Board of Directors’ Effectiveness and Firm Performance: Evidence from Jordan

Abstract

This paper aims to examine the relationship between the board of director’s effectiveness and firm performance in Jordanian listed firms. The study used panel data approach over a period of five years from 2009 to 2013, with a sample of 120 non-financial firms listed on Amman Stock Exchange, these firms represents around 56% of Jordanian listed firms. In terms of the effect of board of directors on firm performance, five characteristics of the board of directors are identified: board of directors’ independence, board size, board meetings, leadership structure and board of directors' ownership. The firm performance was assessed by (ROA) as an accounting-based performance measure and Tobin’s Q (TQ) as a market-based indicator. The findings indicate that the independence of board of directors and board of directors' ownership have a positive impact on firm performance. The results also find that the smaller board size enhances the firm performance. Further analysis shows that the findings fail to reveal any significant impact for the frequency of board meetings and leadership structure on firm performance. The study contributes to the literature on board of directors’ effectiveness and firm performance in developing countries especially in Jordan. This study provides useful information that is of great value to policy makers, academics and other stakeholders.

Keywords: Corporate governance, board of directors’ effectiveness, firm performance, Jordan.