Innovations in Corporate Governance Mechanism and Its Relation with ReTurn On Assets for Public Listed Companies in Saudi Arabia
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Innovations in Corporate Governance Mechanism and its Relation with Return on Assets for Public Listed Companies in Saudi ArabiaTable of ContentsContentsCHAPTER I: INTRODUCTION 11.1 Background 11.1.1 Overview 11.1.2 Global Emergence of CG 11.1.3 Emergence of CG in KSA 21.4 Problem Statement 61.2 Objectives of the Study 81.3 Significance of the Study 91.5 Contribution to the Knowledge 101.5.1 Gaps in Literature 101.5.2 Earlier Research 101.6 Motivation behind the Current Study 121.6.1 Current Availability of Literature 121.6.2 Fall of Stock Market 131.6.3 Monitoring and Control Functions 131.6.4 Corporate Governance and Capital Market Authority 141.7 Models Theories of Corporate Governance 141.7.1 Models of CG 141.7.2 Anglo-Saxon Model 141.7.3 Japanese Model 151.7.4 German Model 161.8 Theories of CG 161.8.1 Agency Theory 161.8.2 Stakeholder Theory 171.8.3 Enlightened Stakeholder Theory 181.8.4 Resource Dependency Theory 181.8.5 Stewardship Theory 191.8.6 Social Contract Theory 191.8.7 Legitimacy Theory 191.8.8 Political Theory 201.9 Audit Committee Theories 201.9.1 Agency Theory and Audit Committee 211.9.2 Institutional Theory 211.9.3 Actor Network Theory 211.9.4 Power Theory 221.10 Board of Directors and Firm Performance 221.11 Research Methodology 221.12 Limitations of the Study 23References 24CHAPTER I: INTRODUCTION1.1 Background1.1.1 OverviewThe 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 KSAThe 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).