Intensive Board Monitoring and Firm Value: An Empirical Analysis in the Context of Saudi Arabia

Abstract

This paper intends to examine the role of intensive monitoring by the boards of Saudi listed firms in protecting the firm's resources through analyzing its impact on firm value. Intensive Board Monitoring (IBM) is measured through the independence of the oversight board committees, which is the audit and the nomination and remuneration committees. Whereas the firm's valuation variables that we apply in this paper are Tobin's Q and M-B ratio. The sample understudy covers all the firms listed in the Saudi stock market, except the firms listed in the banking and insurance sectors, over the period 2008 till 2013. The results of the analysis, when we apply the Ordinary Least Square (OLS) approach, reveal that Intensive Board Monitoring (IBM) has a positive and significant impact on firm value. This positive impact is strengthened when we apply the Two Stage Least Square (2SLS) approach, which prove the endogenous nature of the IBM variables.