Quei i, Abdelbase ; Madbouly, A aby; Dwaika , Niza ; Husain, U esh
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Co po a e go e nance and capi al s uc u e decision:
insigh s om Oman
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Co po a e go e nance and capi al s uc u e
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Co po a e go e nance and capi al s uc u e decision:
insigh s om Oman
Abdelbase Quei ia, A aby Madboulyb, niza Dwaika c and u esh husaind
aManagemen Depa men , College o Comme ce and Business adminis a ion, Dho a uni e si y, salalah, sul ana e o oman; bBusiness
and accoun ing Depa men , Musca College, Musca , sul ana e o oman; cFacul y o Business, a ab open uni e si y – Pales ine
B anch, Ramallah, Pales ine; deconomics and Business s udies Depa men , Mazoon uni e si y College, Musca , sul ana e o oman
ABSTRACT
his s udy aims o explo e he impac o a ious boa d composi ion elemen s (boa d
size, boa d mee ing equency, mul iple di ec o ships, and boa d independence) on
capi al s uc u e decisions wi hin eme ging ma ke s, speci ically ocusing on he
sul ana e o oman. he s udy employs a sample o 14 non- inancial i ms lis ed on he
MsM30 index o e se en yea s (2009–2015). o add ess endogenei y be ween he
in e ela ed a iables o di idends and deb a io, an endogenei y es is pe o med.
gi en ha he di idend pe sha e is an endogenous a iable, he wo-s age leas
squa es (2sls) me hod is used o da a analysis. he indings o his s udy indica e
posi i e associa ions be ween deb a io and boa d size, boa d independence and
mul iple di ec o ships bu nega i e associa ion wi h boa d mee ings equency. Boa d
independence se es o suppo he ac i e moni o ing hypo hesis, and deb ac s as a
complemen a y mechanism o mi iga e agency issues, la ge boa d size esul s in
in oducing mo e deb s in he i m’s capi al s uc u e o o se decision making
complexi ies. Fu he mo e, mul iple di ec o ships inc ease he use o deb a io as
disciplina y mechanism o o se he busyness o boa d membe s who ha e se e al
mul iple di ec o ships. howe e , he equency o boa d mee ings was ound o ha e a
nega i e associa ion wi h deb a io. ou indings a e obus o al e na i e measu es o
le e age and endogenei y. his s udy concen a es on a limi ed se o ac o s ela ed o
boa d composi ion. he use o deb as a subs i u e mechanism sugges s ha he
ollowed co po a e go e nance p ac ices a e ela i ely weak and may bene i om
u he e o ms.
IMPACT STATEMENT
his s udy o e s o he eade s a new insigh om an eme ging ma ke on he impac o
boa d composi ion on inancing decision. he esul s a e o pa icula impo ance o such
ma ke , since his ma ke has dis inc i e cha ac e is ics o weak ex e nal law o p o ec
in es o s and i is well known by using deb as subs i u e mechanism o co po a e
go e nance p ac ices.
1. In oduc ion
Boa d composi ion is conside ed a key mechanism in co po a e go e nance. h ough i s cha ac e is ics,
obus moni o ing o op-managemen le els can be achie ed (Bazhai , 2023; Boa eng e al., 2022).
Building on his p emise, boa d composi ion ul ills i s ole h ough a ious mechanisms, including boa d
size, boa d mee ing equency, he p opo ion o independen di ec o s, and he p esence o di ec o s
occupying mul iple sea s. he ocus o his s udy is o in es iga e he ela ionship be ween hese mech-
anisms and capi al s uc u e decisions in he eme ging secu i ies ma ke o oman, speci ically he Musca
secu i ies Ma ke index (MsM30). he s udy aims o answe he ollowing ou esea ch ques ions: i) Wha
© 2024 he au ho (s). Published by in o ma uK Limi ed, ading as aylo & F ancis g oup.
CONTACT abdelbase Quei i [email p o ec ed] Managemen Depa men , College o Business and Comme ce, Dho a uni e si y,
salalah, P.C.211, sul ana e o oman
h ps://doi.o g/10.1080/23311975.2023.2297463
his is an open access a icle dis ibu ed unde he e ms o he C ea i e Commons a ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0/), which
pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. he e ms on which his a icle has been
published allow he pos ing o he accep ed Manusc ip in a eposi o y by he au ho (s) o wi h hei consen .
ARTICLE HISTORY
ecei ed 21 sep embe
2023
e ised 12 Decembe
2023
Accep ed 14 Decembe
2023
JEL CLASSIFICATION
g3; g32
KEYWORDS
Boa d compensa ion;
co po a e go e nance;
capi al s uc u e;
sul ana e o oman;
MsM30
REVIEWING EDITOR
collins n im, uni e si y o
sou hamp on, uni ed
Kingdom o g ea B i ain
and no he n i eland
2 A. Quei i e Al.
is he impac o boa d size, boa d mee ing equency, mul iple di ec o ships, and boa d independence
on he deb a io o i ms lis ed on he MsM30?
Mos o he exis ing s udies on he subjec in oman ha e ocused on he ela ionship be ween con-
en ional ‘ i m-speci ic de e minan s’, such as isk, p o i abili y, angibili y, i m size, and g ow h, and cap-
i al s uc u e decisions (Al Ani & Al Am i, 2015; Fe nández & B own, 2013; Khaki & Akin, 2020; Mohammadi
e al., 2020; singh, 2016). While co po a e go e nance has ecei ed conside able a en ion in he omani
con ex (Bawazi e al., 2021; Quei i e al., 2021; Yilmaz, 2018), esea ch ha di ec ly explo es how cg
elemen s shape capi al s uc u e decisions in oman emains sca ce. Despi e ex ensi e in es iga ions in o
his a ea in he de eloped ma ke s, a signi ican esea ch gap s ill exis s wi h ega d o he in luence o
co po a e go e nance on capi al s uc u e decisions in he omani con ex .
his s udy con ibu es o he li e a u e on bo h co po a e go e nance and capi al s uc u e in se e al
ways. Fi s , he pape in es iga es he impac o di e en dimensions o co po a e go e nance (boa d
size, boa d mee ing equency, mul iple di ec o ships, and di ec o independence) on capi al s uc u e in
an eme ging ma ke . i o e s in-dep h insigh in o he o ma ion o capi al s uc u e h ough he lens o
co po a e go e nance (cg) elemen s, going beyond he con en ional ac o s ha ha e al eady been
ex ensi ely s udied in he Musca secu i ies Ma ke (MsM), which ope a es unde a speci ic legal egime.
second, while e y ew s udies ocus on he omani case, his esea ch speci ically add esses he omani
con ex , conduc ing he analysis o non- inancial i ms lis ed in he MsM30 index. he s udy’s indings
will p o ide e idence om oman on how boa d composi ions can se e as e ec i e co po a e go e -
nance mechanisms o add ess he agency p oblem, u ilizing deb as a disciplina y mechanism. he e o e,
his esea ch ex ends he heo e ical e idence in o he uncha ed e i o y o oman. hi d, he indings
o his s udy aim o ha e a p ac ical con ibu ion by assis ing policymake s in c a ing app op ia e co -
po a e go e nance codes o conduc by elucida ing he ole ha cg elemen s play in shaping capi al
s uc u e decisions and, consequen ly, enhancing a i m’s inancial pe o mance. cu en ly, oman is ocus-
ing on imp o ing i s inancial s abili y and is keen o implemen igo ous co po a e go e nance p ac-
ices, as hese a e seen as c i ical mechanisms o achie ing such s abili y. in his con ex , sheha a (2013)
has ecommended u he e o ms o he co po a e go e nance codes o conduc in gcc coun ies,
including oman. While mos gcc codes a e mo e comp ehensi e han hose in o he Middle eas no h
A ica (MenA) coun ies, he e emains oom o imp o emen . Wi h his backd op, his s udy aims o
in es iga e he ela ionship be ween cg elemen s and capi al s uc u e decisions.
he emainde o his s udy is o ganized as ollows; Fi s , a li e a u e e iew p o ides insigh s in o he
MsM30, capi al s uc u e heo ies, and co po a e go e nance in he omani con ex . Following his, he e
is a e iew o p e ious s udies and he de elopmen o hypo heses. las ly, he pape p esen s he esul s
along wi h a discussion and o e s p ac ical implica ions o co po a e go e nance mechanisms and hei
ele ance o capi al s uc u e decisions.
2. Backg ound
Beyond he in luence o con en ional ac o s on a i m’s pe o mance and o he impo an co po a e
inance decisions such as in es men and capi al s uc u e decisions, he e has ecen ly been inc eased
schola ly a en ion di ec ed owa d in es iga ing he ole o co po a e go e nance elemen s. hese ele-
men s ha e been examined o hei ele ance o i m pe o mance, cash holding, cos o deb , and capi al
s uc u e decisions (Dwaika , 2023; hashim & Am ah, 2016; Júnio , 2022; Mo ellec e al., 2012; Quei i e al.,
2021; Zaid e al., 2020). his ocus is no new; he impac o co po a e go e nance (cg) elemen s on capi al
s uc u e decisions is well-documen ed in he li e a u e (Feng e al., 2020; hussainey & Alji i, 2012; Júnio ,
2022; Me zanis e al., 2023). he basis o such impac can be aced o he p inciple o Agency cos
heo y. Acco ding o Jensen and Meckling (1976), he sepa a ion be ween owne ship and con ol encou -
ages manage s o ac in hei own bes in e es s, leading hem o shape capi al s uc u e decisions o
maximize hei own bene i s. in his con ex , deb is o en sugges ed as a mechanism o cu b such oppo -
unis ic manage ial beha io and o align i wi h sha eholde s’ objec i es o weal h maximiza ion.
his a ionale can be cla i ied in ou ways. Fi s , deb can ac as a co po a e go e nance mechanism
g ounded in he ee cash low hypo hesis, whe e he obliga ion o pay ixed in e es a es limi s man-
age ial disc e ion in spending (De la B usle ie, 2016; Jensen, 1986; ijayakuma an & ijayakuma an,
cogen Business & MAnAgeMen 3
2019). second, manage s a e mo e likely o align hei beha io wi h sha eholde in e es s when u iliz-
ing deb o a oid he po en ial isks o bank up cy and he consequen loss o hei epu a ions and
jobs (Abo , 2008; g ossman & ha , 1982). hi d, he sc u iny by deb -holde s and inancial ma ke s
induces manage s o ac in he bes in e es s o sha eholde s. he e o e, he e is academic consensus
in he ield o co po a e Finance ha he judicious use o deb can e ec i ely mi iga e agency p ob-
lems and consequen ly inc ease i m alue. Fou h, good co po a e go e nance will main ain an op imal
capi al s uc u e (Manu e al., 2019). in o he wo ds, e ec i e co po a e go e nance, including boa d
composi ions, could impac capi al s uc u e decisions, po en ially esul ing in lowe cos s o deb
inancing. his is because he cos o deb is in e sely ela ed o boa d independence and boa d size
( onald e al., 2004).
howe e , empi ical s udies ha e epo ed mixed and inconsis en indings ega ding how cg elemen s
in luence capi al s uc u e decisions. Fo example, o highligh a ew inconsis encies, Júnio (2022),
ijayakuma an and ijayakuma an (2019), and hussainey and Alji i (2012) ound ha boa d composi ion
has an insigni ican in luence on capi al s uc u e decisions o la in Ame ican, chinese, and uAe s ock
ma ke s, espec i ely. hese esul s con adic he indings o o he s udies, such as hose by Flo ackis
and ozkan (2009) and Be ge and hea h (2007), who concluded ha boa d size is in e sely ela ed o
deb . hese inconclusi e esul s unde line he need o u he in es iga ion.
he inconsis ency in empi ical esul s is a ibu ed o deepe ac o s. Acco ding o Mi on (2004), hese
mixed indings hinge on a iables a bo h he company and coun y le els. Aspec s like common law
e sus ci il law sys ems and a ia ions in co po a e and owne ship s uc u es can con ibu e o hese
mixed esul s (po a e al., 1998; Quei i e al., 2021). gi en his backg ound, i is un ealis ic o expec ha
eme ging ma ke s like oman will pe ec ly align wi h indings om mo e de eloped ma ke s. he e o e,
he capi al s uc u e decisions o companies lis ed in oman may be in luenced by cg elemen s in a
di e en manne , making empi ical alida ion necessa y.
3.Theo e ical li e a u e e iew
3.1. Capi al s uc u e heo ies
unde ce ain assump ions, he seminal wo k o Modigliani and Mille (1958) concluded ha he means
o inancing whe he h ough deb o equi y is i ele an o a i m’s alue. howe e , when hese assump-
ions a e elaxed o accoun o ac o s such as asymme ical in o ma ion, axes, and bank up cy cos s, i
becomes e iden ha capi al s uc u e is indeed a ele an ac o in de e mining a i m’s alue.
consequen ly, he ele ance p oposi ion eme ged.
a ious heo ies ha e ex ensi ely discussed he mechanisms by which capi al s uc u e in luences a
i m’s alue. hese include he pecking o de heo y, agency cos heo y, signaling heo y, and ade-o
heo y. ha is and a i (1991) ca ego ized hese heo ies in o wo g oups: ax-based and non- ax-based
heo ies. he pecking o de , signaling, and agency cos heo ies all unde he ca ego y o non- ax-based
heo ies. on he o he hand, he ade-o heo y, which conside s he bene i s o ax shields agains he
cos s o bank up cy, is a ax-based heo y.
All hese heo ies hold ele ance in he omani con ex , gi en ha co po a e ax is le ied a a a e o
15% and ha he e is a sepa a ion o owne ship and managemen , as is he case in o he ju isdic ions.
he e o e, his pape e iews hese pe inen capi al s uc u e heo ies, placing special emphasis on he
agency cos heo y. his se es as he heo e ical ounda ion o examining he ela ionship be ween
co po a e go e nance elemen s and capi al s uc u e decisions.
3.1.1. Agency heo y
he agency ela ion is de ined as ‘a con ac unde which one o mo e pe sons he p incipal(s) engage
ano he pe son ( he agen ) o pe o m some se ice on hei behal ( ashid, 2016; ega, 2017) which
in ol es delega ing some decision-making au ho i y o he agen ’ (Jensen & Meckling, 1976). he heo y
o agency cos is p emised on he no ion o in e es di e gence be ween p inciple and agen due o he
owne ship and managemen sepa a ion. Manage s may engage in ac ions ha se e hei sel -in e es s
4 A. Quei i e Al.
and a e no pa icula ly in line wi h he sha eholde ’s in e es s. Fo ins ance, manage s can make deci-
sions abou in es men s ha a e wo hless o sha eholde in e es s, bu ins ead, such decisions may
inc ease manage ’s pe ks and p o ide job secu i y. he agency p oblem esul s in a highe associa ed
agency cos due o he asymme ic in o ma ion and because o moni o ing a manage ’s beha io o be
in line wi h sha eholde s’ in e es s. he complexi y o he p incipal-agen ela ionship sheds ligh on he
u gen need o implemen a cg sys em ha deals wi h agency p oblems in a manne ha sa is ies he
maximum possible numbe o s akeholde s (Madhani, 2017). Fu he , agency cos s should be inco po-
a ed whene e deciding whe he o iance wi h deb o equi y (Djohapu o, 2015). in esponse o he
agency p oblem, Jensen (1986) a gued ha deb inancing could ac as a subs i u e co po a e go e -
nance mechanism o align a manage ’s beha io and limi he disc e ion o using ee cash o build hei
own empi e. hence, inancing h ough deb becomes a ele an app oach owa ds inc easing he alue
o he i m, as i subsides he agency con lic (hussainey & Alji i, 2012).
3.1.2. Signaling heo y
in he con ex o asymme ic in o ma ion, whe e manage s possess mo e in o ma ion abou he i m’s
ac i i ies han sha eholde s do, capi al s uc u e becomes a signaling mechanism. speci ically, a i m’s
choice o inancing h ough deb can indica e o ex e nal in es o s ha i is capable o mee ing i s
u u e deb obliga ions, he eby signaling i s u u e ea nings po en ial (connelly e al., 2011). Mo eo e ,
he abili y o inance h ough deb can signal a i m’s capaci y o pay di idends o sha eholde s (chang
& hee, 1990). consequen ly, changes in capi al s uc u e se e as indica o s o a i m’s inancial heal h,
making capi al s uc u e decisions ele an o ma ke alue.
3.1.3. Pecking o de heo y
pecking o de heo y a gues ha i ms p io i ize in e nal sou ces o inancing, such as e ained ea nings,
o e ex e nal sou ces like deb and equi y issuance. his p e e ence o in e nal inancing is due o he
lowe associa ed cos s, which include he cos o issuing deb (‘cos o deb ’) and he cos o p o iding
adequa e e u ns o sha eholde s ia equi y. When in e nal sou ces a e no su icien , i ms a e mo e
likely o op o deb inancing as a seconda y op ion and conside equi y issuance as a las eso . he
heo y, o mula ed by Mye s (1984) and Mye s and Majlu (1984), implies ha mo e p o i able i ms end
o ha e lowe le e age a ios because hey can und hemsel es h ough in e nal sou ces.
3.1.4. T ade-o heo y
ade-o heo y p oposes ha i ms should aim o a balanced capi al s uc u e by weighing he ad an-
ages and disad an ages o deb e sus equi y inancing. on one hand, deb inancing p o ides ce ain
bene i s, such as he ax shield, which educes he i m’s ax bu den. on he o he hand, o e eliance on
deb inc eases he isk o bank up cy. he associa ed cos s o bank up cy could po en ially nega e he
ad an ages o e ed by he ax shield. he heo y posi s ha he e exis s an op imal le e age a io, a
poin a which he inc emen al cos s o bank up cy a e equal o he ma ginal ax bene i s acc ued om
he use o deb (Dwaika e al., 2014).
3.2. Omani con ex
3.2.1. Co po a e go e nance and deb s uc u e in Oman
Fi ms in he MenA egion hea ily depend on deb o o m hei capi al s uc u e. howe e , oman epo -
edly has an a e age deb a io o 47%, one o he highes in he MenA egion (Me zanis e al., 2023).
he MenA egion sha es common cha ac e is ics ha complica e he ela ionship be ween co po a e
go e nance and capi al s uc u e decisions (oehmichen, 2018). Fo ins ance, coun ies in he MenA
egion ha e weak co po a e go e nance sys ems, making i di icul o secu e p ope y igh s and inan-
cial con ac s. hese coun ies o e lenien gua an ees and colla e al agains bo owing. he capi al ma -
ke s in hese na ions a e less e icien , and in o ma ion is gene ally mo e asymme ic compa ed o
cogen Business & MAnAgeMen 5
de eloped ma ke s (eldomia y, 2007). hese cha ac e is ics con ibu e o an unclea connec ion be ween
go e nance and inancing decisions in he MenA egion (Me zanis e al., 2023).
Fu he mo e, Feng e al. (2020) a gued ha cen alized owne ship, coupled wi h a lack o ex e nal
go e nance mechanisms, may esul in an agency p oblem be ween majo and mino sha eholde s. his
issue becomes signi ican in inancing decisions, as majo sha eholde s may a o deb inancing o use
he bo owed esou ces o hei own in e es s, ega dless o he po en ial impac on mino sha eholde s
(i.e. he cos o bank up cy). om an e al. (2008) epo ed ha A ab coun ies, including oman, a e cha -
ac e ized by high owne ship concen a ion and signi ican s a e owne ship. in such a se ing o highly
concen a ed owne ship, he po en ial o agency p oblems inc eases. Majo sha eholde s can use hei
o ing igh s o in luence managemen ’s decisions owa ds inancing op ions ha se e hei own in e -
es s. Addi ionally, gcc coun ies, including oman, ha e a dis inc owne ship s uc u e cha ac e ized by
la ge s a e owne ship (Al-saidi & Al-shamma i, 2015). he a e age s a e owne ship is es ima ed o be
a ound 8%. Acco ding o ins i u ional heo y, he p esence o la ge s a e owne ship can mi iga e agency
p oblems, as i educes asymme ic in o ma ion and p o ec s he igh s o mino sha eholde s (pillai &
Al-Malkawi, 2018). howe e , Micco e al. (2007) a gued ha s a e owne ship could lead o con lic s o
in e es , poli ical in e e ence, and weak manage ial o e sigh , which could exace ba e agency p oblems.
Quei i e al. (2021) empi ically subs an ia ed he nega i e ela ionship be ween s a e owne ship and i m
pe o mance o i ms lis ed on MsM30.
in ela ion o oman, he es ablishmen o co po a e go e nance codes da es back o he 2000s, wi h
oman being he i s coun y in he egion o in oduce such codes in 2002, ollowed by many o he
coun ies in he MenA egion (Amico, 2014). in 2016, a new e sion o he ‘code o co po a e go e nance
o public lis ed Fi ms’ was issued by he omani capi al Ma ke Au ho i y. he objec i e was o es ablish
a binding and op imal amewo k o co po a e go e nance o ensu e ai ness, anspa ency, and accoun -
abili y in he capi al ma ke . his ul ima ely educes agency p oblems and imp o es o e all i m pe o -
mance. in his ega d, he e ised code con ains speci ic equi emen s o boa d composi ion. he
selec ion o independen di ec o s ollows ce ain condi ions, such as no being execu i e di ec o s, no
owning mo e han 10% o he i m’s sha es (including pa en , sis e , and subsidia y i ms), and ep esen -
ing mo e han one- hi d o he boa d wi h a minimum o wo independen di ec o s. hey should also
no be a di ec o o he pa en company o any subsidia y o associa e companies, and should no ha e
been a senio execu i e o he company o i s a ilia es du ing he wo yea s p eceding hei candidacy
o nomina ion o he boa d. he boa d o di ec o s is equi ed o conduc a leas ou mee ings a yea .
unlike in Wes e n and chinese con ex s, he code speci ies mo e s ingen c i e ia ega ding independen
di ec o s’ owne ship: i should no exceed 1%, and hey should no be among he op 10 sha eholde s
(Feng e al., 2020). Mo eo e , he omani e ised code does no speci y boa d size equi emen s o lis ed
companies, whe eas boa d sizes in Wes e n coun ies ypically ange om 5 o 19 membe s.
3.2.2. A Glance o e MSM 30
he MsM30 index was es ablished in 1992 as a benchma k o assessing he pe o mance o o he secu-
i ies lis ed on he Musca secu i ies Ma ke (MsM). he index comp ises 30 i ms om di e se indus ies,
which can gene ally be ca ego ized in o inancial and non- inancial sec o s. companies lis ed in MsM30
sha e se e al common a ibu es: hey a e conside ed o be among he mos p o i able, liquid, and
well-capi alized compa ed o o he i ms in he ma ke . he MsM au ho i y ollows speci ic inclusion
c i e ia o i ms o be indexed in MsM30. such i ms should ha e a signi ican size, ep esen ed by a
high ma ke capi aliza ion o no less han 40%. Addi ionally, hese i ms should demons a e p o i abili y
o a leas 15% and a liquidi y indica o o 45% o highe (Quei i e al., 2021). o e he yea s, se e al
companies ha e main ained hei lis ings on he MsM30, becoming p ima y a ge s o bo h local and
in e na ional in es o s due o hei s ong ma ke pe o mance.
4. Empi ical li e a u e e iew and hypo heses de elopmen
c ea ing an e ec i e boa d composi ion is c ucial o mi iga ing agency p oblems. h ough i s a ious
mechanisms (i.e. boa d size, boa d mee ing equency, mul iple di ec o ships, and di ec o
6 A. Quei i e Al.
independence), he boa d can p o ide e ec i e moni o ing sys ems ha enhance a i m’s inancial pe -
o mance, including capi al s uc u e decisions (Zaid e al., 2020). he ollowing sec ion e iews empi ical
esul s conce ning boa d composi ion and a i m’s capi al s uc u e decisions. he ollowing amewo k is
p oposed based on he no ion o agency cos heo y (Figu e 1).
4.1. Boa d size
Agency heo y con ends ha i ms su e om undamen al agency con lic s be ween manage s and
sha eholde s due o he sepa a ion be ween owne ship and con ol (Jensen & Meckling, 1976). in he
same con ex , Jensen and Meckling (1976) p o ided u he insigh in o his heo y by de ining agency
ela ionships and iden i ying agency cos s. Acco ding o his pe spec i e, he boa d o di ec o s, includ-
ing boa d size decisions, can minimize manage -sha eholde agency con lic s h ough i s go e nance
mechanisms. he e o e, i would be heo e ically expec ed ha a la ge boa d size uses less deb .
ne e heless, Jensen (1993) a gued ha la ge boa ds su e om poo coo dina ion and ine ec i e mon-
i o ing, and hus, i ms should ha e a smalle boa d size. Fo a boa d o unc ion e ec i ely, i s size
ma e s. smalle boa ds a e less likely o expe ience di ec o ee iding. lip on and lo sch (1992) and
Jensen (1993) sugges ha la ge boa ds could be less e ec i e han smalle boa ds because o coo di-
na ion p oblems and di ec o ee iding. la ge boa ds a e associa ed wi h ee- iding on ellow di ec-
o s’ e o , and he e o e, la ge boa ds end o use mo e deb o o se he ee- iding issue.
empi ical s udies in es iga ing he in luence o boa d size on deb a ios yield inconclusi e esul s. in
he li e a u e. empi ical s udies suppo a posi i e ela ionship be ween boa d size and deb a io (Abo ,
2007; nguyen e al., 2017). hese s udies sugges ha a la ge boa d size complica es decision-making
and inc eases agency cos s. Due o he lack o consensus among la ge boa ds on capi al s uc u e deci-
sions, i ms end o main ain a highe deb a io o o se agency cos s (Feng e al., 2020). Addi ionally,
la ge boa ds a e associa ed wi h mo e agency p oblems ha s em om issues ela ed o owne ship and
co po a e con ol. consequen ly, mo e deb is used o mi iga e hese agency p oblems ( ehman e al.,
2010). usman e al. (2019) epo ha a la ge boa d size is co ela ed wi h a high cos o deb . he e o e,
a conclusion can be d awn ha he cos o ine ec i e communica ion associa ed wi h la ge boa ds
ou weighs hei bene i s.
o he empi ical s udies suppo a nega i e ela ionship be ween boa d size and deb a io (Bazhai ,
2023; ehman e al., 2010; akili a d e al., 2011). hese s udies d aw upon esou ce dependence heo y,
sugges ing ha a la ge boa d can se e as a esou ce pool ha bene i s i ms, hus ac ing as a subs i-
u e o high deb a ios. in his way, la ge boa ds can exe cise mo e e ec i e con ol and supe ision,
educing he need o addi ional deb in he i m’s capi al s uc u e, and consequen ly lowe ing he cos
o deb ( ehman e al., 2010; akili a d e al., 2011). some empi ical e idence om he MenA egion—
including lis ed companies in oman, Bah ain, Qa a , Mo occo, and he uAe—suppo s a nega i e ela-
ionship be ween boa d size and deb a io (Me zanis e al., 2023). simila ly, Bazhai (2023) ound a
nega i e ela ionship in a sample o non- inancial i ms in saudi A abia. hese s udies om he MenA
egion jus i y hei indings h ough esou ce dependence heo y.
gi en hese a ying pe spec i es and d awing on agency heo y, he ollowing hypo hesis is o mula ed:
h1: Boa d size is associa ed wi h he deb a io o i ms lis ed on he MsM30.
Figu e 1. P oposed amewo k.
cogen Business & MAnAgeMen 7
4.2. Boa d mee ing equency
he agency heo y posi s ha deb unc ions as a disciplina y measu e o es ain manage ial ac ions
ha de ia e om he objec i e o maximizing sha eholde s’ weal h. he implemen a ion o co po a e
go e nance mechanisms sugges s ha an inc ease in boa d mee ings would lead o a ise in he u iliza-
ion o deb in acco dance wi h he disciplina y concep (Jensen, 1986). consequen ly, boa d mee ing
equency is heo e ically an icipa ed o ha e a posi i e co ela ion wi h he use o deb . howe e , he
a gumen , d awn om ounda ional wo ks by Jensen (1993) and a eas (1999), asse s ha equen
boa d mee ings may no necessa ily exe subs an ial con ol. his is because boa d di ec o s a e o en
oo occupied o ully comp ehend all he issues ela ed o he i m, leading o a hesi ancy in making
decisions ega ding inc eased deb issuance ha could po en ially bene i sha eholde s. he e o e, hese
seminal wo ks empi ically ound ha he equency o boa d mee ings educes a i m’s eliance on deb .
i is no ewo hy ha chie execu i e o ice s ypically se he agenda o boa d mee ings (Jensen, 1993).
Also, ou ine asks abso b much o he mee ings limi ing oppo uni ies o ou side di ec o s o exe cise
meaning ul con ol o e managemen . in line wi h his a gumen , ezeani e al. (2023), using samples
om he uK, F ance, and ge many, ound a consis en nega i e ela ionship be ween boa d mee ing
equency and deb a io. Ac oss all hese coun ies, inc eased boa d mee ing equency was co ela ed
wi h educed usage o deb by i ms.
Ano he a gumen p esen ed by conge e al. (1998; sha ma e al., 2009) ega ding he po en ial
posi i e ela ionship be ween boa d mee ing equency and he use o deb is oo ed in he idea o
bene i ing sha eholde s’ pe spec i es. Acco ding o his iewpoin , equen boa d mee ings a e consid-
e ed a means o e ec i ely supe ise manage s, esul ing in a o able ou comes o he i ms’ sha ehold-
e s. in he con ex o he Anglo-saxon co po a e go e nance app oach, i is expec ed ha he equency
o boa d mee ings will exhibi a posi i e co ela ion wi h le e age.
speci ic o oman, boa d mee ing should happen a leas 4 imes annually. Bu boa d membe s a e
o en se e on mul iple boa ds, as indica ed by Al-Ma a i (2020) and Quei i e al. (2021). he e ised
co po a e go e nance (cg) egula ions nei he speci ically p ohibi mul iple di ec o ships no p o ide
guidelines abou hem. Due o his business and mul iple di ec o ship, we expec simila o he seminal
wo ks o Jensen (1993) and a eas (1999) ha boa d mee ings equency is associa ed wi h he use o
deb . gi en hese con adic o y indings, he ollowing hypo hesis, based on agency heo y, will be
es ed o i ms lis ed on he MsM30:
h2: Boa d mee ing equency is associa ed wi h he deb a io o i ms lis ed on he MsM30.
4.3. Mul iple di ec o ship
Jensen and Meckling (1976) a gued ha o cu b agency con lic and o limi esul an agency cos s, con-
side able ocus is placed on he moni o ing ole o he boa d. Boa ds o di ec o s a e esponsible o p o-
iding an e ec i e moni o ing mechanism o e manage s’ ac i i ies o mi iga e consump ion ( inh e al.,
2020). he busyness hypo hesis pos ula es ha i di ec o s become o e commi ed, hey migh become less
e ec i e co po a e moni o s (clemen s e al., 2015). he e o e, di ec o s wi h mul iple di ec o ships a e
likely o employ mo e deb s o o se hei busyness and cu b manage ial ac i i ies h ough in oducing
deb as a disciplina y mechanism. on he o he hand, Jensen (1993) and a eas (1999), asse ed ha boa d
di ec o s a e o en oo busy o ully unde s and all he i m’s ela ed issues, which can esul in a eluc ance
o make decisions abou inc easing deb issuance ha would likely bene i he sha eholde s. ins ead, hese
seminal wo ks empi ically ound ha boa d mee ings’ equency educes i ms’ use o deb .
Di e en om he no ion o agency heo y, ano he a gumen p o ided by Fama (1980), Fama and
Jensen (1983) a gued ha a busy boa d ha ha e a numbe o di ec o membe ships, can be an indica-
ion o his epu a ion as an e ec i e moni o ing o co po a e manage s. aking oge he , he manage ial
powe heo y wi h his posi i e iew, we can heo e ically expec a nega i e ela ionship be ween mul-
iple di ec o ships and he use o deb . s ea ns and Miz uchi (1993) posi ed hose di ec o s wi h mul iple
di ec o ships o en e med ‘boa d in e locking’— acili a e g ea e access o capi al, especially when hose
di ec o s also se e on he boa ds o inancial ins i u ions. As a esul , such boa ds a e mo e likely o
employ deb , gi en hei enhanced access o bank loans. F om he ‘signaling quali y’ hypo hesis
14 A. Quei i e Al.
Bazhai (2023), who obse ed a nega i e associa ion be ween boa d size and deb a io o a sample o
non- inancial i ms in he MenA egion and saudi A abia. consequen ly, he esou ce dependence he-
o y did no ind suppo in he con ex o MsM30. ins ead, he esul s o his s udy a e mo e aligned
wi h agency heo y.
he agency heo y con ends ha deb would ac as a disciplina y mechanism o cu b manage ial ac i -
i ies ha does no align wi h he concep o sha eholde s’ weal h maximiza ion. he use o co po a e go -
e nance mechanism indica es ha boa d mee ing will esul in inc easing he use o deb in line wi h
no ion o disciplina y mechanism (Jensen, 1986). he e o e, boa d mee ing equency is heo e ically
expec ed o ha e a posi i e ela ionship wi h he use o deb . howe e , he a gumen de eloped based on
seminal wo ks by Jensen (1993) and a eas (1999), asse ed ha equen boa d mee ings do no necessa -
ily exe meaning ul con ol. his is because boa d di ec o s a e o en oo busy o ully unde s and all he
i m’s ela ed issues, which can esul in a eluc ance o make decisions abou inc easing deb issuance ha
would likely bene i he sha eholde s. he e o e, hese seminal wo ks empi ically ound ha boa d mee -
ings’ equency educes i ms’ use o deb . chie execu i e o ice s almos always se he agenda o boa d
mee ings (Jensen, 1993). Mo eo e , ou ine asks abso b much o he mee ings limi ing oppo uni ies o
ou side di ec o s o exe cise meaning ul con ol o e managemen . in line wi h his a gumen , ezeani e al.
(2023), using samples om he uK, F ance, and ge many, ound a consis en nega i e ela ionship be ween
boa d mee ing equency and deb a io. Ac oss all hese coun ies, inc eased boa d mee ing equency
was co ela ed wi h educed usage o deb by i ms.
he second hypo hesis on he associa ion be ween boa d mee ing equency and deb a io ecei ed
suppo s, ou esul s indica e a nega i e associa ion. his nega i e associa ion is consis en wi h he ind-
ings o Jensen (1993), a eas (1999), and ezeani e al. (2023). gi en his nega i e ela ionship, i could be
a gued ha equen boa d mee ings a e no an e ec i e mechanism o meaning ul con ol. a he , he
esul s sugges ha boa d membe s a e o en oo busy o ully unde s and all he i m’s ela ed issues
and hey become eluc an o make he decision on inc easing he deb . he indings o his s udy con-
adic he indings o (1986) who a gued ha g ea e numbe o boa d mee ings can inc ease he use
o deb as an e ec i e mechanism o co po a e go e nance.
Fu he mo e, ezeani e al. (2023) a gued on he nega i e associa ion be ween boa d mee ings and
deb ha boa d mee ing is an e ec i e con ol mechanism wi hin a s akeholde app oach o co po a e
go e nance. he e o e, i ms in MsM30 may be less conce ned wi h sha eholde bene i s and a e less
likely o issue mo e deb solely o sha eholde s’ bene i . in his espec , MsM30 sha es cha ac e is ics
wi h eu opean coun ies like ge many, F ance, and he uK, whe e a nega i e associa ion be ween boa d
mee ing equency and deb a io has been obse ed.
ou hi d hypo hesis was suppo ed: he e is a posi i e associa ion be ween mul iple di ec o ships and
deb a io. his inding is in line wi h Jensen (1993) and a eas (1999), inh e al. (2020), and clemen s
e al. (2015). he ‘busyness hypo hesis’ could explain his posi i e ela ionship, sugges ing ha di ec o s
wi h mul iple sea s end o issue mo e deb as a subs i u e mechanism o compensa e o hei limi ed
a ailabili y and he po en ial agency p oblems a ising om ine ec i e moni o ing. oman does no ha e
Table 9. 2sLs eg ession esul s.
Model Model 1: L_D Model 2: s& _D
Va iables Coe P Coe P
DiV −3.0708** −2.39 0.017 −2.814 −1.47 0.14
inDP 0.0018** 2.44 0.015 0.002* 2.32 0.02*
MDs 0.0031** 2.49 0.013 0.002 1.27 0.204
Bs 0.1041*** 4.65 0.002 0.064 2.23 0.026*
BnM −0.035** −3.55 0.002 −0.033 −3.07 0.002**
Roa 0.0089 1.21 0.227 0.005 0.47 0.64
Fsize 0.051** 2.87 0.004 0.094* 4.05 0.04*
oBinQ −0.099 −1.11 0.268 −0.133 −1.05 0.294
sec o Yes Yes
Yea Yes Yes
R-squa ed 0.596 0.56
Cons an −0.39 −1.3 0.19
No es: *Rela ionship is signi ican a he 0.1 le el ( wo- ailed). **Rela ionship is signi ican a he 0.05 le el ( wo- ailed). ***Rela ionship is
signi ican a he 0.1 le el ( wo- ailed).
cogen Business & MAnAgeMen 15
speci ic ules p ohibi ing mul iple di ec o ships, allowing di ec o s o se e on mul iple boa ds, which
may inc ease hei busyness.
he ou h hypo hesis was also suppo ed, showing a posi i e associa ion be ween he boa d indepen-
dence a io and he deb a io. his inding is consis en wi h p e ious s udies, such as hose by Jensen
and Meckling (1976), Bazhai (2023), Abo (2007), Ky iazopoulos (2017), and a us and Ayabei (2016). he
‘ac i e moni o s’ hypo hesis ound suppo in he con ex o MsM30. independen di ec o s, wi h hei p o-
essional knowledge and expe ience, can e ec i ely moni o manage s and he e o e make objec i e
assessmen s o he i m’s policy decisions. such ac i e moni o ing encou ages independen di ec o s o op
o deb inancing as a means o exe mo e disciplina y p essu e on manage s, as posi ed by agency he-
o y. he omani co po a e go e nance (cg) code places g ea emphasis on he selec ion o independen
di ec o s o enhance he boa d’s moni o ing e ec i eness and educe agency con lic s. hese selec ion c i-
e ia ha e con ibu ed o imp o ing he boa d’s e icacy in educing con lic s o in e es .
7. Summa y and conclusion
his s udy examined he associa ion be ween boa d composi ion and capi al s uc u e decisions,
g ounded in he p inciples o agency heo y. he assump ion is ha mechanisms like boa d size, boa d
independence, boa d mee ing equency, and mul iple di ec o ships can e ec i ely educe agency p ob-
lems by in luencing deb le els o cu b manage ial unneling ac i i ies. o some ex en , ou esul s con-
i m his assump ion. Fi s ly, boa d independence se es as an e ec i e ool o mi iga ing agency
p oblems; a highe p opo ion o independen di ec o s in luences a i m’s decision o u ilize mo e deb ,
he eby inducing manage s o adhe e o deb discipline. he e o e, he emphasis on he ole o indepen-
den di ec o s in oman’s e ised co po a e go e nance (cg) code is wa an ed. secondly, boa d mee ing
equency nega i ely associa ed wi h deb a io, indica ing ha such mee ings may no educe agency
p oblems be ween manage s and sha eholde s. hi dly, a posi i e associa ion be ween boa d size and
deb a io sugges s ha la ge boa ds is associa ed wi h decision-making complexi y, he e o e, hey
employ deb as a disciplina y subs i u e, co obo a ing agency heo y o e esou ce dependence heo y
in he con ex o MsM30. Fou hly, di ec o s wi h mul iple sea s a e mo e likely o use deb as a disci-
plina y subs i u e, p esumably o o se hei lack o a ailabili y o e ec i e moni o ing ‘busy di ec o s’.
o e all, his s udy alida es agency heo y in he con ex o MsM30. Fi ms lis ed on MsM30 equen ly
use deb as a subs i u e o mi iga ing a ious issues, including ‘di ec o busyness’ and he complexi ies
o la ge boa d sizes. he e is e idence o sugges ha weake co po a e go e nance p ac ices necessi a e
g ea e use o deb as a disciplina y mechanism. in gene al, eme ging ma ke s in he MenA egion a e
unde going in ensi e e o ms o align wi h de eloped coun ies. howe e , he inclusion o independen
di ec o s appea s o be he mos e ec i e s a egy o mi iga ing agency p oblems in MsM30, hanks o
he p inciple o ‘ac i e moni o ing’.
elying on deb as a disciplina y subs i u e should be minimized, wi h he p ima y ocus shi ed o
e ec i e boa d moni o ing. policymake s migh conside e ising boa d size equi emen s and issuing
guidelines on mul iple di ec o ships o os e mo e ac i e moni o ing and, hus mo e e ec i e co po a e
go e nance. F om a p ac ical s andpoin , his s udy suppo s s eng hening oman’s cg code o enhance
inancial pe o mance and minimize agency con lic s. While e o ms we e made in 2015, u he imp o e-
men s a e needed. in esponse o his, a new co po a e o go e nance code o conduc has been issued
in 2021 o i ms who ha e a go e nmen owne ship. his new code o conduc is belie ed o s eng hen
he co po a e go e nance mechanism, educing agency p oblems and imp o e inancial pe o mance.
his s udy comes wi h se e al limi a ions; i s he empi ical analysis has a sample size o 98 obse -
a ions, which is conside ed ela i ely a small simple size. second, he e ec s o owne ship s uc u e on
capi al s uc u e decision was no in es iga ed in his s udy. hi d, obus ness o ou analysis agains
iming and non-linea e ec s we e no in es iga ed in his s udy. ins ead, we limi he obus ness o ou
analysis agains di e en es ima o s (ols s. 2sls).
Fu u e s udies on capi al s uc u e should inco po a e mo e owne ship s uc u e a iables and o inc ease
he numbe o obse a ions. in addi ions, u u e s udies may add ess he impac o co po a e go e nance
a iables on ano he impo an co po a e inancial decisions, including bu no limi ed o di idends policy.
o he impo an a ea o esea ch is he boa d di e si y and how i e ec s co po a e inancial decision in omani
16 A. Quei i e Al.
and gcc con ex s. Mo eo e , he e is a need o conduc u he s udies on how he mac o- inancial condi ions
and inancial egula ions impac on i ms’ inancing decision.
Au ho s’ con ibu ions
All au ho s ha e con ibu ed signi ican ly o de eloping his manusc ip in one way o ano he . Abdelbase and niza
ha e con ibu ed o he concep ion design o da a. Baligh has con ibu ed o c i ically e iewing he in ellec ual
con en o his manusc ip and A aby has con ibu ed o da a in e p e a ion and inal app o al o he e sion o be
published.
Disclosu e s a emen
no po en ial con lic o in e es was epo ed by he au ho (s).
Abou he au ho s
Abdelbase Quei i is an Assis an p o esso in college o comme ce and Business Adminis a ion a Dho a uni e si y.
he has mo e han 30 published a icles and sizable numbe o con e ence pa icipa ion. his publica ions is indexed
in scopus, p oQues and o he epu able indexes.
A aby Madbouly is he head o he Business and Accoun ing Depa men a Musca college, since 2017. he is an
ex e nal e iewe in he oman Au ho i y o Academic Acc edi a ion and Quali y Assu ance (oAAAQA). he was he
Dean o Admission and egis a ion a he uoJ-uAe. he holds a ph.D. deg ee in economics.
Niza Dwaika wo ks as an Associa ed p o esso in A ab open uni e si y and he is he Ac ing Di ec o o A ab open
uni e si y – pales ine B anch. his in e es co e s esea ch a eas ela ed o di idends policy, ip o i ms, owne ship
s uc u e and i ms’ inancial pe o mance.
U esh Husain cu en ly wo king as an associa e p o esso a Mazoon college, oman. he has ph.D. in comme ce. D .
u esh has mo e han 20 publica ions in pee e iewed jou nals, and he has a special in e es in mic o inance, in es -
men and in e na ional inance opics.
Da a a ailabili y s a emen
he da a o his a icle we e ex ac ed om he annual and inancial epo s which a e a ailable on he Musca
secu i y Ma ke websi e (h ps://www.msx.om/). he da a is accessible om he websi e o he audience (open
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