Business and Economics Journal

Foreign Investment Choices and Corporate Governance Role

Abstract

Ayda Farhan and Hairul Azlan Bin Annuar

Countries are encouraging firms to adopt corporate governance mechanisms to enhance monitoring over firms, and at the same time to achieve economic growth. This study investigated the effect of the CGC on foreign ownership. Particularly, the study aims to investigate board independence, board size, and audit committee characteristics have an effect on foreign investment in domestic UAE firms. Using panel data analysis, the study was based on a sample from the UAE financial market. The study is based on 72 sampled firms from 2010 to 2013. The findings indicated the importance of corporate governance in the UAE in attracting foreign ownership. Mainly, board size and AC independence had a significant positive effect on attracting foreign investments. While, foreign investors, who considered it an indicator of weak supervision, did not prefer board independence. The current study contributes to the literature related to the professional practice of corporate governance by introducing the role of corporate governance and consequences in the firms. Moreover, this study studied the preferences of foreign ownership in absence of firms’ performance factor. The results of this study have major implication that corporate governance application should concentrate on the mechanisms that could achieve the intended goal.