The Relationship of Family Ownership with the Integrated Effectiveness of Board and Audit Committee in Gulf Cooperation Council Countries

(Ghassan Saeed Bagulaidah, Khaled Salmen Aljaaidi and Ehsan Al-Moataz)

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Abstract

Recently, there is an increased attention to corporate governance mechanisms and how can family ownership influence the effectiveness degree of these mechanisms? One important context is to examine these issues in the Gulf Cooperation Council (GCC) setting where family-controlled companies dominate the business market. The present study examines the relationship between family ownership and the effectiveness of board and audit committee in GCC listed companies. The study uses a cross-sectional analysis of 492 firm-year observations during the 2006-2010 periods. A pooled OLS regression is used to estimate the association proposed in the hypothesis. The study finds that family ownership is adversely associated with the effectiveness of board and audit committee. The result suggests that family-controlled companies do not have good corporate governance practices in terms of the effectiveness of board of directors and audit committee as internal control and monitoring mechanisms. Further, the result of this study contributes to the existing theory and empirical evidence that the board of directors and audit committee effectiveness of is negatively correlated to concentrated family ownership in a unique corporate ownership and corporate governance setting. The results of this study would be of importance to GCC governments, stock markets, companies, accounting and auditing regulators, banks, investors, and academic community by gaining a deep understanding of this relationship. Key Words: Audit committee, Board of directors, Effectiveness, Family ownership, GCC, Governance.
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