economies

Article
Examining the Impact of Corporate Governance on Investors
and Investee Companies: Evidence from Yemen
Fahd Alduais * , Jafer Alsawalhah and Nashat A. Almasria *

Department of Accounting, Philadelphia University, Jarash Road, 20 KM, Amman 19392, Jordan
* Correspondence: [email protected] or [email protected] (F.A.);
[email protected] (N.A.A.)

Abstract: The purpose of this study was to determine whether corporate governance is an important
and effective technique for enhancing investors’ confidence in existing and prospective companies and
for creating opportunities for safe investment in Yemen. A survey was conducted among certified
public accountants to assess the importance of corporate governance. We employed regression
analysis to test our hypothesis. According to the results of the study, corporate governance is an
essential component of success for companies, and those firms that apply corporate governance
best practices are highly regarded. Additionally, the findings suggest that regulators, policymakers,
and standard-setters should raise awareness of the importance of protecting shareholders’ rights by
providing seminars and courses for Yemeni media, unions, and professional associations. Moreover,
in an environment of uncertainty there is a reluctance to invest and a prevalent tendency to invest
in real estate. Furthermore, the results indicate that corporate governance is not practiced by all
companies but only to a limited extent by some joint-stock companies. Most of the Yemeni companies
that have adopted CG are joint-stock companies, so investors prefer to invest in these companies.
The findings of this study provide valuable insights for regulators, practitioners, and academicians.
We recommend that this survey be extended to a larger sample, including supervisory managers
of companies. This study provides an insightful contribution, because it clarifies the importance of
corporate governance for Yemeni investors and investee companies.
Citation: Alduais, Fahd, Jafer
Alsawalhah, and Nashat A. Almasria.
Keywords: transparency; awareness; disclosure; investee companies; investor protection; corporate
2023. Examining the Impact of
governance in Yemen
Corporate Governance on Investors
and Investee Companies: Evidence
from Yemen. Economies 11: 13.
https://doi.org/10.3390/
economies11010013
1. Introduction
The concept of corporate governance (CG) has emerged in recent years as a mechanism
Academic Editor: George R.
for economic development, including procedures and the management of related parties
G. Clarke
in organizations. It has received significant attention, especially from supervisory and
Received: 1 October 2022 control authorities. CG emerged because of the shortcomings that permeated the laws
Revised: 11 November 2022 and legislation that govern business and commercial activities, which led to many cases
Accepted: 21 December 2022 of bankruptcy, insolvency, and financial hardship for many large companies, affecting
Published: 5 January 2023 thousands of shareholders and capital owners. Managers often do not align their interests
with shareholders due to the fact of information asymmetry.
The function of CG is to mitigate agency problems that arise between related parties
to create shareholder value. These concerns and interests are related to how the investors
Copyright: © 2023 by the authors.
monitor the company and attempt to avoid the risks and costs of investing. Studies have
Licensee MDPI, Basel, Switzerland.
been conducted to investigate these issues (Kling and Gao 2008; Al-hilu et al. 2017; Healy
This article is an open access article
and Palepu 2001; Habib and Jiang 2015; Hirshleifer 2001; Shleifer and Vishny 1997; Tam
distributed under the terms and
conditions of the Creative Commons
2000; OECD 2004; Coombes and Watson 2000; Elbadry et al. 2015; Fosberg 2004). Some
Attribution (CC BY) license (https://
studies have been conducted on Yemeni banks, which play a role in CG, and the majority
creativecommons.org/licenses/by/ are joint-stock companies (Alobaidi et al. 2017; Basuony et al. 2014; Alawi et al. 2016; Al-
4.0/). Baidhani 2018; Al-Matari et al. 2016; Al-Homaidi et al. 2020a; Ismal et al. 2014; Ali Saleh

Economies 2023, 11, 13. https://doi.org/10.3390/economies11010013 https://www.mdpi.com/journal/economies

Economies 2023, 11, 13 2 of 25

Al-magharem et al. 2019; Qaid and Alhamidi 2020). Previous studies have also found
that firms with good CG perform better than firms with less CG (Larcker et al. 2007), and
firms with better CG have shown better performance (Attig et al. 2013). From a theoretical
perspective, firms with good CG are expected to have a better competitive advantage than
firms with poor CG.
In order to anticipate opportunistic behavior, CG is supposed to reduce information
asymmetry and ally management with shareholders’ interests (Menshawy et al. 2021;
Guluma 2021; Holm and Schøler 2010). According to agency theory, management entrench-
ment, free cash flow, overconfidence, and the higher echelon method are a few models
that can be used to explain wasteful investment (Menshawy et al. 2021). CG is a crucial
instrument for stopping opportunistic managerial behavior, according to agency theory
(Hlel et al. 2020). Corporate governance is a set of control systems that looks out for the
interests of investors (Utama et al. 2017; Alduais et al. 2022a). Efficient investment, accord-
ing to Biddle et al. (2009), refers to management selecting investments with high returns.
On the contrary, excessive or insufficient investment results in inefficient returns. With the
former, management selects an investment model with a negative return, whereas in the
latter, management terminates investment projects with a high return (Bimo et al. 2022;
Ullah et al. 2020).
Conceptually, corporate governance seeks to ensure that the interests of management
and investors are aligned (Jacoby et al. 2019). This convergence of interests can lessen
information asymmetry which, in turn, lowers the possibility of moral hazard and adverse
selection (Suman and Singh 2020; Jacoby et al. 2019). Based on agency theory, moral hazard
and adverse selections due to the fact of agency conflicts that arise because of information
asymmetry may lead to unproductive investments (Ullah et al. 2020).
Reducing knowledge asymmetry can improve financial data transparency (Zimon
et al. 2022). Because management selects assets that yield the best returns for the company,
investment efficiency is therefore likely to improve (Menshawy et al. 2021). In theory, corpo-
rate governance is designed to lessen management’s propensity for opportunistic behavior,
safeguard the interests of shareholders, align the objectives of agents and principals, and
reduce information asymmetry. These goals will ultimately boost investment efficiency
(Suman and Singh 2020).
Investor protection is a crucial issue, and it has priorities that must be met. This study
sheds light on the infrastructure of CG and analyzes its adequacy and applicability in
companies as a guarantee for investors. This problem remains under investigation in the
current literature, while calls for further empirical research in this area persist. This study
fills the research gap by surveying practitioners who have a good working relationship with
most companies in Yemen. The legal form of individual companies, partners, and families
is dominant in Yemen. Few companies in Yemen offer shares for public subscription, and
they are not mentioned here. Most companies are restricted to the founders, as there is no
legal obligation for companies to offer public subscriptions. All of this involves a series
of interrelated reasons. The absence of giant companies has led to a lack of interest in
governance, and this is the reason for the lack of interest in establishing a capital market.
The aim of this study was to review and analyze the literature to identify the most
important factors that inhibit investors’ willingness to invest as well as to attempt to
answer the following questions: Research question 1: (a) What are investors focusing on
in the market, (b) what role do good CG practices play, and (c) what are the most crucial
governance factors with greater influence? Research question 2: (a) Do well-governed
companies influence investor decisions and (b) will investors be sophisticated enough
to form future joint-stock investment companies? Research question 3: (a) Is increasing
awareness of CG in Yemen an important matter, (b) how important is it to establish a
stock market in Yemen, and (c) what are the related factors that prevent this investment?
Research question 4: (a) What causes investors to refrain from investing and establishing
companies but invest in real estate? A cross-sectional study was conducted in Yemen in
order to address these research questions.
Economies 2023, 11, 13 3 of 25

Our paper contributes to the literature by providing direct evidence of the importance
of CG to investors and investee companies. We recommend reforming and improving the
factors that will help in strengthening the role of CG and applying it more comprehensively,
and raising awareness through the relevant professional associations and unions, the
media, and educational institutions. We also examine the possibility of establishing a stock
market in Yemen to shed light on the importance of stock markets in motivating investors
to contribute to joint-stock companies, which could support the national economy. In
addition, we clarify the degree of influence of an environment of uncertainty on investment
and investors and how to know their future investment direction in light of the uncertain
environment. Fourth, this paper fills a research gap in terms of the importance of good CG
for investing companies and investors.
The remainder of the paper is organized as follows: Section 2 reviews the relevant
literature and hypothesis development. Section 3 presents the materials, sample, and
data collection method used in the study. Section 4 presents the results and Section 5 the
discussion of our findings regarding CG and investors. In Section 6, the policy implications
and recommendations are elaborated, and Section 7 concludes the paper.

2. Literature Review and Hypothesis Development

The Organization for Economic Co-operation and Development (OECD) defines CG
as a relationship between a company’s management and board, government shareholders,
and other stakeholders, which involves determining the means to achieve these goals and
monitor performance. The experiences of many countries and companies globally and the
financial crises that have affected them have made it clear that good CG is an essential ele-
ment for the healthy and robust growth of regional, national, and international economies.
Corporate governance includes the procedures and methods for managing related
parties in companies (OECD 2004; Aguilera et al. 2019; Farah et al. 2021; Almasria 2021). It is
a prominent topic that has attracted the attention of capital markets, business organizations,
researchers, and international organizations. Corporate governance emerged as a response
to the agency problem and a conflict of interest between a company’s management, share-
holders, and stakeholders (Almasria 2018; Sener and Selcuk 2019; Core et al. 1999; Chung
et al. 2022; Almasria 2022b; Suman and Singh 2020; Chen et al. 2017; Habib and Jiang 2015;
Alduais et al. 2022a). Furthermore, instability and turmoil have affected some financial
markets, as well as international companies, during periods of manipulation of financial
statements, lack of corporate transparency, violation of shareholder rights, and the lack of
a sound administrative structure capable of allowing shareholders to achieve their goals.
Corporate governance is a good guide for companies, especially in balancing conflicts of
interest between investors, company management, and other stakeholders. It works to
increase investor confidence and the market value of company shares and helps companies
obtain international and local financing, especially after the financial shocks that hit global
markets in the mid-1990s (Bimo et al. 2022; Feng et al. 2020; Nguyen et al. 2015; Shahid and
Abbas 2019; Otman 2019).

2.1. Corporate Governance in Yemen

The CG Guide in Yemen, issued in 2010, was considered to represent a partnership
between the government and the private sector in an integrated way. It was aimed at
improving the business and investment climate to create appropriate conditions for in-
vestment and encourage companies to commit to the principles of governance, and was
considered a lifeline for them. The guide includes two annexes, the first for banks, due to
the economic importance of this sector in general, and the second for family businesses,
due to the dominance of this type of company in the Yemeni market. This guide is com-
plementary to Yemen’s enforced laws, foremost of which is Commercial Companies Law
No. 22 of 1997 and its amendments, executive regulations, and decisions.
In the Middle East’s transition economies, interest in CG is not a new phenomenon. It
is especially important in these economies, since they lack the long-established (financial)
Economies 2023, 11, 13 4 of 25

institutional infrastructure required to address CG issues (Braendle 2013). Intense CG is

crucial for the Middle East and North African (MENA) countries as they attempt to boost
economic growth, strengthen competitiveness, and build prosperous societies (Otman
2019). CG is still a slow process in Yemen compared to most MENA countries, including
Egypt and the UAE. Implementing a CG system requires a long process divided into stages,
starting with raising people’s awareness of the need for such a system and explaining its
characteristics, and including the need to monitor the system and ensure that it works
as planned and the need to ensure that journalists write about the positive and negative
aspects of private companies because of their role in economic change in Yemen.
A number of empirical studies have increasingly confirmed that companies character-
ized by good governance enjoy higher market valuation (Gompers et al. 2003) and higher
market response (Gao et al. 2019) and have a positive effect on the quality of environmental
disclosure and performance (Giannarakis et al. 2019; Hong et al. 2021; Almasria 2022b).
These studies have generally found that companies with better governance achieve better
overall revenue, especially in volatile markets. Investors are increasingly considering com-
panies’ CG practices when making investment decisions. Moreover, fixed-income investors
may accept lower interest rates and longer credit maturity periods. As a result, this may
mean a willingness to invest more in companies they consider to be highly governed.

2.2. Corporate Governance and Investment

The World Bank’s Doing Business 2020 report shows a low minority investor protection
score for Yemen of 26.0, ranking 162nd. Comparing the level of investor protection with other
good practices and selected economies, Yemen was one of the lowest (World Bank 2020).
Yemen occupies a lower rank in the investor protection index because its companies
fail to adhere to CG principles and rules. CG is an essential and significant part of economic
change, but The CG is not given adequate attention in Yemen with regard to the economic
aspect of the country (see Table 1), based on the survey respondents’ answers regarding
how businesses adopt governance. In addition, the lack of CG in the business community
is considered to be an economic imbalance and is directly reflected in the productive
structure of the national economy. It has led to a weak ability to attract private investments,
leading to the low competitiveness of the private sector. Few studies have examined
investors’ attitudes regarding the importance of CG arrangements when making investment
decisions by reading about the state of companies in the market; for example, some studies
have found that better CG is associated with a higher corporate market valuation and
that governance reforms have resulted in a higher corporate market valuation for those
companies (Balasubramanian et al. 2010; Klapper and Love 2004; Durnev and Kim 2005)
and a strong correlation between governance and market value (Black et al. 2006).

Table 1. Doing Business 2020: protecting minority investors’ score.

Region Rank Score (0–100)

Oman 88 56.0
Jordan 105 50.0
Iraq 111 46.0
Iran, Islamic Republic 128 40.0
Yemen, Republic 162 26.0
Source: World Bank (2020).

Shareholders and investors trust that the money they invest will not be misused by
managers, board members, or majority shareholders. These funds being used in an optimal
manner that considers their interests is among the most critical factors in the emergence
and development of capital markets (OECD 2004). Boards of directors, managers, and
the majority of shareholders can make decisions that achieve their interests at the expense
of the interests of other shareholders. However, managers often tend to act in their best
interests (Shahid and Abbas 2019; Jensen and Meckling 1976). Other studies report that
Economies 2023, 11, 13 5 of 25

managers do not always make investment decisions in the interest of shareholders (Baker
and Gompers 2003; Dong et al. 2007; Su 2004).
In light of this, it is vital to appreciate how investors use CG in their investment
decisions, which features of CG are the most important to them, and if these features differ
according to CG factors, company size, ownership structure, or industry. On a conceptual
level, if CG is crucial to any group of investors, then that group of investors should be
able to overcome teamwork and information asymmetry concerns. Studies have proven
that CG is important to these investors (Ghabri 2022). They indicated that increasing
investor protection strengthens CG and improves company performance. Nevertheless, no
studies have focused on investors and companies in Yemen and revealed the CG factors
that investors look at when making investment decisions (Mihail and Dumitrescu 2021;
Gennaro and Nietlispach 2021; Choi et al. 2020; Rehman 2021).
One of the requirements of CG is to increase the level of transparency in order to
achieve market efficiency (Farah et al. 2021). Since CG has a policy of guaranteeing
shareholder rights, such as the right to participate in company decisions and cast a vote at
general company meetings, information should be provided regarding the company’s rules
and procedures, including voting procedures, and the requirement to disclose financial
information. According to Alduais (2022), corporate governance affects the financial
market by affecting companies in terms of trading volume and stock prices and enhancing
confidence among various parties.
By implementing the rules of CG, stakeholders and shareholders are protected from
unfair practices, and administrations are accountable in a manner that protects them
(Gerged and Agwili 2020; Guluma 2021). Thus, there will be an increase in investment
and a stimulated flow of investment, as well as an increase in national savings, which
will maximize profitability and create new employment opportunities. Furthermore, CG
strengthens the role of the capital market, mobilizes savings, raises investment rates, and
protects minority small investors’ rights. This allows the private sector to thrive, remain
competitive, finance projects, and become profitable (Spanos 2005).
The process of disclosing financial information is important in reducing the cost of cap-
ital and ensuring its continuity in business performance (Alduais 2016, 2019; Alduais et al.
2022b), as CG contributes to attracting foreign and local investments and helps reduce capi-
tal flight and combat financial and administrative corruption (Alasbahi 2021; Alduais et al.
2022a). Good corporate governance increases disclosure and transparency and provides
financial information that helps improve performance and diversify corporate investments,
which increases rates of return on investments (Larcker et al. 2007). There is no doubt that
corporate governance is an approach that leads to reviving the economy and raising the
efficiency of markets by protecting national investments and giving investors confidence in
the state system, which makes it more attractive to foreign direct and indirect investments.

2.3. Corporate Governance Factors That Influence Investment Decisions

Along with an increased focus on investment opportunities, there has been an in-
creased interest in CG considerations. A comprehensive review of this research revealed a
significant information gap, with little in-depth research on the role of CG in investment
decisions. The survey addressed this information gap, focusing on specific CG issues
of interest to investors in Yemen. In particular, companies in Yemen may face greater
expropriation concerns due to their ownership structure. Thus, one might expect investors
not to rely on the same types of CG features as in developed markets (Otman 2019; Farah
et al. 2021) but perhaps only some of them or completely other ones. In addition, for funds
invested in Yemeni companies, there is a different institutional and operational structure
than for funds invested primarily in more developed markets. This indicates that investors
in Yemen cannot expect to use litigation as easily as in neighboring countries.
The need for corporate governance stems from the separation between ownership and
management (Aguilera and Jackson 2003; Shleifer and Vishny 1997). This is achieved by
joint-stock companies, as many shareholders seek to invest their money in these companies
Economies 2023, 11, 13 6 of 25

with the aim of earning a profit. Some of them do not have sufficient experience to manage
a company. Therefore, experienced managers are hired to manage these companies to
achieve their profitability goals and conduct their daily business, and these managers are
not the company owners.
Agency theory had a significant impact on the emergence of corporate governance
(Hassan et al. 2019) and was the basis of the corporate governance idea. The theory devel-
oped in response to shifts in the forms of ownership, which led to important developments
in the areas of control and performance measurement (Sanchez-Marin et al. 2011; Billett
et al. 2017; Bens and Monahan 2004; Bonsall and Miller 2017; Han et al. 2014; Jensen and
Meckling 1976; Bathala and Rao 1995). Agency theory focuses on the issue of conflict
between the principal and the agent and holds that this conflict can be resolved through
corporate governance mechanisms, since the agent does not always strive to meet the prin-
cipal’s objectives. Conflict occurs when the agent and the principal do not communicate
with each other consistently and accurately. Generally, agency theory describes the conflict
between a principal and an agent and indicates that the conflict can be resolved through
corporate governance mechanisms (Nguyen et al. 2015), since the agent does not always
work to achieve the principal’s objectives.
Corporate governance has been extensively studied (Loyola and Portilla 2014; Core
et al. 2008; Soepriyanto et al. 2021; Fosberg 2004; Setiawan et al. 2016; Rutherford and
Buchholtz 2007; Chen and Liu 2013; Feng et al. 2020; Tian and Lau 2001; Ghabri 2022;
Core et al. 1999). Those studies examined the principles proposed, concerns regarding
shareholder rights, equal treatment of shareholders, disclosure and transparency, the duties
and responsibilities of the board of directors, and stakeholder rights. A good corporate
governance system is one of the most important factors in creating a good, correct, and
effective investment environment. The purpose of corporate governance is to provide
investors with the information they need and a strong communication system that works
effectively and efficiently (OECD 2004).
H1 . Corporate governance factors (ownership structure, disclosure, transparency, responsibility,
accountability, performance assessment, risk management, and control) are positively related to
investment decisions.

2.4. Specific Factors Related to the Need to Reform Corporate Governance

In any country, the aim of the economic system is to fulfil the needs of society by
producing goods and services in sufficient quantity and quality to meet people’s needs;
for this to occur, the groundwork must be prepared for establishing appropriate entities
within the framework to fulfil these functions and responsibilities (Ghisellini et al. 2016;
Littig and Grießler 2005; Debreu 1951). As a representation of the private sector, it can
be seen as private projects or companies that aim to achieve profits by investing capital
in opportunities to meet society’s needs. Generally, a business entity is defined as an
instrument for accumulating capital to produce, distribute, and invest in goods and services
to generate profit for its shareholders. There are several types of businesses, including
sole proprietorships, general partnerships, limited partnerships, joint ventures, joint stock
corporations, limited liability companies, and companies limited by shares. Each company
has different methods of management and ownership.
Corporate governance is a relatively recent economic term that refers to joint-stock
companies being subjected to laws and regulations that impose monitoring and follow-up
and ensure that these companies’ data as well as their administrative and financial practices
are characterized by the highest levels of disclosure and transparency to protect the rights
of shareholders. Corporate governance, with its connotations of disclosure, transparency,
and guaranteed shareholder rights, is considered as a mechanism (Hong et al. 2021). It
raises the efficiency and performance of financial markets and maximizes the value of
companies, which contributes to these markets becoming an engine for economic growth
rather than a damper, and works to reduce the failure and stumbling of these companies
(Guluma 2021; Klapper and Love 2004; Al-Matari et al. 2016).
Economies 2023, 11, 13 7 of 25

H2 . The characteristics of governed business entities (sole proprietorships, general partnerships,

limited partnerships, joint ventures, joint-stock corporations, limited liability companies, and
companies limited by shares) are positively related to investment decisions.
Most of the financial markets started to consider obliging the listed companies on
the stock exchange to commit to applying the rules of governance as a new condition of
registration. By studying the capital markets, especially the developed ones, we find that
all of them apply a corporate governance system to their listed companies, which is a
prerequisite for the companies to be able to list their shares on these stock exchanges.
However, in emerging markets, we find that many of those markets do not apply such
a system for several reasons, including that many necessary mechanisms are missing in
those markets, which are in dire need of implementing them. These may be among the most
important reasons for the weak efficiency of capital markets in emerging countries, which
has prevented these markets from reaching any form of recognized efficiency, including
weak efficiency.
A stock market is necessary for Yemen to support small- and medium-sized businesses
and transform them into joint-stock corporations that can support the national economy
and attract local and foreign capital (Al-Homaidi et al. 2020a; Al-Matari et al. 2016; Alobaidi
et al. 2017; Alasbahi 2021). Yemen is a market full of risks with limited infrastructure in
various sectors, and this is an important first step, but it could also turn out to be a turning
point for large companies, which distribute risk by investing in many companies rather
than just one, creating a high cost of capital. Professional associations and the media play a
major role in raising awareness about corporate governance, which coincides with stock
markets and the presence of joint-stock companies to protect the rights of shareholders.
Legally, corporate governance aims to maintain the contractual obligations between
companies and other parties while reducing the negative implications. Furthermore, corpo-
rate governance ensures that the rights of all parties in a company are protected, including
shareholders, boards of directors, and executive management, as well as other stakeholders
(Connelly et al. 2010; Alawaqleh and Ali Almasria 2021). It is essential to have laws, legisla-
tion, bylaws, and rules regulating work in companies, which constitute the backbone of
corporate governance and support the people who work for companies. The most impor-
tant of these laws are corporate, capital markets, banking, labor, commercial, international
accounting and auditing standards, tax law, consumer protection, environmental protection,
and other relevant laws. These laws, regulations, and systems are considered safety valves
to ensure that corporate governance principles are followed well and soundly (Gong et al.
2018). For such legislation to be valuable and effective, the control and supervisory aspects
of supervisory authorities must be activated, financial statements should be prepared
under international accounting and auditing standards, and attention should be paid to the
disclosure and transparency of the level of risk to shareholders and stakeholders.
H3 . Specific factors related to corporate governance (awareness of setting up a stock exchange,
investor protection, awareness via media, educational awareness, and awareness through professional
institutions) are positively related to investment decisions.

2.5. Corporate Governance and Investment in an Uncertain Environment

Many scholars (Mihail and Dumitrescu 2021; Ghabri 2022; Utama et al. 2017) have
determined what investors take into consideration when making investment decisions,
especially in light of an economic system that is characterized by globalization and intense
competition between companies and various institutions to enter local or international
capital markets for investment and the extent of companies’ commitment to applying
the principles of governance, which is one of the basic criteria affecting their decisions.
Institutions that apply these principles increase their competitiveness in the long run due
to the fact of transparency in their transactions, accounting, and financial audit procedures
and all of their operations, which will inevitably boost the confidence of local and foreign
Economies 2023, 11, 13 8 of 25

investors alike, who will then invest in these companies, thus lowering the cost of capital
and allowing for more stability of funding sources.
Disclosure and transparency standards in the context of proper application of the
principles of governance would assist in preventing the occurrence of banking crises
(Khanchel 2007; Mihail and Dumitrescu 2021; Farah et al. 2021; Mamatzakis and Bermpei
2015; Al Maeeni et al. 2022; Benmelech and Bergman 2018). Consequently, if companies are
faced with a specific crisis, their commitment to maintaining high standards for disclosure
of information related to their debts and obligations will allow them to follow the legal
procedures in the event of bankruptcy or expropriation, providing fairness for creditors
and other stakeholders should either of those occur (Kirkpatrick 2009). The lack of correct
CG rules creates the opportunity for corruption to occur in institutions. The owners, who
can be on the board of directors, managers, or executives, are considered members of
the institutions themselves (Johnson et al. 2000). Corruption can be seen in the looting
of the institution or public money at the expense of shareholders, creditors, and other
stakeholders. In the global economy, or even at the international level, when governance
practices are weakened, companies become more vulnerable to dire consequences that far
exceed mere scandals and financial crises. Therefore, it has become clear that the practice
of corporate governance determines, to a large extent, the fate of companies and of all
economies in the era of globalization.
Many international studies (Hassan et al. 2019; Larcker et al. 2007; Kimbro and Xu 2016;
Menshawy et al. 2021; Ramírez et al. 2022; Almasria 2018, 2022a) have indicated that there is
a great relationship, especially at the level of emerging markets, between stock performance
in terms of price trends and levels of return and the extent of companies’ commitment to
applying the standards and principles related to the concept of governance to ensure the
success of corporate management in preserving and developing shareholders’ rights.
A lack of corporate governance means an increase in the power of corruption, as there
will be no one to resist it (Johnson et al. 2000; Chang et al. 1998; Morck et al. 2005). Due
to the prevalence of irresponsibility and lack of commitment creating an environment of
insecurity and uncertainty, increased ambiguity, and an inability to distinguish among the
options offered for investment, there will be an increased sense of nihilism and inability
to think, as workers become machines and their motivation to work disappears, and an
increase in workers who disregard administrative directives and deviate from regulations.
H4 . There is a reluctance among investors to invest in Yemen.

3. Materials and Methods

3.1. Sample
Many recent studies have highlighted the importance of corporate governance from
a variety of perspectives (Chen and Lin 2022; Askarzadeh et al. 2022; Ramírez et al. 2022;
Ghabri 2022; Si Tayeb et al. 2022; Chung et al. 2022; Muhammad et al. 2022; Bimo et al. 2022;
Farah et al. 2021; Al-Gamrh et al. 2020; Al-ahdal et al. 2020; dos Santos et al. 2019; Adel
et al. 2019; Shahid and Abbas 2019). We conducted a survey, reaching out to a wide range
of individuals at firms and corporations in Yemen who are certified public accountants
(YECPAs). Their involvement made it possible to obtain a clear understanding, based
on a standardized set of questions for a more accurate assessment, of the role of CG in
investment decisions by current and prospective investors and, specifically, the importance
of CG in Yemen. Their participation in the questionnaire and the use of a set of relevant
questions allowed for a close realistic assessment of the role of CG in investment decisions
compared to other approaches, where this was closely related to practice. This approach has
also helped in developing a deeper understanding of the aspects of CG factors that matter
most in Yemen and those that need reform, while investigating the causes of different
investment decisions in an environment of uncertainty surrounding the current situation
in Yemen. The study was designed to enable a targeted focus on Yemeni companies and
investors based on the 460 licenses for YECPAs issued by the Ministry of Industry and
Trade in 2021, which were selected as the sample. The final sample included 312 YECPAs
Economies 2023, 11, 13 9 of 25

who responded and took part in the survey (Table 2). A questionnaire was distributed
via Google Forms, as well as manually, due to the occurrence problems with the Internet
in Yemen, because many companies do not use electronic survey forms. The survey was
conducted in October and November 2021.

Table 2. Sample description.

Description Responses
Total received responses 326
Mismatched −12
Missed experience −2
Final sample 312
Source: authors.

3.2. Measures
The aim of this study was to measure the variables mentioned by the 312 respondents
and categorize them accordingly. Investment decisions in governed companies were
administered as a dependent variable scale (4 items) to assess how much people are willing
to invest in the companies. After an exhaustive literature review, the objectives of the
study in terms of independent variables related to CG were achieved: aspects of CG factors
(7 items), awareness factors (6 items), and types of governed companies (7 items), on
the five-point Likert scale, ranging from “strongly disagree” to “strongly agree”. The
survey also included factors related to investors’ priorities when making the decision to
invest money in an uncertain environment (5 items). The first draft of the survey was
shared with the co-authors for evaluation against the study’s objectives. The co-authors
completed a trial version of the survey and provided feedback regarding its readability and
usability in Supplementary Materials. The final version of the survey was modified both
linguistically and technically until an agreement was reached, although the survey content
did not change. Both Arabic and English versions were checked, although only the Arabic
version was used for data collection. In addition, reliability analyses were conducted, and
Cronbach’s alpha ranged from 0.903 to 0.917 on the 25-item scale. The overall reliability of
corporate governance factors, specific factors, and investment items was moderately high
(26 items: α = 0.911).

3.3. Data Analysis

Demographic data were collected based on a Likert scale. The responses of the
YECPAs are expressed as percentages, and the statistical analysis was performed using
Microsoft Excel spreadsheets and Stata. Pearson’s linear correlation was used to assess
the relationship between continuous variables, and frequency distribution was used to
evaluate the relationship between categorical variables. We conducted multiple linear
regression analyses in order to identify the factors that predict investment (INVEST). For
all purposes, a p-value of 0.05 was considered statistically significant.

3.4. Econometrical Model

Equation (1) was used to investigate the relationship between corporate governance
factors (CGFs), comprising ownership structure (OS), disclosure (DISC), transparency
(TRAN), responsibility (RESP), accountability (ACC), performance assessment (PA), risk
management (RM), control (CONT), and investment decisions (INVEST) using generalized
least squares (GLS) regression:

INVEST = f (∑CGF) + ε (1)

In the second step, we tested the impact of governed company entities (CGEs), com-
prising sole proprietorship (SOLE), general partnership (GP), limited partnership (LP), joint
Economies 2023, 11, 13 10 of 25

venture (JV), joint-stock corporation (JSC), limited liability company (LLC), and company
limited by shares (CLS) on INVEST using Equation (2):

INVEST = f (∑CGE) + ε (2)

Finally, we tested the impact of the specific factors of CG (CGSF), comprising aware-
ness to set-up a stock market exchange (STK), awareness of transforming family business
establishments and individual institutions into joint-stock corporations (TR), protecting
investors pre- and post-investment (PROT), educational awareness of adopting CG (EDU),
media awareness of adopting CG (MED), and awareness through relevant professional
associations to adopt CG (PROF), on INVEST using Equation (3):

INVEST = f (∑CGSF) + ε (3)

4. Results
4.1. Demographic Characteristics of Participants
A total of 312 YECPAs participated in the study; 51.3% had a bachelor’s degree, 30.8%
had a master’s degree, and 15.4% had a PhD. The majority of the participants majored in
accounting (71.8%), followed by business administration (25.6%). In terms of experience,
the sample was relatively evenly distributed between less than 5 years, 5 years to less than
10 years, and 10 years or more (35.9, 23.4, and 40.7%, respectively) (Table 3).

Table 3. Main characteristics of participants.

Socio-Academic Characteristics Total (%)

Academic degree
Bachelor’s degree 160 (51.3)
Postgraduate diploma 8 (2.6)
Master’s degree 96 (30.8)
PhD 48 (15. 4)
Specialization
Accounting 224 (71.8)
Business administration 80 (25.6)
Finance 8 (2.6)
Years of experience
Less than 5 years 112 (35.9)
5 years to less than 10 years 73 (23.4)
10 years or more 127 (40.7)

4.2. Descriptive and Correlation Analysis

As shown in Table 4, joint-stock corporations had the highest mean for governed
company entities at 3.56, followed by limited liability companies at 3.15. The highest means
of CGFs were for DISC, TRANS, RESP, and ACC at 3.72 each, followed by OS and PA at
3.69 each. Overall, MED had the highest mean of specific CG factors at 3.74, indicating that
it is a very important factor to mention when explaining how crucial CG is for investors.
As shown in Table 5, according to the Pearson correlation coefficient, there was
a significant negative correlation (−0.15, p-value < 0.05) between INVEST and SOLE.
Additionally, there was a positive correlation between INVEST (0.183, p-value < 0.01) and
GP and no correlation between LP or JV and INVEST. However, the rest of the variables
were positively correlated with INVEST (p-value < 0.001).
Economies 2023, 11, 13 11 of 25

Table 4. Descriptive statistics.

Shapiro–Wilk (Normality)
Variable N Mean SD W p
INVEST 312 3.56 0.361 0.895 <0.001
SOLE 312 2.31 0.462 0.58 <0.001
LP 312 2.64 0.531 0.694 <0.001
JSC 312 3.56 0.546 0.677 <0.001
CLS 312 2.34 0.717 0.809 <0.001
GP 312 2.34 0.68 0.802 <0.001
JV 312 2.62 0.666 0.755 <0.001
LLC 312 3.15 0.58 0.748 <0.001
OS 312 3.69 0.515 0.598 <0.001
DISC 312 3.72 0.505 0.574 <0.001
TRANS 312 3.72 0.505 0.574 <0.001
RESP 312 3.72 0.451 0.563 <0.001
ACC 312 3.72 0.505 0.574 <0.001
PA 312 3.69 0.515 0.598 <0.001
RM 312 3.51 0.595 0.707 <0.001
CONT 312 3.67 0.524 0.619 <0.001
STK 312 3.69 0.515 0.598 <0.001
TR 312 3.51 0.501 0.636 <0.001
PROT 312 3.72 0.451 0.563 <0.001
EDU 312 3.72 0.451 0.563 <0.001
MED 312 3.74 0.437 0.544 <0.001
PROF 312 3.64 0.531 0.637 <0.001
Note. INVEST, investment decisions in governed companies; SOLE, sole proprietorships adopting corporate
governance; LP, limited partnerships adopting corporate governance; JSC, joint-stock corporations adopting
corporate governance; CLS, companies limited by shares adopting corporate governance; GP, general partnerships
adopting corporate governance; JV, joint ventures adopting corporate governance; LLC, limited liability compa-
nies adopting corporate governance; OS, ownership structure; DISC, disclosure; TRANS, transparency; RESP,
responsibility; ACC, accountability; PA, performance assessment; RM, risk management; CONT, control; STK,
awareness of setting up stock market exchange; TR, awareness of transforming family businesses, establishments,
and individual institutions into joint-stock corporations; PROT, protecting investors’ pre- and post-investment;
EDU, educational awareness of adapting CG; MED, media awareness of adapting CG; PROF, awareness through
relevant professional associations of adopting CG.

4.3. Hypothesis Test

Table 6 presents the regression results from Equation (1). Among all corporate gover-
nance factors (CGFs), the estimated coefficients were positive and significant at p < 0.001.
According to our expectations, higher CGF values are associated with increased investment
decisions. Our findings support hypothesis H1 .
Once investors make their investment decisions, they may also look at the company’s
relationship with its stakeholders. We found out that companies that engage with and
respond to a wide range of stakeholders are more sustainable and better prepared to achieve
higher financial results. According to Coombes and Watson (2000), 80% of institutional and
private equity owners are willing to pay a premium for these companies. Furthermore, the
company’s risks will be reduced by the integrity of the CG. As a result, it is plausible to
suppose that well-governed companies have lower capital expenses than those that are
not thought to be well-governed (Vernikov 2013). Therefore, stakeholders are a pertinent
concern for all companies, whether the company’s motivation is to serve the community or
raise shareholder value, or both. With regard to how this applies to CG, the achievement of
profitability and sustainability is contingent upon the board’s ability to balance stakeholder
interests with company objectives.
Economies 2023, 11, 13 12 of 25

Table 5. Correlation matrix.

INVEST SOLE GP LP JV JSC LLC CLS OS DISC TRANS RESP ACC PA RM CONT TR STK PROT EDU MED PROF

INVEST —
SOLE −0.15 * —
GP 0.183 ** 0.572 *** —
LP 0.008 0.346 *** 0.29 *** —
JV 0.066 0.386 *** 0.34 *** 0.627 *** —
JSC 0.357 *** 0.024 0.42 *** 0.257 *** 0.103 —
LLC 0.265 *** 0.303 *** 0.39 *** 0.263 *** 0.487 *** 0.46 *** —
CLS 0.199 *** 0.31 *** 0.42 *** 0.54 *** 0.7 *** 0.33 *** 0.43 *** —
OS 0.338 *** 0.183 ** 0.37 *** 0.253 *** 0.104 0.62 *** 0.33 *** 0.28 *** —
DISC 0.584 *** 0.042 0.15 ** 0.101 0.059 0.58 *** 0.41 *** 0.21 *** 0.655 *** —
TRANS 0.372 *** 0.153 ** 0.3 *** 0.101 0.059 0.58 *** 0.41 *** 0.36 *** 0.754 *** 0.8 *** —
RESP 0.456 *** 0.171 ** 0.17 ** 0.006 0.066 0.54 *** 0.36 *** 0.16 ** 0.512 *** 0.78 *** 0.67 *** —
ACC 0.514 *** 0.153 ** 0.3 *** 0.101 0.059 0.49 *** 0.24 *** 0.21 *** 0.655 *** 0.7 *** 0.7 *** 0.78 *** —
PA 0.546 *** 0.291 *** 0.44 *** 0.159 ** 0.254 *** 0.35 *** 0.33 *** 0.28 *** 0.515 *** 0.66 *** 0.66 *** 0.73 *** 0.85 *** —
RM 0.251 *** 0.079 0.25 *** −0.07 −0.22 *** 0.45 *** 0.29 *** 0.12 * 0.601 *** 0.66 *** 0.74 *** 0.64 *** 0.57 *** 0.52 *** —
CONT 0.238 *** 0.319 *** 0.36 *** 0.031 0.074 0.39 *** 0.42 *** 0.27 *** 0.572 *** 0.71 *** 0.81 *** 0.69 *** 0.71 *** 0.67 *** 0.72 *** —
TR 0.334 *** 0.205 *** 0.3 *** −0.08 −0.02 0.35 *** 0.35 *** 0.14 * 0.215 *** 0.37 *** 0.37 *** 0.53 *** 0.37 *** 0.41 *** 0.5 *** 0.56 *** —
STK 0.615 *** −0.03 0.07 −0.12 * −0.05 0.35 *** 0.25 *** 0.07 0.321 *** 0.66 *** 0.46 *** 0.62 *** 0.36 *** 0.42 *** 0.6 *** 0.38 *** 0.51 *** —
PROT 0.456 *** −0.08 0.08 0.006 −0.11 0.44 *** 0.07 0.08 0.512 *** 0.55 *** 0.55 *** 0.49 *** 0.44 *** 0.4 *** 0.45 *** 0.36 *** 0.42 *** 0.62 *** —
EDU 0.536 *** −0.08 0 −0.21 *** −0.19 *** 0.23 *** 0.07 −0.08 −0.04 0.22 *** 0.1 0.49 *** 0.33 *** 0.29 *** 0.06 0.15 * 0.53 *** 0.4 *** 0.37 *** —
MED 0.502 *** 0.01 0.17 ** 0.045 −0.16 ** 0.39 *** 0.06 0.16 ** 0.334 *** 0.37 *** 0.49 *** 0.42 *** 0.49 *** 0.45 *** 0.41 *** 0.3 *** 0.25 *** 0.33 *** 0.55 *** 0.55 *** —
PROF 0.377 *** 0.032 0.21 *** 0.089 −0.17 ** 0.43 *** 0.01 0.14 * 0.253 *** 0.2 *** 0.29 *** 0.22 *** 0.29 *** 0.25 *** 0.18 ** 0.12 * 0.4 *** 0.16 ** 0.54 *** 0.54 *** 0.8 *** —

INVEST, investment decisions in governed companies; SOLE, sole proprietorships adopting corporate governance; LP, limited partnerships adopting corporate governance; JSC,
joint-stock corporations adopting corporate governance; CLS, companies limited by shares adopting corporate governance; GP, general partnerships adopting corporate governance; JV,
joint ventures adopting corporate governance; LLC, limited liability companies adopting corporate governance; OS, ownership structure; DISC, disclosure; TRANS, transparency;
RESP, responsibility; ACC, accountability; PA, performance assessment; RM, risk management; CONT, control; STK, awareness of setting up stock market exchange; TR, awareness
of transforming family businesses, establishments, and individual institutions into joint-stock corporations; PROT, protecting investors pre- and post-investment; EDU, educational
awareness of adopting CG; MED, media awareness of adapting CG; PROF, awareness through relevant professional associations of adopting CG. Standard errors in parentheses;
* p < 0.05, ** p < 0.01, and *** p < 0.001.
Economies 2023, 11, 13 13 of 25

Table 6. CG factors and investor decisions.

Model (1) (2) (3) (4) (5) (6) (7) (8)

Variable Invest Invest Invest Invest Invest Invest Invest Invest
OS 0.237 ***
(0.103)
DISC 0.418 ***
(0.033)
TRANS 0.266 ***
(0.038)
RESP 0.365 ***
(0.040)
ACC 0.367 ***
(0.035)
PA 0.382 ***
(0.033)
RM 0.153 ***
(0.033)
CONT 0.164 ***
(0.038)
Constant 1.920 *** 1.422 *** 1.834 *** 1.565 *** 1.560 *** 1.528 *** 2.174 *** 2.120 ***
(0.103) (0.901) (0.104) (0.111) (0.096) (0.091) (0.086) (0.103)
Observations 312 312 312 312 312 312 312 312
R 0.338 0.584 0.372 0.456 0.514 0.546 0.251 0.238
R2 0.114 0.342 0.139 0.208 0.264 0.298 0.063 0.057
INVEST, investment decisions in governed companies; OS, ownership structure; DISC, disclosure; TRANS,
transparency; RESP, responsibility; ACC, accountability; PA, performance assessment; RM, risk management;
CONT, control; STK, awareness of setting up stock market exchange; TR, awareness of transforming family
businesses, establishments, and individual institutions into joint-stock corporations; PROT, protecting investors
pre- and post-investment; EDU, educational awareness of adopting CG; MED, media awareness of adopting
CG; PROF, awareness through relevant professional associations of adapting CG. Standard errors in parentheses;
*** p < 0.001.

Table 7 shows the regression results from Equation (2). The coefficient of sole propri-
etorships (SOLE) was significantly negative at p < 0.05. However, the findings indicate
significantly positive coefficients for general partnerships (GP) at p < 0.01, joint-stock cor-
porations (JSC) at p < 0.001, limited liability companies at p < 0.001, and companies limited
by shares (CLS) at p < 0.001. Therefore, investors in Yemen prefer to invest in JSC, because
most companies in Yemen that adopt CG are joint-stock companies. The coefficients for
limited partnerships (LP) and joint ventures (JV) were positive and statistically insignif-
icant, indicating that those entities are not associated with investors’ options during the
investment decision-making process. The findings partially confirm hypothesis H2 .
Table 8 lists the stock exchanges of West Asian countries, except for Yemen, as it does
not yet have a stock market. The stock market provides good motivation for many compa-
nies and obliges them to apply the principles of CG, thus increasing investor confidence.
This contributes to encouraging and attracting segments of society to shift to a corporate
environment and subsequently encourages the establishment of a stock market similar
to those of neighboring countries and other countries in the world. As a result, this will
attract current and prospective investors while highlighting the importance of CG to the
pursuit of sustainable development for companies by providing guidelines, regulations,
and systems for the members of boards of directors, avoiding risks related to the perfor-
mance and management of companies and consolidating the concept of good CG. This
will lead to companies achieving their goals efficiently and effectively with the optimum
use of resources and conscious control of risks and developing an intelligent strategy for
their business.
Economies 2023, 11, 13 14 of 25

Table 7. Governed corporate entities and investment decisions.

Model (1) (2) (3) (4) (5) (6) (7)

Variable Invest Invest Invest Invest Invest Invest Invest
SOLE −0.113 *
(0.044)
GP 0.097 **
(0.030)
LP 0.005
(0.039)
JV 0.036
0.031
JSC 0.236 ***
(0.035)
LLC 0.165 ***
(0.034)
CLS 0.100 ***
(0.028)
Constant 2.706 *** 2.363 *** 2.550 *** 2.500 *** 1.954 *** 2.203 *** 2.358 ***
(0.061) (0.063) (0.067) (0.054) (0.0919) (0.076) (0.060)
Observations 312 312 312 312 312 312 312
R 0.145 0.183 0.008 0.067 0.357 0.265 0.199
R2 0.021 0.034 0.000 0.004 0.127 0.070 0.040
INVEST, investment decisions in governed companies; SOLE, sole proprietorships adopting corporate gover-
nance; LP, limited partnerships adopting corporate governance; JSC, joint-stock corporations adopting corporate
governance; CLS, companies limited by shares adopting corporate governance; GP, general partnerships adopting
corporate governance; JV, joint ventures adopting corporate governance; LLC, limited liability companies adopting
corporate governance. Standard errors in parentheses; * p < 0.05, ** p < 0.01, *** p < 0.001.

Table 8. Stock exchanges in West Asia.

Economy Exchange Location Founded

Bahrain Bahrain Stock Exchange Manama 1987
Tehran Stock Exchange Tehran 1967
Iran Fara Bourse Tehran 2008
Iran
Iran Mercantile Exchange Tehran 2006
Iranian Energy Exchange Tehran 2008
Iraq Iraq Stock Exchange Baghdad 2004
Israel Tel Aviv Stock Exchange Tel Aviv 1953
Jordan Amman Stock Exchange Amman 1999
Kuwait Boursa Kuwait Safat 1977
Lebanon Beirut Stock Exchange Beirut 1920
Oman Muscat Securities Market Muscat 1988
Palestine Palestine Securities Exchange Nablus 1995
Qatar Doha Securities Market Doha 1997
Saudi Arabia Tadawul Riyadh 2007
Damascus Securities
Syria Damascus 2009
Exchange
Abu Dhabi Securities Market Abu Dhabi 2000
Dubai Financial Market Dubai 2000
United Arab Emirates NASDAQ Dubai Dubai 2005
Dubai Gold & Commodities
Dubai 2005
Exchange
Economies 2023, 11, 13 15 of 25

Table 9 shows the coefficients for the awareness of transforming family businesses and
individual institutions into joint-stock corporations (TR). Protecting investors pre- and post-
investment (PROT), educational awareness of adopting CG (EDU), media awareness of
adopting CG (MED), and awareness through relevant professional associations of adopting
CG (PROF) were significantly positive at p < 0.001. Overall, the survey participants stressed
the importance of raising awareness about converting family companies, institutions,
and individual institutions into joint-stock companies and indicated 100% approval for
converting family and individual companies into joint-stock companies. This emphasizes
the importance of striving to carry out such transformation, because joint-stock corporations
are better governed. As a result, these findings confirm hypothesis H3 .

Table 9. Specific factors of CG and investor decisions.

Model (1) (2) (3) (4) (5) (6)

Variable Invest Invest Invest Invest Invest Invest
TR 0.241 ***
(0.039)
PROT 0.356 ***
(0.040)
STK 0.431 ***
(0.031)
EDU 0.429 ***
(0.038)
MED 0.414 ***
(0.041)
PROF 0.256 ***
(0.036)
Constant 1.953 *** 1.565 1.397 *** 1.393 *** 1.422 *** 1.882 ***
(0.099) (0.111) (0.086) (0.106) (0.113) (0.096)
Observations 312 312 312 312 312 312
R 0.334 0.456 0.615 0.536 0.502 0.377
R2 0.112 0.208 0.379 0.287 0.252 0.142
INVEST, investment decisions in governed companies; TR, awareness of transforming family businesses, es-
tablishments, and individual institutions into joint-stock corporations; PROT, protecting investors pre- and
post-investment; EDU, educational awareness of adopting CG; MED, media awareness of adopting CG; PROF,
awareness through relevant professional associations of adopting CG. Standard errors in parentheses; *** p < 0.001.

Moreover, investor protection pre- and post-investment by some companies would

contribute to good governance and the expansion of investments in other companies.
Shareholders and investors will be confident only if they are assured that they will receive
fair and equal treatment, whether they are local citizens or foreigners. Therefore, an effective
CG system must provide tools that shareholders can use to protect their rights and the
ability to bring lawsuits against directors and members of the board of directors. However,
it seems essential to explore this question, because CG, as a form of investor protection, may
be expected to influence investor behavior; this will be critical to understanding the role of
CG. This is especially the case in the context of CG in Yemen, where many institutions may
not fully protect investor rights. Good governance can provide appropriate laws, rules,
ownership rights, and means to resist corruption (Omri and Bel Hadj 2020).
The lack of awareness of the importance of CG in Yemen contributed to the situation
of many investors avoiding investing their money or investing it less in new or existing
companies, and this led to the establishment of a stock exchange being overlooked. Fur-
thermore, there was no doubt among the survey respondents that educational awareness
related to CG at the undergraduate and postgraduate levels in related disciplines should
enhance acceptance of CG. We suggest that awareness campaigns be explicitly directed to
several groups, including members of corporate boards, senior officials of public joint-stock
corporations, CG and investor relations officers, potential shareholders and investors, and
those with a general interest, such as researchers and media professionals. Many resources
Economies 2023, 11, x FOR PEER REVIEW 18 of 28
Economies 2023, 11, 13 16 of 25

and bank deposits, and the rest continued to invest in private projects. Our results support
should be used,
hypothesis H4. including social networks, satellite channels, newspapers, websites, profes-
sional institutes
By implementingand associations,
CG, companies and can
universities. Musleh Al-Sartawi
increase shareholders’ andconfidence
trust and Sanad (2019) in
pointed out the necessity of offering workshops and training courses
their investments, because it indicates that the board of directors and executive manage-to raise awareness of
the
ment application
are awareofofCG theandriskscompliance
the company withfaces
CG law
and inareBahrain.
able to manage and reduce these
risks, which helps investors to make investment decisions in consideration of other essen-
4.4. Robustness of Investment Decisions in an Uncertain Environment
tial investment criteria (Fooladi and Farhadi 2017). This is because CG is an effective prac-
In this
tice that section,
leads we try to answer
to attracting investorstheand
fourth research
gaining question
their concerning
confidence becausewhyofinvestors
the ad-
refrain
vantages to the company, the most important of which is providing fairness We
from investing and establishing companies but invest in real estate. andalso try to
transpar-
strengthen our previous findings. The private sector in Yemen faces
ency for all stakeholders. There is also the potential for broader macroeconomic conse-many challenges in the
business
quences, andsuchinvestment
as contagion environment.
and investmentTheseimpacts
challenges escalated with the
on implementation. continuation
This was evident of
the current conflict, to the extent that Yemen found itself at the bottom
in the financial crisis that began in mid-2007 and the fact that poor CG can lead to marketsof the list of global
business indicators,
losing confidence in often occupying
companies’ lasttoplace.
ability As amanage
properly result, businessmen
their assets andin many partsin-
liabilities, of
the country decided to move their capital to places outside Yemen.
cluding during a liquidity crisis. Accordingly, good CG provides appropriate incentivesIn contrast, those who
decided to stay
for the board of had to sacrifice
directors large portions
and management of their goals
to achieve workforce.
that areThis is consistent
in the best interest with
of
our
the company and its shareholders, and it can facilitate effective monitoring within real
survey. Figure 1 shows that 53.91% of investors directed their investments toward the
estate,
company 22.98%
(Cheninvested abroad,
et al. 2012). 2.57%
This alsoinvested
supports in the
personal savingsofand
importance CGbank deposits, and
in mitigating the
the rest continued to invest in private projects. Our results support hypothesis H4 .
impact of the agency problem on managers’ cost adjustment decisions.

Investor priorities when making his decision in

environmental uncertainty
Continuing to invest in commercial, industrial or… 17.97%
Personal saving money 2.57%
Investing outside the country 22.98%
Investing in bank deposits 2.57%
Investing in real estate 53.91%
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%

Figure 1. Investor priorities when making decisions amid environmental uncertainty.

Figure 1. Investor priorities when making decisions amid environmental uncertainty.

CGimplementing
By is essential to CG, achieving and maintaining
companies can increasepublic confidence
shareholders’ inand
trust the sustainability
confidence in
of companies and the economy and is critical to the proper operation
their investments, because it indicates that the board of directors and executive management of companies. Good
governance has long been considered essential to enhance the
are aware of the risks the company faces and are able to manage and reduce these risks, long-term value of stake-
holdershelps
which in theinvestors
business to environment (Cohendecisions
make investment et al. 2002), inwhere good CGofisother
consideration more essential
than just
good practice, it is an indispensable component of any market. Accountability
investment criteria (Fooladi and Farhadi 2017). This is because CG is an effective practice by corpo-
rate boards
that leads towill increaseinvestors
attracting due to the demands
and gainingfromtheirinvestors
confidence andbecause
others, further enhancing
of the advantages
thethe
to quality
company,of management oversightofand
the most important whichultimately leading
is providing to more
fairness andefficient markets.
transparency for
Poor
all managementThere
stakeholders. of companies
is also thecan contribute
potential to failure,
for broader which can cause
macroeconomic significant
consequences,
overhead
such costs, andand
as contagion failure can affect
investment any viable
impacts system.
on implementation. This was evident in the
financial crisis that began in mid-2007 and the fact that poor CG can lead to markets losing
5. Discussion
confidence in companies’ ability to properly manage their assets and liabilities, including
during Oura liquidity crisis. Accordingly,
survey highlighted ownershipgood CG provides
structure, appropriate
disclosure, transparency,incentives for the
responsibil-
board of directors and management to achieve goals that
ity, accountability, performance evaluation, risk management, and control as factorsare in the best interest of the
of
company and its shareholders, and it can facilitate effective monitoring
CG. The findings show the degree of importance of CGFs for investors. This is consistent within the company
(Chen
with the et al. 2012).ofThis
results also supports
(McKinsey & Companythe importance
2002), which of CG in mitigating
surveyed the impact
institutional of the
investors
agency problem onwith
and shareholders managers’
a focuscost adjustmentmarkets
on emerging decisions.and showed that 80% of investors
wereCG is essential
willing to pay to achievingfor
a premium and maintaining public
well-governed confidence
companies (Klapper in the
and sustainability
Love 2004). In of
companies and the economy and is critical to the proper operation
their study of 495 companies located in 25 emerging countries, the researchers found that of companies. Good
governance
good governance has long was been considered
associated essential
with better to enhance
performance and the long-term
market valueThey
valuation. of stake-
also
holders in the business environment (Cohen et al. 2002), where
concluded that CG is more important for companies located in countries with low share- good CG is more than just
good practice, it is an indispensable component of any market. Accountability
holder protection and weak judicial systems. In our study, 100% of the respondents agreed by corporate
boards will increase due to the demands from investors and others, further enhancing the

Economies 2023, 11, x. https://doi.org/10.3390/xxxxx www.mdpi.com/journal/economies

Economies 2023, 11, 13 17 of 25

quality of management oversight and ultimately leading to more efficient markets. Poor
management of companies can contribute to failure, which can cause significant overhead
costs, and failure can affect any viable system.

5. Discussion
Our survey highlighted ownership structure, disclosure, transparency, responsibility,
accountability, performance evaluation, risk management, and control as factors of CG.
The findings show the degree of importance of CGFs for investors. This is consistent with
the results of (McKinsey & Company 2002), which surveyed institutional investors and
shareholders with a focus on emerging markets and showed that 80% of investors were
willing to pay a premium for well-governed companies (Klapper and Love 2004). In their
study of 495 companies located in 25 emerging countries, the researchers found that good
governance was associated with better performance and market valuation. They also con-
cluded that CG is more important for companies located in countries with low shareholder
protection and weak judicial systems. In our study, 100% of the respondents agreed that
well-governed companies overcome the environmental uncertainty of investment, which is
a significant percentage. Yu et al. (2017) concluded that an increase in the value of firms
under good governance occurs only in competitive industries. On the other hand, we
found that governed companies encourage investment, which leads to the sustainable
development of companies.
Consistent with Shahid and Abbas (2019), we found that transparency and accountabil-
ity are needed to promote long-term investment, financial stability, and business integrity,
which supports stronger growth and a more inclusive society. Undoubtedly, enhancing
transparency and disclosure is a prerequisite for exchanges, especially in terms of attracting
investors and reassuring them of the market’s integrity. Based on their function as an
information resource for the investor community, stock exchanges often play a greater
role in facilitating corporate disclosure than promoting other CG practices. As in other
areas, the role of stock exchanges in monitoring corporate disclosure is often shared with
securities regulators (Amico 2012). In addition, consistent with Leuz et al. (2009) and
O’Connor and Byrne (2015), ownership structure, performance assessment, and control
play significant roles in the success of CG, allowing investors a greater role in monitoring,
which strengthens the company. The stock value, or the discount of companies with good
CG, rises in many markets. For example, Farooque et al. (2010) indicated that ownership
concentration and firm performance have a mutual influence on each other.
Many studies have been conducted on how decision makers can suitably adjust
governance mechanisms to increase the performance of companies (Leuz and Wysocki
2016; Black et al. 2015; Ellili 2022; Almaqtari et al. 2021; Al-Gamrh et al. 2020; Ararat et al.
2021; Ararat et al. 2017). The implementation of robust CG mechanisms reduces investors’
costs of controlling activity (Bushee and Noe 2000). In their survey, McCahery et al. (2016)
concluded that CG is a vital aspect of institutional investment decisions for investors.
The results also showed that the type of institutional investor affects the preference for
governance mechanisms. Research conducted by McKinsey & Company showed that
investors are willing to pay a higher price per share for companies with good CG practices
(Coombes and Watson 2000). The higher share value is generally lower based on the
investor’s view of the market’s maturity compared to companies without such practices.
Improving CG by increasing transparency and access to information is essential to attract
more investors and create greater opportunities to encourage companies to go public.
Investing in companies with strong shareholder protection will increase, because investors
often exclude expropriation.
The MENA region is characterized by family businesses, businesses owned by royal
families, or state ownership (Farah et al. 2021). The largest sectors in Yemen are based on
family businesses and state-owned companies. Large institutions have collapsed due to the
fact of disagreements between owners and founders. Furthermore, in MENA countries,
there are significant CG gaps in terms of institutional rules and enforcement, leading
Economies 2023, 11, 13 18 of 25

to high rates of corruption and economic instability in the region (Aguilera et al. 2019).
Implementing CG helps companies create a sound work environment that allows them to
achieve better performance with good management; therefore, their economic value is more
significant. In addition, good CG helps companies access financial markets and obtain the
necessary financing at a lower cost, which allows them to expand their activity, reduce risks,
and build trust with stakeholders. Although family businesses are significant to national
economies, their future is fraught with risks, challenges, and difficulties that threaten
their sustainability and transmission between generations. According to international
reports, 95% of them will disappear and not extend beyond the third generation; according
to the Institute of Family Businesses, only 30% of family businesses remain until the
second generation, 12% until the third generation, and only 3% until the fourth generation
and beyond.
The legal system in each country defines the responsibilities that corporations may
have to shareholders and other relevant stakeholders, with awareness of the challenges and
risks of globalization and the mechanisms and methods of work in light of the mechanisms
of the market economy, by setting guidelines, rules, and laws to protect investors and
ensure the growth of the economy (Shleifer and Vishny 1997; OECD 2004; Klapper and
Love 2004; Farah et al. 2021; dos Santos et al. 2019; Aguilera et al. 2015). This is consistent
with Ghabri (2022), who suggested that the institutional and legal environment is critical
in determining the maximum level of good governance practices. Our findings are also
consistent with those of Dahlquist et al. (2003), Bushee et al. (2014), and Leuz et al. (2009),
who found that well-governed companies are important to institutional investors even in
an environment with weak legal protection.
In response to our survey, 97.43% of respondents said companies could compete by
adopting good governance if a stock market was established. The absence of CG in the
business community is considered an economic imbalance. It is directly reflected in the
productive structure of the national economy. This absence has led to a weak ability to
attract private investment and low competitiveness in the private sector. One of the most
important reasons why a CG system in Yemen has not been implemented may be the lack
of a stock exchange market, which would include the conditions for registering institutions
and companies; Yemen is the only country in the Middle East that does not have a stock
exchange. CG can only occur by properly implementing its stages and developing a strategy
for companies that implement it. Among the respondents, 2.57% disagreed, which can
be explained by the fact that some participants looked at the situation that the country is
going through with despair, believing that establishing a stock exchange in Yemen will
be impossible.
CG provides a degree of confidence that the market economy will function properly.
This is consistent with a study of Islamic banks by Nawaz (2019), who found that a robust
governance mechanism increases market value. Moreover, it provides guidance for the
board of directors, including how to set the company’s strategies and objectives, determine
its risk tolerance and the general management of its day-to-day business, protect the
interests of depositors, and fulfil shareholders’ obligations while taking into account their
interests. Other recognized stakeholders align with the company’s activities and behavior
with the expectation that the company will operate safely and soundly with integrity and
under applicable laws and regulations. The main challenge these organizations face is
the lack of access to capital, financial resources, and investments. For most start-ups and
MSMEs, identifying the right high-value investors and seeking advice on business growth
are almost always the main priorities, while they are unaware that a strong commitment to
CG is essential for the development process.

6. Policy Implications and Recommendations

The study findings have many implications in terms of policies and recommendations
for disseminating awareness of CG and applying it, especially the adoption of disclosure
and transparency by companies, which help to create confidence among investors. The
Economies 2023, 11, 13 19 of 25

findings also shed light on the importance of seeking to establish a stock exchange market in
Yemen. In addition, this study’s policy lessons may apply to smaller countries with similar
features and problems as Yemen. The findings also have important implications for those
who manage and control companies, who need to analyze and think critically about these
determinants in order to design strategies and mechanisms that will effectively support
companies and investors and maintain their market viability. In the context of a lack of
confidence in the legal system based on preserving the rights of investors, raising awareness
of the application of governance can help guide investment in joint-stock companies and
the transformation of nongoverned family companies in their various legal forms, and
restore confidence. Finally, these findings have important implications for academics and
researchers in the region, as they pave the way for further investigation.
Finally, the principles of corporate governance, if properly implemented, represent a
way forward for individuals, institutions, and society as a whole, because it will provide
individuals with an appropriate guarantee of achieving reasonable profits for their invest-
ments. Good corporate governance reduces risks, stimulates performance, improves access
to capital markets, and improves the ability to market products and services, ensuring
greater transparency and social accountability. Applying governance regulations would
limit the occurrence of crises in the financial market, as experience and studies have shown
that most of the crises that affect financial and banking institutions occur because they lack
a framework for corporate governance; in addition, corporate governance would improve
the performance and efficiency of financial markets by way of economic and financial
guidance that works to reduce the occurrence of financial crises in these markets.
Based on our current findings, we recommend the following: It is necessary to enhance
the presence of regulatory bodies to regulate companies in a more effective way than what
is currently the case, which would help to strengthen the financial market. The principles of
efficiency, responsibility, and transparency should be adopted, and companies should work
based on market mechanisms to increase the performance and effectiveness of the financial
market. The role of the media within the framework of governance should be enhanced,
especially with regard to revitalizing the stock market. The application of international
standards of governance should be ensured, and the pace of reforms that would raise the
performance and efficiency of the financial market should be accelerated. A system of cor-
porate governance based on rules and not relationships should be established. Companies
should work to establish a strong corporate governance structure and adopt corporate
governance charters. Furthermore, future research should be conducted to investigate how
transparency, accountability, and independence affect economic development to determine
which has the greatest impact on the relevant countries. Moreover, it is hoped that this
study will make a significant contribution to the field that will pave the way for further
research and studies.

7. Conclusions
The current study investigated the importance of CG and its impact on investors and
investee companies in Yemen by surveying a sample of 312 certified public accountants.
The survey, which was conducted during October and November 2021, included questions
about the crucial factors of CG and their impact on investors’ decisions, along with some
other related factors. The results indicate that CG is important for companies, as it helps
to attract investors and increase investor confidence and helps to increase disclosure and
transparency in financial reports.
The findings support the need for greater awareness by regulators, policymakers, and
standard-setters to protect the rights of company shareholders by providing seminars and
courses for the media, unions, and professional associations to introduce the importance of
CG practices in Yemen. Our findings indicate that all of the corporate governance factors
(CGFs) had positive coefficients that were statistically significant at p < 0.001. This suggests
that higher CGF values are associated with more favorable decisions regarding investments.
Furthermore, the integrity of CG will enable companies to reduce their exposure to risks in
Economies 2023, 11, 13 20 of 25

the future. A significant negative coefficient was found for sole proprietorships (SOLE) at a
p-value of 0.05. However, the findings show significantly positive coefficients for general
partnerships (GP) at p < 0.01, joint-stock corporations (JSC) at p < 0.001, limited liability
companies (LLC) at p < 0.001, and companies limited by shares (CLS) at p < 0.001. Investors
in Yemen prefer JSCs, since most companies that adopt CG are joint-stock companies.
This study’s survey results clearly demonstrate that CG can lead to increased economic
efficiency and improved financial security indicators. Further, the results also indicate that
CG might be more important for developing countries with limited resources due to the fact
of its association with the ability to attract the foreign investment necessary for development.
On the other hand, there is a discrepancy in the factors of CG that are important to investors,
and some reforms must be made to those related to the investment environment, such as
establishing a stock market, improving investor protection laws, and raising awareness
about the importance of CG. Therefore, it appears that the implementation of CG in Yemen
should not be considered a luxury but rather a necessity imposed by the need to attract
more investments, enhance investor confidence in local markets, and contribute to the
country’s financial soundness, especially since it appears from the investor opinion survey
that CG has a more important role to play in developing countries with less mature financial
markets such as Yemen.
This study contributes to the literature on CG and investors in Yemen. It provides
useful insights and investigative evidence for auditors, managers, analysts, regulators,
investors, academics, and other interested parties. The unique contribution of this study is
the results of a survey on the importance of CG and its impact on investors and investee
companies in Yemen. The study provides valuable theoretical and practical evidence.
Accordingly, the research results can be useful for regulators as they assess whether CG
achieves the desired goals and meets the need for improved quality of CG principles and
factors. Moreover, the study highlights the level of compliance with CG principles in Yemen
based on the importance of disclosure and transparency of financial data in companies and
enhancing investor confidence. Thus, there is a need to establish a stock market in Yemen
to supervise companies and stimulate their transformation into joint-stock companies.

Supplementary Materials: The following supporting information can be downloaded at: https:
//www.mdpi.com/article/10.3390/economies11010013/s1.
Author Contributions: Conceptualization, F.A., J.A., and N.A.A.; Data curation, F.A.; Formal analysis,
F.A.; Funding acquisition, F.A. and N.A.A.; Investigation, F.A. and N.A.A.; Methodology, F.A. and
N.A.A.; Project administration, F.A.; Software, F.A.; Supervision, F.A.; Validation, F.A., J.A. and
N.A.A.; Visualization, F.A. and N.A.A.; Writing—original draft, F.A. and N.A.A.; Writing—review
and editing, F.A., J.A. and N.A.A. All authors have read and agreed to the published version of
the manuscript.
Funding: This research received no external funding.
Informed Consent Statement: Informed consent was obtained from all subjects involved in the study.
Data Availability Statement: The data presented in this study are available upon request from the
first author. The data are not publicly available due to the presence of ethical restrictions.
Acknowledgments: The publication of this research was supported by the Deanship of Scientific
Research and Graduate Studies at Philadelphia University, Jordan.
Conflicts of Interest: The authors declare no conflict of interest.

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