European Journal of Accounting Auditing and Finance Research

Vol.3, No.3, pp.32-47, March 2015

Published by European Centre for Research Training an d Development UK ([Link])
BOARD CHARACTERISTICS AND FIRM PERFORMANCE: EVIDENCE FROM
PALESTINE
Imad Kutum, Ph.D., CPA, MBA, CGMA,
Independent Researcher

ABSTRACT: The objective of this research paper is to assess the relationship between the
Return on Assets and Board Characteristics (Board independence, Board meeting, Board size,
Board expertise, Company size and Company year of incorporation). The research consisted
of examining companies listed on the Palestine Exchange with analysis undertaken through
regression analysis. After studying the six variables, the researcher found the existence of only
one relationship which was between the age of the organization/ year of incorporation and the
company’s Return on Assets (ROA). This paper provides a greater insight to understanding
corporate governance in Palestine. The approach, taken in this paper, will enable companies
to assess the true relationship between the Return on Assets to Board independence, Board
meeting, Board size, Board expertise, Company size and Company year of incorporation. It
will enable them, also, to find ways of ensuring these factors become more relevant to the
organization’s performance. Palestine is still a young country in relation to corporate
governance and the outcome of this paper will enable companies to grow positively.

KEYWORDS: Board Characteristics, Firm Performance, Corporate Governance, Palestine

INTRODUCTION

Nowadays, a dynamic business environment features the emergence of increased knowledge

economies and enhances both global competition and innovative business practices; these are
now at the core of any competitive business advantage (Lawson & Samson, 2001 p. 378).
According to Garengo, Biazzo and Bititci (2005) in this modern age, businesses strive to satisfy
their customers who are central to the organization and, nowadays, demand from organization
quality products and services in a professional manner. Consequently, a proper governance
mechanism has to be incorporated in order to ensure that the organization functions well with
due consideration to the needs of its various stakeholders.

It is the board’s role to monitor the organization’s management which, then, hinders agency
costs (Roberts, McNulty & Stiles, 2005). According to Cadbury (1992, p. 15) the board of
directors plays a pivotal role in corporate governance and is appointed by the shareholders to
govern the company. Therefore, according to Shleifer and Vishny (1997, p. 737), the board is
charged with governing the organization and has corporate governance to ensure that those,
who invest in the company, are able to obtain a return on their investments. In this respect, the
board has the legal mandate to protect the right of investors as well as their shareholders.
According to Alzoubi and Selamat (2012, p 21) the board of directors’ key role includes the
“setting of goals” and strategies and increasing the asset value of the firm. According to
Alzoubi and Selamat (2012), other roles include the responsibility of ensuring that the company
administers and presents its financial statements in a transparent and fair manner. The board is
accountable, also, for every activity in which the firm is involved together with formulating the

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strategies and being accountable for the firm’s financial performance (Alzoubi & Selamat,
2012).
Since the board’s responsibility cuts across the entire organization, then it becomes vital to
ensure the organizations are not found to have engaged in malpractices as demonstrated by
organization such as Enron and Lehman Brothers.

The Return on Assets (ROA) is the accounting technique which is used to measure corporate
governance in an organization (Fooladi, 2012, p. 688). Klein (1998) utilized this technique as
a performance indicator. However, Lo (2003) utilized, also, Return on Equity (ROE) as a
performance indicator for corporate governance. The benefit of utilizing ROA as a performance
indicator is that this method is able to show the outcome result derived from a particular capital
asset which the company has invested in the company (Epps & Cereola, 2008). This method is
vital since the primary goal of running a company is to earn profits and, therefore, the board’s
performance is assessed best by using this accounting technique.

Palestine, which is a developing country, has taken tremendous strides towards corporate
governance (Awartani, 2000). Awartani (2000) pointed out that the country had still barriers in
its legal system, due to having little harmonized regulatory framework in place but this was not
vital in enhancing the corporate framework. However, in recent years, the government created
the Palestine Capital Market Authority (PCMA) to oversee the country’s securities market.
Other bodies, such as the Palestinian Monetary Authority (PMA) now have written principles
guiding corporate governance in the banking sector (Abdeen, 2009).
With a particular emphasis on Palestinian corporations, this research paper determines as well
as assesses the role of the board which is vital to ensuring organizations’ effective performance.

LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT

This section examines the existing literature about the board of directors and its effects on the
organization’s performance. The researcher assessed in a systematic manner existing theories
and models.

Corporate Governance
The conceptualization of corporate governance is attributed to the organization for economic
co-operation and development (Mousavi & Moridipour, 2013). According to Mousavi and
Moridipour (2013), corporate governance is described as a system whereby organizations are
managed and controlled together. Corporate governance consists, also, of the manner in which
the organization’s liabilities are managed. According to Durnev and Kim (2005), corporate
governance is composed of several aspects such as legal and environmental factors which then
allow the organization to receive a steady stream of finance and ensure that the interests of the
organization’s stakeholders are meet. Corporate governance affects the stock prices of listed
companies and, hence, has a significant effect on their liquidity positions as was evident in the
case of Lehman Brothers Chen, Chung & Liao (2007). Companies, perceived to have poor
governance issues, have a falling stock price due to a larger percentage of asymmetrical data.
According to Turban and Greening (1997), experimental research revealed that companies,
which had good governance, had improved performance. According to Newell and Wilson
(2002), good governance is an indication that those investors will have confidence. Lazonick

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and O'sullivan (2000) noted that corporate governance was a mechanism which corporations
used to ensure that managers were able to maximize the return on the shareholders’
investments. Corporate governance enhances fairness as well accountability and transparency
within the corporation (Luo, 2005). According to Macey and O'hara (2003) and McGee (2009),
it signifies the organization’s increased performance since it eliminates risks and aids the
decision making process. According to La Porta et al., (2000), corporate governance provides
for a more healthy securities market by hindering speculative behavior and by ensuring that
manipulative financial practices are eradicated from the financial markets. However, this is not
the case with some executives refusing to comply with ethical conducts which are a prerequisite
for corporate governance. According to Finkelstein and Mooney (2003), there is a debate as to
how far the board should ensure that they obtain the best returns for the shareholders. Instances
of malpractices do occur when the corporation’s underlying ambition is to derive greater levels
of profits as exemplified in corporations such as Barclays bank. However, echoing the
sentiments that a company has corporate governance policies does not mean that in effect, it is
guaranteed to perform better. The governance system should be effective in its undertakings
for the organization (Daily, Dalton & Cannella, 2003). For effective corporate governance, a
company has to have principles which are instrumental in ensuring total transparency,control
and accountability.

Most organizations, which have shareholders, have a board of directors. This is a legal
requirement which all companies are mandated to have. As a result of organizations having
boards, it is vital to assess their effectiveness based on different variables to performance
(Hermalin & Weisbach, 2001). Corporate governance is an important aspect of boards and it
is vital in determining who they are, what they do, and what their responsibilities are.

Board Independence
Literature in corporate governance and especially those undertaken through experimental
research, reflected on the independence of the boards. According to Ramdani and
Witteloostuijn (2010), the agency theory stipulates that a higher level of directors work to
enhance the firm’s performance. However, the agency theory assumes that managers work for
their personal gains and,hence, are opportunistic and, consequently, there is a need for their
performance to be monitored by a board. Furthermore, Ramdani and Witteloostuijn (2010)
stated that when a board was independent, it was able to monitor effectively that company’s
senior executives and as a result this hindered them from pursing activities which were
regarded as self-interest. According to Eisenhardt (1989); Fama (1980), Fama and Jensen
(1983) and Jensen and Meckling (1976), directors, who sit on independent boards, do not face
any obstacles such as pursuance of personal interests in the company. Hence, according to
Ramdani and Witteloostuijn (2010), an independent board is able to perform its role
effectively and satisfactorily. On the other hand, the stewardship theory stipulates that, when
the board consists of insiders, this bring about the best result from the board as opposed to
those boards which consist of outsiders. This assumption is based on the notion that, when the
board consists of insiders, they form a collective union of people who are organized since they
are already knowledgeable about the organization (Ramdani & Witteloostuijn, 2010).
Furthermore, Donaldson (2001) supported this view by stating that insider directors were more
informed and, hence, they were better able to make decisions based on relevant and up to date
information. These assumptions are based on the stewardship theory which states that managers
are better able to manage the organization since they are stewards of its shareholders (Ramdani
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& Witteloostuijn, 2010). Dalton et al (1998) was able to research this assumption and did so
through an empirical approach. However, the research showed a mixed outcome from deriving
a relationship between the organization’s independence and its performance. The research
revealed that the composition of the board percentage of independence to the board leadership
and CEO duality had a relationship to the performance of the board. Also, other mixed research
outcomes were recorded when measuring the relationship between board leadership; CEO
duality and their relationship to the performance of the board. Coles, Daniel and Naveen, 2008;
Daily and Dalton, 1992, 1993; Ezzamel and Watson, 1993; D'Aveni & Kesner, 1993.; and
Pearce and Zahra, 1992 supported the agency theory and Bhagat and Black, 2002; Kiel and
Nicholson, 2003; Yermack, 1996 supported the stewardship theory. Al Farooque et al., 2007;
and Cheung, Raub; Stouraitis, 2006 supported both theories.
H1: There is a significant relationship between board independence and return on assets.

Board meetings
It is the mandatory responsibility of the board members to attend board meetings. According
to Ronen and Yaari (2008), when managers are obliged to their responsibility of attending
meeting, this allows them to vote on important decision-making plans. Vafeas (1999) found
that board meetings tended to increase when the company was faced with a falling share price
this situation was reversed later with better performance of the company. Consequently, this
ideal seeks to establish the fact that, when the board members meet frequently, it is instrumental
to improving the organization’s performance (Conger et al., 1998; Ronen & Yaari, 2008).
However, Jensen (1993) found that, due to time restrictions, the boards were unable to
influence the organization effectively of their directives. Furthermore, Jensen (1993) noted
that the board meetings were organized mostly by the CEO with inherent problems. Krishnan
and Visvanathan (2009) disputed the arguments of the board’s effectiveness and said that since
the board put pressure on the auditors for more reports which, in effect, increased controls
within the organization and reduced the chances of malpractices in the organization.
H2: There is a significant relationship between board meeting and return on assets.

Board size
Literature about the board size has seen various attempts to ascertain its influence on the
organization’s performance. According to Jensen (1993), when compared to smaller sized
boards large sized boards are relatively less effective in pursuing their agendas. These
sentiments were supported by Lorsch (1992) who conveyed this assumption by stating that, as
boards became larger, they were faced with agency problems which resulted in only boards
members being attracted to the position and, consequently, they were unable to deliver their
mandate as board members. The claim made by Lorsch (1992) was examined by Yermack
(1996) who was able to support this claims based on his findings which consisted of measuring
the board size in a sample of American companies. According to Eisenberg et al. (1998), his
research was able, also, to reveal that a negative correlation existed between the size of the
board to the value of the firm. Other researchers were able to use other different measures to
ascertain the size of the board against key variables. According to Hermalin and Weisbach
(2001), a smaller board was better at “monitoring management.”

H3: There is a significant relationship between board size and return on assets.

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Boards Expertise
The board is charged with corporate governance. According to Fama (1980), the shareholders
govern the board’s mandate of the organization. Furthermore, Fama and Jensen (1983) stated
that, since the board was mandated to supervise the organization they were required to have
the knowledge which would allow them to carry out their roles perfectly. According to Vo and
Phan (2013), such skills should be in marketing, IT, accounting and legal issues affecting the
organization. According to Carcello et al. (2002), those board members, who have experience,
know what to ask from the organization’s auditors to bring about a better audit process within
the organization. Consequently, this means that all the board’s members are able to contribute
positively to the decision making process. In turn, this leads to the organization achieving a
better performance with increased experience (Vo & Phan, 2013). According to Marrakchi
Chtourou, Bedard, and Courteau (2001), those directors, who have sat on the board for a long
time, are less likely to be engaged in accounting malpractices. According to Alzoubi and
Selamat (2012), Chtourou et al.’s 2001 and Carcello et al.’s 2002 studies revealed that, higher
level of board expertise resulted in a greater level of motivation for monitoring the
organization’s operations.
H4: There is a significant relationship between board expertise and return on assets.

Company size
Research, which was carried out on company size, focused on the company size in relation to
an organization’s performance of. The size of a company has a direct correlation to openness
in the organization. According to researchers such as Li, Pike & Haniffa (2008) and Shareef
and Davey (2006), the size of a company affected the disclosure of information which the
company was able to give to the public. According to An, Davey and Eggleton (2011), studies,
undertaken into company size and performance in Chinese companies revealed that the total
assets, as represented using IFRS, showed inconsistencies in the definitions of the companies’
material facts. Maffini Gomes, Kruglianskas and Scherer (2009)’s study, which examined the
influence of company size to the external resources, revealed that, when compared to
innovations based on the management structure, there existed material differences .
H5: There is a significant relationship between company size and return on assets.

Company year of incorporation

There has been little research when it comes to company year of incorporation on return on
assets. Different perspectives have been used to assess the company’s age to performance. is a
concept by Pastor and Veronesi (2003) conceptualized the risk view in which they stated that,
the longer a firm existed, the less uncertain shareholders were with the firm. Berger and Udell
(1990) were other researchers who affirmed this assumption. Adams, Almeida, and Ferreira
(2005) found, also, out that stock volatility reduced with the age of the company. However,
according to Loderer and Waelchli (2009), when it comes to profitability, older organization
show declining levels of profits due to reduced level of risks.
H6: There is a significant relationship between company year of incorporation and return on
assets.

Corporate Governance in Palestine

There has been little research undertaken about corporate governance in Palestine. Researchers,
such as Abdelkarim and Alawneh (2009) whose results were carried out about corporate
governance in the country, revealed that there was a negative correlation between concentration
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of ownership and the company’s value. According to Adelkarim and Ijbara (2010), research,
undertaken to establish the correlation between corporate governance and performance in
Palestine, showed that concentration of ownership existed in the country and that, in turn, this
hindered the development of corporate governance.

The reason for the existence of such barriers was due to Palestine’s enforceable codes of
corporate governance. There was a need for a greater level of regulation to be placed in
Palestinian private firms with particular interests, namely, those listed on the country’s stock
exchange. There was a need for a stricter Capital Market Authority in order to enforce
compliance on those firms which were seen to be evading it. In Palestine, the administrative
and financial oversight bureau still lacks the authority to monitor private sector companies.
This is an activity which needs to be taken into account when, for a better performing business
sector, it comes to compliance with corporate governance.

METHODOLOGY

This research paper used secondary information. The data for this research paper was collected
from all 48 listed companies on the Palestine Exchange. The information consisted of data
pertaining to four years from 2010 to 2013. Data pertaining to the board characteristics and
performance was derived from the company annual reports of the chosen organizations. The
firms’ performances were derived from the chosen companies’ financial reports. This research
used the information to assess the relationship between the Return on Assets (ROA) to Board
independence, Board meeting, Board size, Board expertise, Company size and Company year
of incorporation.

Model specification
Return on assets (ROA) is the measurement utilized to measure a firm’s performance. ROA is
the earnings before tax divided by the firm’s total assets. Multiple regressions was used to
measure the ROA against that derived from on the Board independence, Board meeting, Board
size, Board expertise, Company size and Company year of incorporation. Multiple regression
analysis is a statistical analysis technique which is able to calculate the unknown aspect of a
variable from the predicators’ key to this research paper.

This study used the following model of Multiple Regression.

1. RoA = β0 + β1 BoInd + β2 BoSize + β3 BoM + β4 BoExp + β5 TotAst + β6 Age + ε
Where;
RoA =the dependent variable
β0 = Constant or intercept
and dependent variables are
BoInd = Board Independence
BoSize = Board Size
BoM = Board Meetings in a year
BoExp = Board Expertise (Dummy variable)
TotAst = Total Assets in thousands of USD
Age = No. of years in business
ε = Error Term

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RESULTS/FINDINGS

This section makes an assessment of the results and findings. This research paper’s hypotheses
were in order to determine whether or not they held up to their theoretical assumptions. This
section consists of the descriptive data which was analyzed first, followed by the analysis of
the multiple linear regressions and, finally, a discussion of the results

Descriptive Statistics

Table 1.1 Descriptive Statistics for all Four Years from 2010 to 2013
N Minimum Maximum Mean Std. Deviation
RoA 192 -31.69 27.97 1.6817 7.53289
BoInd 192 .60 1.00 .9189 .10374
BoSize 192 5 15 8.98 1.988
BoM 192 1 13 5.79 1.690
BoExp 192 0 1 .91 .292
TotAst 192 2659 2348045 150893.12 318912.151
Age 192 0 68 19.88 13.820

Table 1.1 consists of the descriptive statistics which gives a snap shot of the data and the
relationships which exist within the presented data’s variables. Board independence stood at
close to 91% with a minimum of 60% and maximum of 100%. The board size was
approximately 8.98 with a minimum of 5 and a maximum of 15. The number of board meetings
ranged from a minimum of 1 to a maximum of 13 with an approximation of 5.79. The total
assets of the Palestinian firms were approximately $150,893.1 with a minimum of $2,659 and
maximum of $2,348,045. Board experience ranged from 1 to zero, where 1 meant board
members had at least one board member with financial experience, and Zero for board members
with no financial experience. The age of corporation ranged from a minimum of 0 to a
maximum of 68 years with an approximation of 19.88.

According to Figure 1.1, the results, showing the ROA, reveal a large deviation amongst
Palestinian firms. The results reveal a mean performance of 1.7%. The minimum reported
performance stood at -31.2% and a maximum of 27.8% and the standard deviation between
the companies stood at 7.5.

Correlation Analysis
The researcher carried out a correlation analysis of dependent variable with independent
variables in order to answer the hypotheses laid down for this study. The correlations are given
in Table 1.2. It is evident from the table that the dependent variable performance return on
assets is unrelated to board independence, board size, board meetings board expertise and
company size. The only significant relationship between years of incorporation assets and
ROA is that the company’s age affects its performance. As shown in Table 1.2, this had either
a significant level or 0.000 which was less than 0.5.

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Table 1.2: Correlations of Variables

Return
on Board Board Board Board Company Year of
Assets Independence Meeting Size Expertise Size Incorporation
Return on Pearson
1 -.020 -.061 .094 -.085 .079 -.293**
Assets Correlation
Sig. (2-
.787 .401 .194 .241 .277 .000
tailed)
N 192 192 192 192 192 192 192
Board Pearson
-.020 1 -.029 -.003 .036 .135 .155*
Independence Correlation
Sig. (2-
.787 .691 .966 .619 .062 .032
tailed)
N 192 192 192 192 192 192 192
Board Pearson
-.061 -.029 1 .001 -.284** .263** -.128
Meeting Correlation
Sig. (2-
.401 .691 .994 .000 .000 .076
tailed)
N 192 192 192 192 192 192 192
Board Size Pearson
.094 -.003 .001 1 .160* .282** .051
Correlation
Sig. (2-
.194 .966 .994 .027 .000 .479
tailed)
N 192 192 192 192 192 192 192
Board Pearson
-.085 .036 -.284** .160* 1 .137 .032
Expertise Correlation
Sig. (2-
.241 .619 .000 .027 .058 .664
tailed)
N 192 192 192 192 192 192 192
Company Pearson
.079 .135 .263** .282** .137 1 -.198**
Size Correlation
Sig. (2-
.277 .062 .000 .000 .058 .006
tailed)
N 192 192 192 192 192 192 192
Year of Pearson
-.293** .155* -.128 .051 .032 -.198** 1
Incorporation Correlation
Sig. (2-
.000 .032 .076 .479 .664 .006
tailed)
N 192 192 192 192 192 192 192
**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).

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Regression analysis for 2010-2013
Table 1.3: Summary of the Regression Model for the Four Years from 2010 to 2013

Std. Error Change Statistics

Mod R Adjusted of the R Square F Sig. F
el R Square R Square Estimate Change Change df1 df2 Change
1
.351 .123 .095 7.16598 .123 4.343 6 185 .000398

Table 1.4 shows the results between the CG variables (BoInd, BoSize, BoM, BoExp, TotAst,
Age) and firm performance variable (ROA).

Hypothesis 1- Our first hypothesis is: “There is a relationship between board Independence
and firm performance (RoA).”

Table 1.4 describes that the coefficient of the variable BoInd was 1.729 with a p-value of 0.738
(>0.05). Consequently, we could not conclude that there was some association between board
independence and firm performance (ROA).

Hypothesis 2- Our second hypothesis is: “There is a relationship between board Meetings and
firm performance (RoA).”

The regression coefficient for Board Meeting was -0.674 with a p-value of 0.048. It indicated
that Board Meeting had a significant effect on a company’s performance. This effect was
negative when more meetings resulted in a reduction in the company’s performance.

Hypothesis 3- Our third hypothesis is: “There is a relationship between the size of the board
and firm performance.”

The analysis shows that the size of the board has significant connection with the company’s
performance (ROA) at 10% level of significant with a p-value of 0.095. However, if we
consider a 5% level of significance then there is no significant relationship between board size
and ROA.

Hypothesis 4- Our fourth hypothesis is: “There is a significant relationship between board
expertise and return on assets.”
Board expertise has insignificant effect on the company’s performance. Table 1.4 describes
that the coefficient of the variable BoExp is -3.682 with a p-value 0.56 (>0.05). Consequently,
it cannot be concluded that there is some association between board expertise and ROA (firm
performance).

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Hypothesis 5- Our fifth hypothesis is: “There is a significant relationship between company
size and return on assets.”

In this respect Table 1.4 describes that the coefficient of the variable TotAst is .0000000914
with a p-value 0.625 (>0.05). Consequently, it cannot be concluded that there is some
association between company size and ROA (firm performance).

Hypothesis 6- Our fifth hypothesis is: “There is a significant relationship between company
year of incorporation and return on assets.”

The dependent variable firm performance depends significantly on the company’s age. This
shows that a one-year increase in age of the company increases 0.166 in the firm performance.
Table 1.4 describes that the coefficient of the variable Age is .166 with a p-value .000038
(<0.05); this shows that there is a significant relationship between the company’s year of
incorporation and ROA (firm performance).

Table 1.4: The Coefficients of Multiple Regression Analysis for the Four Years from 2010
to 2013
Model Unstandardized Standardi T Sig. 95% Confidence
Coefficients zed Interval for B
Coefficie
nts

B Std. Beta Lower Upper

Error Bound Bound
1 (Constant -.289 6.417 -.045 .964 -12.950 12.372
)
BoInd 1.729 5.156 .024 .335 .738 -8.444 11.902
BoSize .465 .277 .123 1.680 .095 -.081 1.010
BoM -.674 .339 -.151 -1.989 .048 -1.342 -.005
BoExp -3.682 1.912 -.143 -1.925 .056 -7.455 .091
TotAst .000000 .000001 .039 .490 .625 - .0000046
914 87 .0000027
7
Age .166 .039 .305 4.223 .0000 .089 .244
38

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Summary of Hypotheses
Table 1.5: Summary of Outcomes of Hypotheses
Hypothesis Relationship Findings
H1 Board independence and return on assets. No
relationship
H2 Board meeting and return on assets. No
relationship
H3 Board size and return on assets. No
relationship
H4 Board expertise and return on assets. No
relationship
H5 Company size and return on assets. No
relationship
H6 Company year of incorporation and return Relationship
on assets

DISCUSSIONS

Hypothesis 1

The results, shown in Figures 1.2 and 1.4 are the outcomes from study of the relationship
between the Return on Assets (ROA) to Board independence, Board meeting, Board size,
Board expertise, Company size and Company year of incorporation. The first hypothesis stated
that there was a relationship between Board independence and return on assets. According to
the analysis from Table 1.2: Correlations of Variables and from Table 1.4: Coefficients of
Multiple Regression Analysis, the results indicate that the dependable variable showed no
correlation. These results were in line with Dalton et al. (1998) whose research showed a mixed
outcome from deriving a relationship between the independence of the corporation and the
performance of the organization. This was contrary to the opinions of Eisenhardt, 1989; Fama,
1980; Fama & Jensen, 1983; Jensen & Meckling, 1976; and Ramdani & Witteloostuijn, 2010
who considered that the level or independence had a positive effect on the organization.

Hypothesis 2

The outcome of the second hypothesis resulted, also, in the same outcome as hypothesis 1. The
results from Tables 1.2 and 1.4 showed there was no relationship between the Board meeting
and return on assets. The literature showed some researchers who supported the outcome of
this hypothesis. Jensen (1993) found that, due to time restrictions, the boards were unable to
influence the organization effectively of their directives to. This outcome went against what
Conger et al. (1998) and Ronen and Yaari (2008) noted when they said the frequency of board
meetings led to better performance.

Hypothesis 3

The outcome from the board size in relation to the firm’s performance revealed that as shown
in Tables 1.2 and 1.4, there was no relationship between the two variables. This outcome was
confirmed by Jensen (1993) who said that compared to smaller boards; large boards were
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 European Journal of Accounting Auditing and Finance Research
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relatively less effective in pursuing their agendas. Also, Lorsch (1992) conveyed this
assumption by stating that, as boards become larger, they were faced with agency problems
resulting in board members who were only attracted to the position and were unable to deliver
their mandate as board members

Hypotheses 4 & 5

As shown in Tables 1.2 and 1.4, the results from hypotheses 4&5 revealed that there was no
relationship between board expertise and return on assets and company size and return on assets
to the performance of the firm. This went against previous researches undertaken by Alzoubi
and Selamat (2012) Chtourou et al.( 2001) and Carcello et al. (2002) who revealed that a higher
level of board expertise resulted in a greater level of motivation for monitoring the
organization’s operations. However, according to the outcome, this did not have any effect on
the organization’s performance. According to Sharif, and Davey (2006), the size of a company
affected the disclosure of the information which the company was able to give to the public.
These sentiments were in line with the research outcomes.

Hypothesis 6

As shown in Tables 1.2 and 1.4, the outcome of the results revealed that when all the variables
in this research paper were considered, the age of the organization was the only relationship
which had a significant relationship. Also, Pastor and Veronesi (2003) validated these results
when they stated that, the longer a firm existed, the less uncertain shareholders were with the
firm. However, these results went against Loderer and Waelchli (2009) who said that, when it
came to profitability, older organizations showed declining levels of profits due to reduced
level of risks.

IMPLICATIONS TO RESEARCH AND PRACTICE

This paper provides a greater insight to understanding corporate governance in Palestine. The
approach, taken in this paper, will enable companies to assess the true relationship between the
return on assets to Board independence, Board meeting, Board size, Board expertise, Company
size and Company year of incorporation and find ways of ensuring that these factors become
more relevant to the organization’s performance. Palestine is still young to corporate
governance and the outcome of this paper will enable companies to grow positively.

CONCLUSION

The objective of this research paper was to assess the relationship between the return on assets
to Board independence, Board meeting, Board size, Board expertise, Company size and
Company year of incorporation. The research paper consisted of examining companies listed
on the Palestine Exchange with analysis undertaken through regression analysis.

From studying six variables to find their relationship to the company’s performance, the
research paper was able to establish only one relationship. This was found to exist between the
organization’s age/year of incorporation to the firm’s return on assets.

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FUTURE RESEARCH
Corporation governance is still a relatively new management practice in Palestine since a
greater level of regulation is attached to corporate company law. Despite endeavors from
Palestine’s securities market to bring about a form of regulation of corporate governance, such
implementation has not been effected. Future research should be undertaken to establish the
level of compliance to corporate governance.

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