Board effectiveness and corporate investment in emerging markets: evidence from the gulf cooperation council countries

Abstract

Purpose This study aims to empirically examine the impact of internal corporate governance mechanisms (ICGM) related to the size of the board, board composition, CEO duality and audit committee independence as a single metric on a firm’s investment decisions. Design/methodology/approach This study attempts to develop an internal corporate governance quality index comprising 10 items under four main ICGMs – size and independence of the board, CEO duality and audit committee independence – employing panel data analysis to investigate its impact on the investment decisions in 301 nonfinancial firms listed in six emerging capital markets in the Gulf Cooperation Council (GCC) member countries for the years 2015–2020. Data were extracted from sample companies' websites, stock markets, annual reports and Refinitiv database. Findings This study provides convincing evidence that effective ICGMs minimize inefficient investment and ultimately boost investment efficiency. The findings remain consistent even after considering the potential endogeneity bias. Originality/value This study provides empirical evidence on investment efficiency in the GCC region and emphasizes the importance of high-quality ICGMs in reducing inefficient investment. By examining the impact of ICGMs on investment inefficiencies, this study contributes to the corporate governance literature. The GCC region's unique economic and social contexts, with its growing economies, are considered to shed light on this issue.