The Relationship Between Corporate Governance and Financial Performance of Corporations Listed in Palestine Exchange: Mediating Effect of Disclosure Quality

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"حسين علي", فوزي شريف
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An-Najah National University
Corporate governance has gained more attention, as investors search for maximization of returns and wealth. In most countries, private sectors play an important role in strengthening economies. Corporate governance has a significant relationship with disclosure quality. Disclosure quality is important as it enhances market efficiency and attracts investments for the firms, which will lead to better firms’ performance. The objective of this study is to examine the impact of corporate governance mechanisms on corporate financial performance through the mediating effect of disclosure quality. Corporate governance mechanisms used in this study include board size, board ownership, board compensations, number of board meetings, role duality and audit committee size. Firm performance was measured using several indicators, such as, return on assets, return on equity, net income, revenues, Tobin’s Q and liquidity. The mediator variable is disclosure quality, which was proxied by discrimination accruals. The researcher collected data for the companies listed in Palestine Exchange from 2005 to 2016 (49 company with 295observation). The GMM method was used to investigate the relationship between these variables. The study observed that 1) board size, 2) board ownership and 3) separation in leadership structure affect disclosure quality positively. However,1) board compensations and 2) audit committee size have a negative impacts on disclosure quality. It was also found that disclosure quality has a positive impact on firm market value, net income and liquidity, while a negative impact on return on assets, return on equity and revenues. Lastly, the study found a contradicting influence between corporate governance mechanisms and firm’s financial performance.