Optimizing Board Composition: An Empirical Analysis of Size, Director’s Independence and Non-Executive Directors’ Impact on Firm Performance in Oman

Abstract

This paper explores the multifaceted relationship between board composition and firm performance in the Sultanate of Oman, with a focus on board size, board independence, and the role of Non-Executive Directors (NEDs). Drawing on data from non-financial firms listed on the Muscat Securities Market (MSM) over a decade (2012-2022), the study employs Ordinary Least Squares (OLS) multivariate regression analysis to dissect the influence of these governance variables on a suite of financial performance metrics. The results indicate that larger board sizes are positively associated with firm liquidity, market valuation, and resilience to corporate failure, as evidenced by significant relationships with the current ratio, Tobin’s Q, and Altman’s Z score. In contrast, smaller boards are linked to higher profitability margins. The study also finds that the presence of NEDs has a positive and significant impact on firm performance, particularly in terms of liquidity, firm value, and risk management, challenging the traditional view that board independence is a primary driver of firm success. By contributing to the theoretical discourse on corporate governance, this research offers practical insights for corporate managers, investors, and policymakers in Oman and similar economies. It suggests that an optimal board composition is contingent upon the specific performance objectives of a firm and underscores the importance of strategic board structuring in enhancing firm performance. The study provides a foundation for future research in the field of corporate governance, emphasizing the nuanced roles of board size, independence, and NEDs in shaping firm outcomes.