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The Linkage between Excess Board Independence and Capital Structure: An Exploration in the Context of Listed Companies in Saudi Arabia

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  • Lakshmi Kalyanaraman
  • Basmah Altuwaijri

Abstract

The purpose of this study is to investigate the link between one of the corporate governance mechanisms employed to effectively monitor managers and align their goals with those of shareholders, number of independent directors on the board and capital structure for 68 firms listed on Saudi Arabian stock exchange for the period 2010-2014. We employ two measures that account for the representation of independent directors, board independence and excess independence and test this relationship in the presence of a number of control variables such as board size, assets’ tangibility and firm size, profitability and growth opportunities. We find that board independence and debt share a positive relationship which is not statistically significant, while the link between excess independence and debt is positive and is statistically significant. The results are robust when the book debt is alternated with market debt. Our findings have important implications for the corporate governance structures of firms. This has important implications for the regulators and firms.

Suggested Citation

  • Lakshmi Kalyanaraman & Basmah Altuwaijri, 2016. "The Linkage between Excess Board Independence and Capital Structure: An Exploration in the Context of Listed Companies in Saudi Arabia," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 6(3), pages 1-9.
    • Handle: RePEc:spt:apfiba:v:6:y:2016:i:3:f:6_3_9
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    1. repec:thr:techub:10024:y:2021:i:1:p:348-361 is not listed on IDEAS
    2. Nkwantabisa Agyeiwaa Owusu & Falistus Raphael Hadjor & Nelly Joel Tchuiendem, 2021. "The influencing power of apply and explain on capital structure," Technium Social Sciences Journal, Technium Science, vol. 24(1), pages 348-361, October.
    3. Waseem Anwar & Sidra Liaqat & Muhammad Waris, 2022. "Moderating Role of Corporate Governance in the Relationship between Corporate Structure and Firm Performance: A Case Study of Pakistani Non-Financial Firms," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 4(3), pages 400-418, September.
    4. Waleed M. Al-ahdal & Faozi A. Almaqtari & Mosab I. Tabash & Abdulwahid Abdullah Hashed & Ali T. Yahya, 2023. "Corporate Governance Practices and Firm Performance in Emerging Markets: Empirical Insights from India and Gulf Countries," Vision, , vol. 27(4), pages 526-537, August.

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