Family ownership, board independence, and firm performance: evidence from Saudi stock market

Abstract This study examines the association between family ownership (FAMOWN) and firm performance (FP), exploring the moderating role of board independence (BIND) on the FAMOWN-FP nexus. Utilizing a dataset of 145 nonfinancial firms listed on the Saudi Stock Exchange (Tadawul) from 2016 to 2021 (828 firm-year observations), the findings reveal a significant positive relationship between FAMOWN and FB. Furthermore, the results indicate that this relationship strengthens with a greater proportion of BIND. These results remain consistent across robustness checks, including alternative performance metrics, varying FAMOWN thresholds, and endogeneity controls using propensity score matching and two-stage least squares methods. The evidence suggests that BIND enhances the governance structure of family firms, amplifying the performance benefits of ownership concentration by mitigating agency conflicts and improving oversight. Consequently, these findings underscore the need for Saudi Arabian capital market regulators to prioritize robust governance frameworks, particularly the inclusion of board independence, to bolster FB in family-dominated companies.