The effect of corporate governance on the financial performance of SME listed companies in Egypt

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Abstract

The aim of this paper is to examine the effect of corporate governance on the organizational performance of domestic small and medium-sized enterprises (SMEs) in the industrial, construction, distribution, and mining sectors listed on the Nilex stock market in Egypt. Using an empirical analysis this study examines the effect of board size, board composition, chief executive officer (CEO) duality, and the existence of the audit committee on the performance of the listed companies. This study exploits corporate performance by accounting-based measures (return on assets, ROA). The study’s findings about listed SMEs provide some interesting information. It demonstrates a negligible association between board size and company performance in Egypt as well as a negative association between the proportion of executive directors on the board and company performance. A positive correlation between CEO duality and business performance is also present. A reverse relationship between the existence of the audit committee and the performance of the companies. The paper provides empirical evidence that applying corporate governance practices is still not mature in the Egyptian SMEs listed on the Nilex stock market. Considering the enforcement of corporate governance practices in 2017, this paper considers one of the fewest that contributes to the literature on corporate governance and SMEs performance in Egypt by introducing empirical findings for the period from 2018 to 2021.

Keywords: Corporate Governance, Board of Directors, CEO Duality, Audit Committee, Board Independence, Board Size

Authors’ individual contribution: Conceptualization — F.N.I.; Methodology — F.N.I.; Formal Analysis — F.N.I.; Investigation — F.N.I.; Writing — Original Draft — F.N.I.; Writing — Review & Editing — F.N.I. and M.M.S.; Supervision — M.M.S.; Project Administration — F.N.I.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: A1, A10, G3, G30, G32, L25

Received: 18.09.2022
Accepted: 25.11.2022
Published online: 28.11.2022

How to cite this paper: Ismaeel, F. N., & Soliman, M. M. (2022). The effect of corporate governance on the financial performance of SME listed companies in Egypt. Corporate Ownership & Control, 20(1), 95–102. https://doi.org/10.22495/cocv20i1art9