Corporate Governance and Firm Performance: The Moderating Role of Economic Growth

This study examines the effect of corporate governance on firm performance and investigates whether economic growth moderates this relationship in GCC countries. Using a balanced panel of 133 listed non-financial firms from 2016 to 2023, the study employs the two-step System GMM estimator to address endogeneity, unobserved heterogeneity, and dynamic panel bias. Firm performance is measured using return on assets (ROA) and Tobin’s Q, while corporate governance is proxied by board size, CEO duality, and board independence. The results reveal that economic growth plays a selective moderating role in the governance–performance relationship. Specifically, the interaction between board size and economic growth is positive and statistically significant, indicating that larger boards contribute more effectively to firm valuation during periods of economic expansion. In contrast, the interaction effects of CEO duality and board independence are statistically insignificant, suggesting that the effectiveness of these governance mechanisms is less sensitive to macroeconomic conditions. The findings indicate that economic growth enhances the effectiveness of resource-oriented governance structures while exerting limited influence on monitoring-oriented mechanisms. The study extends the corporate governance literature by highlighting the contingent role of macroeconomic conditions in shaping governance effectiveness and offers practical implications for policymakers and regulators seeking to strengthen governance frameworks, promote sustainable economic growth, and enhance long-term value creation.

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Publication Details

Journal
Journal of risk and financial management
Published
2026-06-30
DOI
https://doi.org/10.3390/jrfm19070480
Primary Topic
Corporate Finance and Governance
Type
article
Field-Weighted Citation Impact
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article

Corporate Governance and Firm Performance: The Moderating Role of Economic Growth

Faiza Abdalla Sheikh Batoun, Rosli Mahmood
Journal of risk and financial management
Corporate Finance and Governance
article

Corporate Governance and Firm Performance: The Moderating Role of Economic Growth

Faiza Abdalla Sheikh Batoun, Rosli Mahmood
article en

Abstract

This study examines the effect of corporate governance on firm performance and investigates whether economic growth moderates this relationship in GCC countries. Using a balanced panel of 133 listed non-financial firms from 2016 to 2023, the study employs the two-step System GMM estimator to address endogeneity, unobserved heterogeneity, and dynamic panel bias. Firm performance is measured using return on assets (ROA) and Tobin’s Q, while corporate governance is proxied by board size, CEO duality, and board independence. The results reveal that economic growth plays a selective moderating role in the governance–performance relationship. Specifically, the interaction between board size and economic growth is positive and statistically significant, indicating that larger boards contribute more effectively to firm valuation during periods of economic expansion. In contrast, the interaction effects of CEO duality and board independence are statistically insignificant, suggesting that the effectiveness of these governance mechanisms is less sensitive to macroeconomic conditions. The findings indicate that economic growth enhances the effectiveness of resource-oriented governance structures while exerting limited influence on monitoring-oriented mechanisms. The study extends the corporate governance literature by highlighting the contingent role of macroeconomic conditions in shaping governance effectiveness and offers practical implications for policymakers and regulators seeking to strengthen governance frameworks, promote sustainable economic growth, and enhance long-term value creation.

Journal of risk and financial managementVol. 19(7)
Universiti Putra Malaysia (MY)
Decent work and economic growth
Openalex Percentile: Top 5%
Corporate Finance and Governance
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