The moderating effects of governance on the relationship between investment opportunites, leverage and ownership indentity with firm
performance in the UAE
This study evaluates corporate governance practices of listed firms in the UAE and
examines the hypothesized influence of investment opportunities, leverage, foreign and
institutional ownership on firm performance. Corporate governance strength is also investigated as a moderator between investment opportunities, leverage, foreign, institutional ownership and firm performance. The moderating impact of corporate governance strength is also examined during the global financial crisis. After constructing an index to measure corporate governance strength, the fixed effects
regression in panel data was used to analyze the data. The data included 101 firms with
a total of 501 firm-year observations that spanned the period 2008 to 2012, of all the
firms listed on the Abu Dhabi Stock Exchange and the Dubai Financial Market. The results show a significant influence of investment opportunities, leverage and institutional ownership on firm performance represented by Return on Assets (ROA) and Refined Economic Value Added (REVA). However, the results find no influence of foreign ownership on ROA, and a negative influence on REVA. The governance index
shows a dramatic improvement in the corporate governance practices over time. In addition, corporate governance strength is found to significantly moderate the relationship between investment opportunities, leverage, foreign and institutional ownership with ROA, but only moderates the relationship between leverage and REVA. During the crisis, corporate governance strength appears to play a more efficient
moderating role. The findings of this study provide some insights to the regulators and
other related parties about the status of corporate governance practices in the UAE and
show that good corporate governance is indirectly able to improve the performance of
firms during different time periods
