Innovations in Corporate Governance Mechanism and Its Relation with ReTurn On Assets for Public Listed Companies in Saudi Arabia

Innovations in Corporate Governance Mechanism and its Relation with Return on Assets for Public Listed Companies in Saudi Arabia

Table of Contents

Contents

CHAPTER I: INTRODUCTION        1

1.1 Background        1

1.1.1 Overview        1

1.1.2 Global Emergence of CG        1

1.1.3 Emergence of CG in KSA        2

1.4 Problem Statement        6

1.2 Objectives of the Study        8

1.3 Significance of the Study        9

1.5 Contribution to the Knowledge        10

1.5.1 Gaps in Literature        10

1.5.2 Earlier Research        10

1.6 Motivation behind the Current Study        12

1.6.1 Current Availability of Literature        12

1.6.2 Fall of Stock Market        13

1.6.3 Monitoring and Control Functions        13

1.6.4 Corporate Governance and Capital Market Authority        14

1.7 Models Theories of Corporate Governance        14

1.7.1 Models of CG        14

1.7.2 Anglo-Saxon Model        14

1.7.3 Japanese Model        15

1.7.4 German Model        16

1.8 Theories of CG        16

1.8.1 Agency Theory        16

1.8.2 Stakeholder Theory        17

1.8.3 Enlightened Stakeholder Theory        18

1.8.4 Resource Dependency Theory        18

1.8.5 Stewardship Theory        19

1.8.6 Social Contract Theory        19

1.8.7 Legitimacy Theory        19

1.8.8 Political Theory        20

1.9 Audit Committee Theories        20

1.9.1 Agency Theory and Audit Committee        21

1.9.2 Institutional Theory        21

1.9.3 Actor Network Theory        21

1.9.4 Power Theory        22

1.10 Board of Directors and Firm Performance        22

1.11 Research Methodology        22

1.12 Limitations of the Study        23

References        24

CHAPTER I: INTRODUCTION

1.1 Background

1.1.1 Overview

The word Corporate Governance has come from the Greek work “kyberman” meaning to direct, guide. The term Corporate Governance has grown prominence only in last two decades (Al-Hussain, 2009). After the massive failure of biggest corporations around the world like world com 2002, Adlephia 2002, Enron 2001 and Commerce Bank 1991, Corporate Governance received ample consideration. Moreover over the recent years the matter of Corporate Governance has gained popularity in both parts of the Atlantic Aguilera and (Bebchuk & Weisbach, 2010). It has become the issue of confab almost ubiquitously including boardrooms, classrooms and the mass media (Al-Malkawi, Pillai & Bhatti, 2014). The main purpose for the consideration towards corporate governance was mainly led by the sequence of corporate catastrophes. These disasters affected both the internal and external stakeholders including the corporate environments.

1.1.2 Global Emergence of CG

Corporate Governance can be defined as a method by which the relations between ownership and the managerial systems are organized into the firms. The system of Corporate Governance is not a standard part of the International Business; however, the corporations today are striving their best to make the best out of it (Al-Moataz & Hussainey, 2012). For example, during the times of Asian Fiscal Emergency, which began with the devaluation of the Thai Baht in July 1997, carried to the frontal area the typical event of frail corporate legislation which had permitted organizations to participate in unnecessary over-influence, some of which were supported by verifiable state ensures. Crises were increased because elements like transparency, divulgence and responsibility were to a great extent overlooked (Bebchuk & Weisbach, 2010). The investors did not have a long-term view assuming the profits to rise in the financial markets of region. Europe and United States have also played their part in the problematic decisions of management which caused a massive loss including Enron Corp. and many other institutes like, United States’ long-term credit management and Europe’s Morgan Grenfell Chambers, (2002). Australia has also been averse because of the latest collapses of One Tel Ltd, Atele Communications Company, and HIH Insurance Company Ltd. Corporate Governance’s importance became more evident after these cases (Safieddine, 2009).

The financial crisis in Asia, Russia, United States and Australia have also shown that by not considering the importance of the basic values of Corporate Governance the world is negatively impacted. Due to the poor Corporate Governance, countries, markets, and organizations had severe crises and failed to survive (Al-Janadi, Rahman & Omar, 2013). With the financial crises, it became quite clear that without control, accountability in corporate boards and shareholder rights, even the strong economies can fall rapidly (Soliman, 2013). This fall is mainly caused by the loss of confidence from the investors in the economy.

1.1.3 Emergence of CG in KSA

The business environment of any country is greatly affected by the politics, culture and the economics of that country. In order to understand the business environment or the corporate culture in a better manner, the prevailing factors in this context are very crucial for the understanding of the topic (Robertson, Al-AlSheikh & Al-Kahtani, 2012). In order to understand the emergence of Corporate Governance and the prevailing conditions of concept in the Kingdom of Saudi Arabia. It was after the times of King Abdul Aziz in the year 1930s that KSA started emerging as one of the most significant parts of the world’s business environment. The principles that are followed in the business world of Saudi Arabia, for the purpose of Corporate Governance are mainly guided by the organizations like International Corporate Governance Network (ICGN) and the Organization for Economic Cooperation and Development (OECD).