian and GCC listed firms: An empirical investigation," Research in International Business and Finance, Elsevier, vol. 51(C).
    6. Florentina Melnic & Daniel Juravle, 2020. "Governance And Access To Finance," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 25, pages 151-168, June.
    7. Nguyen, Thao & Bai, Min & Hou, Yang & Vu, Manh-Chien, 2021. "Corporate governance and dynamics capital structure: evidence from Vietnam," Global Finance Journal, Elsevier, vol. 48(C).
    8. Naeem Tabassum & Satwinder Singh, 2020. "Corporate Governance and Organisational Performance," Springer Books, Springer, number 978-3-030-48527-6, December.
    9. Shakri, Irfan Haider & Yong, Jaime & Xiang, Erwei, 2022. "Does compliance with corporate governance increase profitability? Evidence from an emerging economy: Pakistan," Global Finance Journal, Elsevier, vol. 53(C).
    10. Elnahass, Marwa & Salama, Aly & Trinh, Vu Quang, 2022. "Firm valuations and board compensation: Evidence from alternative banking models," Global Finance Journal, Elsevier, vol. 51(C).
    11. Husam Aldamen & Keith Duncan & Simone Kelly & Ray McNamara & Stephan Nagel, 2012. "Audit committee characteristics and firm performance during the global financial crisis," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 52(4), pages 971-1000, December.
    12. Jebran, Khalil & Chen, Shihua & Tauni, Muhammad Zubair, 2019. "Principal-principal conflicts and corporate cash holdings: Evidence from China," Research in International Business and Finance, Elsevier, vol. 49(C), pages 55-70.
    13. Luminita Enache & Khaled Hussainey, 2020. "The substitutive relation between voluntary disclosure and corporate governance in their effects on firm performance," Review of Quantitative Finance and Accounting, Springer, vol. 54(2), pages 413-445, February.
    14. Ahmed Abousamak, 2016. "Principal-principal internal governance mechanisms and the firms' performance: evidence from an emerging market," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 11(2), pages 145-169.
    15. Andreou, Panayiotis C. & Louca, Christodoulos & Panayides, Photis M., 2014. "Corporate governance, financial management decisions and firm performance: Evidence from the maritime industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 63(C), pages 59-78.
    16. Hussein Abedi Shamsabadi & Byung-Seong Min & Richard Chung, 2016. "Corporate governance and dividend strategy: lessons from Australia," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 12(5), pages 583-610, October.
    17. Ali Amin & Ramiz ur Rehman & Rizwan Ali & Ridzwana Mohd Said, 2022. "Corporate Governance and Capital Structure: Moderating Effect of Gender Diversity," SAGE Open, , vol. 12(1), pages 21582440221, March.
    18. Ahmad Yuosef Alodat & Zalailah Salleh & Hafiza Aishah Hashim & Farizah Sulong, 2021. "Corporate governance and firm performance: empirical evidence from Jordan," Journal of Financial Reporting and Accounting, Emerald Group Publishing Limited, vol. 20(5), pages 866-896, August.
    19. Amir Louizi & Radhouane Kammoun, 2016. "Evaluation of corporate governance systems by credit rating agencies," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 20(2), pages 363-385, June.
    20. Leo Vashkor Dewri, 2022. "A Critical Assessment of Interrelationship Among Corporate Governance, Financial Performance, Refined Economic Value Added to Measure Firm Value and Return on Stock," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(4), pages 2718-2759, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:14:y:2022:i:17:p:10525-:d:895853. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.