Title: Corporate governance and stock price performance of firms during the crisis: evidence from the MENA region

Authors: Omar Farooq; Youssef Chetioui

Addresses: Department of Business and Management, Aalborg University, Fibigerstræde 4, Aalborg 9220, Denmark ' School of Business Administration, Al Akhawayn University in Ifrane, P.O. Box 104, Avenue Hassan II, Ifrane 53000, Morocco

Abstract: This paper examines the impact of corporate governance mechanisms on stock price performance of firms in the MENA region, i.e., Morocco, Egypt, Saudi Arabia, United Arab Emirates, Jordan, Kuwait, and Bahrain, during the recent financial crisis. Using dividend policy, choice of auditors, and transactional complexity as proxies for corporate governance, we document better stock price performance for firms with superior governance mechanisms. Our results show that firms with one of the big-four auditors, firms paying dividends, and firms with lower transactional complexity are associated with superior stock price performance. We argue that lower agency problems that accompany firms with better corporate governance mechanisms make it hard for controlling shareholders to expropriate, thereby improving stock price performance. Our results are important in a way that they highlight the power that individual firms have in resisting adversities of financial crisis.

Keywords: corporate governance; stock prices; stock price performance; emerging markets; dividend policy; auditor selection; transparency; financial crisis; MENA region; Morocco; Egypt; Saudi Arabia; United Arab Emirates; UAE; Jordan; Kuwait; Bahrain; transactional complexity.

DOI: 10.1504/IJBGE.2012.051226

International Journal of Business Governance and Ethics, 2012 Vol.7 No.4, pp.331 - 349

Published online: 28 Dec 2012 *

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