Do agency conflicts between managers and shareholders affect corporate risk management and financial performance of Saudi firms?

Abstract

Purpose

The purpose of this paper is to examine the impact of agency conflicts between managers and shareholders on corporate risk management and financial performance of Saudi firms listed in the Saudi Stock Exchange Tadawul.

Design/methodology/approach

To investigate the effect of agency conflicts between managers and shareholders on corporate risk management and financial performance, we use a sample of 180 Saudi firms listed in the Saudi Stock Exchange Tadawul during the period from 2009 to 2018. Econometrically, we employ Vector Autoregressive (VAR) and General Linear Model (GLM) techniques as an appropriate methodology.

Findings

Our findings show that the risk level of the last year increase the corporate risk management and the performance of Saudi firm. We remark that the separation amongst control and ownership generates agency conflicts amongst managers and shareholders which can affect their behavior in decision-making and performance of the Saudi firms. Thus, the conflicts of interest arise from the differences among the work horizon, the risk assumed, the performance of enterprises, and the level of remuneration desired by the managers and shareholders in the case of Saudi firms.

Originality/value

The main contributions of our paper prove that the deepen the study of agency costs linked to a shareholding structure through the analysis of monitoring, obligation, and opportunity costs in the Saudi firms.

Citation

Jamel, L., Albogami, H.E., Abdulaal, M.A. and Aljohani, N.A. (2021), "Do agency conflicts between managers and shareholders affect corporate risk management and financial performance of Saudi firms?", Journal of Investment Compliance, Vol. 22 No. 1, pp. 58-73. https://doi.org/10.1108/JOIC-11-2020-0044