The impact of corporate governance on the financial performance of industrial companies listed on the Amman Stock Exchange

Abstract

This study provides a novel investigation into the impact of corporate governance mechanisms specifically, board size, board independence, and CEO duality on the financial performance of industrial companies listed on the Amman Stock Exchange (ASE) measured by return on assets (ROA), return on equity (ROE), and a composite Financial Performance Index (FP) derived from these metrics. The research offers originality by focusing exclusively on Jordan’s industrial sector a critical yet underexplored context in emerging market governance literature using a longitudinal panel dataset (2017-2024) that captures post-regulatory reform performance trends. Unlike previous studies that rely on single metrics or aggregated multi-sector data, this study employs a dual analytical approach, examining both a composite governance index and its individual dimensions (board size, independence, and CEO duality) to disentangle their distinct effects on Return on Assets (ROA) and Return on Equity (ROE). The findings reveal a significant and original insight: while composite governance shows no significant impact, specific mechanisms matter substantially. Board size demonstrates a strong positive effect, and contrary to conventional agency theory but aligned with stewardship perspectives CEO duality positively influences ROA. This study’s original contribution lies in demonstrating that governance effectiveness in Jordan’s industrial sector is mechanism-specific and context-dependent, challenging the universal application of international governance norms and providing empirically grounded guidance for regulatory and corporate policy tailored to emerging market realities.