Economic Value of Energy and Petrochemical Companies and Multiple Directorships: Evidence from Saudi Arabia
| Autor | Khaled Salmen Aljaaidi |
| Cargo | PhD in Accounting, College of Business Administration, Prince Sattam bin Abdulaziz University, Assistant Professor |
| Páginas | 149-166 |
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ABSTRACT
The existence of multiple directorships is the case when a board member is serving on two or more
boards or a number of other external appointments. This study aims to examine the impact of multiple
directorships on a firm’s economic values among Saudi listed companies using the busyness hypothesis.
As for the methodology, this study collected secondary data from the annual reports of the listed
companies that include corporate governance and firm-specific characteristics. In addition, this study
reviewed the extant research related to the multiple directorships and firms’ economic values. Using
a sample of 140 Energy and Petrochemical companies for the period 2012-2019, the Ordinary-Least
Square (OLS) results show that busy directors negatively influence the firm’s economic value, measured
as ROA and ROE. The findings of this study have theoretical implications in a manner that gives support
to the busyness hypothesis in the Saudi context, which is considered a different setting from other
studies conducted in other developed and developing countries in terms of politics, economic factors,
and culture. This study adds additional empirical evidence in the unique setting of Saudi Arabia. In
addition, the findings of this study could have practical implications to policymakers, shareholders,
management, auditors, and other stakeholders in gaining a deeper understanding of how multiple
directorships negatively influence the firm’s economic value.
KEYWORDS
Corporate governance, multiple directorships, economic value, emerging markets, Saudi Arabia.
RESUMEN
La existencia de dirección múltiple es el caso cuando un miembro de la junta se desempeña en dos o
más juntas o una serie de otros nombramientos externos. Este estudio tiene como objetivo examinar
el impacto de la dirección múltiple en los valores económicos de la empresa entre las empresas
saudíes que cotizan en bolsa utilizando la hipótesis de actividad. En cuanto a la metodología, este
estudio recopiló los datos secundarios de los informes anuales de las empresas cotizadas que
incluyen el gobierno corporativo y las características específicas de la empresa. Además, este estudio
revisó la investigación existente relacionada con los múltiples directorios y los valores económicos
de las empresas. Utilizando una muestra de 140 empresas de energía y petroquímica para el período
2012-2019, los resultados de los mínimos cuadrados ordinarios (OLS) muestran que los directores
ocupados influyen negativamente en el valor económico de la empresa, medido como ROA y ROE. Los
Economic Value of Energy and Petrochemical
Companies and Multiple Directorships: Evidence
from Saudi Arabia
Valor económico de las empresas de energía y petroquímica y directorios múltiples:
evidencia de Arabia Saudita
KHALED
SALMEN ALJAAIDI
JEL: L, P, P, P, M
Received: 09/01/2022
Modified: 08/08/2022
Accepted: 16/08/2022
Doi: https://doi.org/10.17230/
Ad-minister.41.6
1 Khaled Salmen Aljaaidi, PhD in Accounting, College of Business Administration, Prince Sattam bin
Abdulaziz University, Assistant Professor, Email: k.aljaaidi@psau.edu.sa, ORCID: 0000-0002-0661-6813
AD-minister Nº. 41 july - december 2022 pp. 149 - 166 · ISSN 1692-0279 · eISSN 2256-4322
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AD-MINISTER
Khaled Salmen Aljaaidi
Economic Value of Energy and Petrochemical Companies and Multiple Directorships: Evidence from Saudi Arabia
hallazgos de este estudio tienen implicaciones teóricas en el sentido de que respalda la hipótesis del ajetreo
en el contexto saudí, que se considera un escenario diferente de otros estudios realizados en otros países
desarrollados y en desarrollo en términos de política, economía y cultura. Este estudio agrega una evidencia
empírica adicional en el entorno único de Arabia Saudita. Además, los hallazgos de este estudio podrían
tener implicaciones prácticas para los formuladores de políticas, los accionistas, la gerencia, los auditores y
otras partes interesadas para obtener una comprensión más profunda de cómo la dirección múltiple influye
negativamente en el valor económico de la empresa.
PALABRAS CLAVE
Gobierno corporativo, directorio múltiple, desempeño de la empresa, mercados emergentes, Arabia Saudita.
. BACKGROUND OF THE STUDY
A corporation’s board of directors should undertake the essential tasks of
monitoring the company and giving advice to senior managers (Aljaaidi et al.,
2021; Hassan et al., 2020; Mace 1971). A board of directors is regarded as a crucial
mechanism for internal governance, both to monitor the company and to control
managerial performance whilst protecting the interests of shareholders. The board
of directors is authorized to carry out monitoring of a company’s strategy, ensuring
that company management is endeavoring to realize organizational targets
(Kamardin et al., 2014; Chou et al., 2014).
One of the most important issues influencing the board of directors’ monitoring
and advising functions is multiple directorships. This practice arises when a board
member at one company holds external executive/non-executive directorships
at another company. Most researchers oer a definition of a director as “busy” if
the number of external directorships held by him or her is more than three (Fich,
Shivdasani, 2006; Cashman, Gillan, Jun, 2012; Benson et al., 2014). In other words,
multiple directorship exists when a board member is serving on two or more
boards or a number of other external appointments (Kamardin et al., 2014; Chou
et al., 2014). On the basis of the “busyness hypothesis” that is rooted from agency
theory, the busier a corporate director is, the more negative the impact that he/she
will have on the company (Méndez et al., 2015). Further, company owners should
be able to have expectations that directors will always be dedicated to acting in the
best interests of the company and its ownership (Jensen & Meckling, 1976). Board of
directors holding multiple directorships may not have sucient time to implement
close scrutiny of internal control systems, which in turn can mean that they are not
as eective in their monitoring of management. Having to share their attention
and time over multiple directorships can make them less ecient in their duties
(Fich & Shivdasani, 2006; Cashman, Gillan, & Jun, 2012; Falato, Kadyrzhanova, &
Lel, 2014; Latif, Kamardin, Mohd, & Adam, 2013).
Pye et al. (2012) state that if directors hold numerous external board posts, they can
become excessively busy, and this will prevent them undertaking their monitoring
duties eectively by only focusing on the company board. Morck, Shleifer, and Vishny
(1988) have stated that providing management with advice and overseeing company
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