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Investment opportunities, corporate governance quality, and firm performance in the UAE

Author

Listed:
  • Bakr Al-Gamrh

    (ESC [Rennes] - ESC Rennes School of Business)

  • Ku Nor Izah Ku Ismail

    (UUM - Universiti Utara Malaysia)

  • Tanveer Ahsan

    (ESC [Rennes] - ESC Rennes School of Business)

  • Abdulsalam Alquhaif

    (University of Hail)

Abstract

Purpose – This paper examines the influence of investment opportunities on firm performance and evaluates corporate governance practices in the United Arab Emirates (UAE) to determine whether corporate governance quality moderates that influence. Design/methodology/approach – A fixed-effects regression was employed to examine the influence of investment opportunities on firm performance and the role of corporate governance quality as a moderator for all listed firms on the Abu Dhabi Stock Exchange (ADX) and the Dubai Financial Market (DFM). We examined 501 firm-year observations for the period when the corporate governance code in the UAE was coming into force, from 2008 to 2012. Findings – The regression results indicate that investment opportunities have a negative influence on firm performance. The corporate governance index used here shows that the level of corporate governance practiced in the UAEis weak.Wealso find that strong corporate governance ameliorates the negative influence of investment opportunities, which supports our hypotheses. The sub-indices of corporate governance that matter the most for moderating investment opportunities are board functioning and ethics. Practical implications – The results of this paper reflect the need to examine corporate governance in the context of the external environment represented by investment opportunities in our study. The findings could raise awareness of the importance of strong corporate governance practices, not only to directly improve firm performance but also through its influence on external variables. Legislators, regulators and other interested parties could use these results to examine practices in the UAE following the implementation of the corporate governance code. Originality/value – This study contributes to the literature by evaluating the role that corporate governance quality and its components could play in firm performance and indirectly moderating other external factors (such as investment opportunities).

Suggested Citation

  • Bakr Al-Gamrh & Ku Nor Izah Ku Ismail & Tanveer Ahsan & Abdulsalam Alquhaif, 2020. "Investment opportunities, corporate governance quality, and firm performance in the UAE," Post-Print hal-02956352, HAL.
    • Handle: RePEc:hal:journl:hal-02956352
    DOI: 10.1108/JAEE-12-2018-0134
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    Citations

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    Cited by:

    1. 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.
    2. Umair Bin Yousaf & Khalil Jebran & Irfan Ullah, 2024. "Corporate governance and financial distress: A review of the theoretical and empirical literature," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 1627-1679, April.
    3. Muhammd Istan, 2024. "Analysis of the Influence of Assets Structure, Earning Volatility, and Financial Flexibility on Capital Structure and Corporate Performance in Manufacturing Sector Companies on the IDX," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 49-65.
    4. Amanj Mohamed Ahmed & Deni Pandu Nugraha & István Hágen, 2023. "The Relationship between Capital Structure and Firm Performance: The Moderating Role of Agency Cost," Risks, MDPI, vol. 11(6), pages 1-17, June.
    5. Jun Wen & Umar Farooq & Suhaib Anagreh & Mosab I. Tabash, 2022. "Quality of governance and corporate real investment: Assessing the impact of foreign aid," Bulletin of Economic Research, Wiley Blackwell, vol. 74(4), pages 1115-1134, October.
    6. Muhammad Azeem Naz & Rizwan Ali & Ramiz Ur Rehman & Collins G. Ntim, 2022. "Corporate governance, working capital management, and firm performance: Some new insights from agency theory," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1448-1461, July.
    7. Bo Peng, 2024. "Corporate governance and its impact on financial performance and innovation in Chinese‐listed firms," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(3), pages 1598-1609, May.
    8. 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).

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