The impact of the board of directors characteristics on regulation compliance: An evaluation of the board of directors’ effectiveness

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Abstract

This paper aims to investigate the board of directors’ (BD) effectiveness in enhancing compliance with regulations in the Saudi context. In particular, it explores whether there is an impact of the board of directors (size, independence, frequency of meeting and CEO serving on board) on the value of fines imposed by the Saudi Capital Market Authority (CMA) during the period from 2010 to 2017. In total 728 year observations were collected and analyzed. Multiple linear regression is performed to examine the association between the value of fines imposed by CMA and companies’ board of directors attributes. The results show that the CEO is serving on board, and ownership concentration significantly impacts the value of the fines imposed by the CMA. These results suggest that power distance could influence the function and effectiveness of the board of directors in compliance with official regulations. This paper provides implications to regulators interested in fostering compliance with regulations in emerging capital markets. The findings can also help investors to enhance their corporate governance practices.

Keywords: Corporate Governance, Board of Directors, Regulations, Fines, Capital Market

Authors’ individual contribution: Conceptualization — A.A.A. and T.A.; Methodology — A.A.A. and T.A.; Formal Analysis — A.A.A. and T.A.; Investigation — A.A.A and T.A.; Data Curation — A.A.A.; Writing — Original Draft — A.A.A.; Writing — Review & Editing — T.A.; Supervision — A.A.A.

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

JEL Classification: M40, M41, M48, M49

Received: 21.02.2021
Accepted: 08.09.2021
Published online: 10.09.2021

How to cite this paper: Alnodel, A. A., & Azid, T. (2021). The impact of the board of directors characteristics on regulation compliance: An evaluation of the board of directors’ effectiveness. Journal of Governance & Regulation, 10(4), 93–103. https://doi.org/10.22495/jgrv10i4art8