The Role Of Executive Turnover As A Moderator In Determining Corporate Performance And Financial Leverage In Jordan
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Date
2015-09
Authors
YOUSIF ALABDULLAH, TARIQ TAWFEEQ
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Abstract
In the last few decades, corporate governance has increasingly become a key
hurdle to the firms and their performance. In Jordanian context, Amman Stock
Exchange (ASE) has made several changes in terms of regulations through issuing
corporate governance mechanism in 2009. However, due to the poor performance in
the industrial and service sectors, Jordan has faced several internal economic,
business and social challenges besides the global financial crisis, which call for the
emergence of identifying key factors influencing the firm’s performance. The current
study aimed at examining the effect of corporate governance mechanism on financial
performance concerning the moderating role of executive turnover. Building on
agency theory, a conceptual model is developed and tested using the cross sectional
data from the 109 companies. The study used the annual reports for the fiscal year
2011 of the most active Jordanian firms. Multiple regression analyses were
conducted to test the hypotheses using SPSS software version 20. The findings show
that the independent board and CEO duality have no significant effect on financial
leverage. Furthermore, board size and managerial ownership have a negative effect
while foreign ownership has a positive effect on financial leverage. Additionally,
CEO duality and managerial ownership have no significant effect on market share,
whereas the board size and foreign ownership have a negative effect on market share.
From the theoretical standpoint, the study contributes to the accounting and
management literature by introducing and operationalizing unique financial
indicators, i.e. financial leverage and market share, in order to measure firm’s
performance in the context of the study. Moreover, the study reveals the moderating
role of executive turnover and its conceptualization in the context study, which
previously was not recognized in the corporate governance research. Indeed, the
significant result in relation to the moderating effect extends the agency theory
including its two main parties, i.e. shareholders and managers. From the
methodological point of view, the equation used by the current study is able to
compute the financial leverage in a different way as compared to that of the previous
studies. In fact, it uses a method of calculation serving the objective of the current
study to avoid income smoothing manipulation that might be used by the
management teams. The results suggest the need for issuing the precise policies
regarding to the role of executive turnover and taking into account the two new
indicators to measure firm’s performance apart from manipulations.
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Keywords
The Role Of Executive Turnover As A Moderator In Determining Corporate Performance , And Financial Leverage In Jordan