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Is corporate governance a good predictor of SMEs financial performance? Evidence from developing countries (the case of Lebanon)

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  • Nohade Nasrallah
  • R. El Khoury

Abstract

This paper aims to empirically examine the link between corporate governance and the financial performance of small and medium enterprises (SMEs) in Lebanon. To this end, we use a questionnaire and collect data from a sample of 150 non-listed companies. The Bundles approach following R. Aguilera et al. (2008). ‘An Organizational Approach to Comparative Corporate Governance: Costs, Contingencies, and Complementarities.’ Organization Science 19: 475–492.) is used to construct a corporate governance score based on three main components. By applying 2SLS regression to control for endogeneity and a quantile regression, we study the impact of corporate governance (CG) score and each of its components on the financial performance (FP) measured by return on assets (ROA) and return on investment (ROI) while controlling for SMEs age, size, and industry. The study indicates positive interdependency between CG and FP. Effective CG results in increased FP and better performing companies tend to improve their CG). Interestingly, our results show that this relationship depends on the level of SMEs FP These findings provide managers with useful insights and serve as an underpinning for more regulatory efforts aimed at strengthening the CG of SMEs in Lebanon.

Suggested Citation

  • Nohade Nasrallah & R. El Khoury, 2022. "Is corporate governance a good predictor of SMEs financial performance? Evidence from developing countries (the case of Lebanon)," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 12(1), pages 13-43, January.
    • Handle: RePEc:taf:jsustf:v:12:y:2022:i:1:p:13-43
    DOI: 10.1080/20430795.2021.1874213
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    Cited by:

    1. Muhieddine Ramadan & Najib Bou Zakhem & Hala Baydoun & Amira Daouk & Samia Youssef & Abir El Fawal & Jean Elia & Ahmad Ashaal, 2023. "Toward Digital Transformation and Business Model Innovation: The Nexus between Leadership, Organizational Agility, and Knowledge Transfer," Administrative Sciences, MDPI, vol. 13(8), pages 1-21, August.
    2. Narula, Radhika & Rao, Purnima & Kumar, Satish & Matta, Rahul, 2024. "ESG scores and firm performance- evidence from emerging market," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1170-1184.
    3. Andrew E. Hansen-Addy & Davide M. Parrilli & Ishmael Tingbani, 2024. "The impact of trade facilitation on African SMEs’ performance," Small Business Economics, Springer, vol. 62(1), pages 105-131, January.
    4. Obey Dzomonda, 2022. "Environmental Sustainability Commitment and Access to Finance by Small and Medium Enterprises: The Role of Financial Performance and Corporate Governance," Sustainability, MDPI, vol. 14(14), pages 1-20, July.
    5. Kankan Wen & Noha Alessa & Karifala Marah & Kwame Kyeremeh & Emmanuel Sampson Ansah & Vincent Tawiah, 2023. "The Impact of Corporate Governance and International Orientation on Firm Performance in SMEs: Evidence from a Developing Country," Sustainability, MDPI, vol. 15(6), pages 1-16, March.
    6. Meltem Altın & Ozgun Atalay, 2024. "The COVID-19 Pandemic’s Impact on the Performance of Firms on the BIST 100 Index," Istanbul Business Research, Istanbul University Business School, vol. 53(1), pages 119-136, April.
    7. Indah Fajarini Sri Wahyuningrum & Amin Chegenizadeh & Natasya Ghinna Humaira & Mochamad Arief Budihardjo & Hamid Nikraz, 2023. "Corporate Governance Research in Asian Countries: A Bibliometric and Content Analysis (2001–2021)," Sustainability, MDPI, vol. 15(8), pages 1-20, April.
    8. Rajesh Raut & Amruta Deshpande & Kirti Gupta & Natashaa Kaul & Nivedita Ekbote, 2023. "Status of Women in Corporate Governance in the Private Sector Companies in India," Indian Journal of Corporate Governance, , vol. 16(1), pages 94-107, June.

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