The Impact of Corporate Governance on Financial Performance: Evidence from Saudi-Listed Firms

Abstract

This study examines the relationship between corporate governance mechanisms and firm performance among Saudi-listed firms between 2019 and 2024, motivated by Vision 2030 reforms and the growing alignment of Saudi regulations with OECD standards. It investigates whether board independence, board size, and ownership concentration influence firm outcomes within a context characterised by concentrated ownership and family control. Drawing on agency, stakeholder, and institutional theories, the research employs a positivist, deductive design using a balanced panel of 150 firms. Firm performance is measured by return on assets (ROA), return on equity (ROE), and Tobin's Q, with panel regressions (OLS, fixed effects, and system GMM) controlling for firm size, leverage, and industry effects. Results indicate that board-level governance mechanisms have weak and inconsistent effects: board independence is insignificant, board size shows only marginal benefits, and ownership concentration has mixed impacts. By contrast, firm size and leverage are robust determinants: larger firms achieve higher accounting returns but lower market valuations, while leverage consistently reduces profitability. These findings suggest that governance reforms in Saudi Arabia have yet to deliver performance gains, reflecting persistent institutional and enforcement constraints. This research provides new panel-based evidence from an underexplored market and offers policy implications for regulators seeking to strengthen board effectiveness and protect minority shareholders. More broadly, it demonstrates that in family-dominated emerging markets, structural firm attributes consistently outweigh board-level mechanisms, reinforcing institutional theory and highlighting the limits of OECD-style reforms without strong enforcement.