Corporate governance and corporate finance practices in a Kuwait Stock Exchange market listed firm: a survey to confront theory with practice



Publication Details

Mutairi, M. Al., Tian, G., Hasan, H. & Tan, A. (2012). Corporate governance and corporate finance practices in a Kuwait Stock Exchange market listed firm: a survey to confront theory with practice. Corporate Governance: The International Journal of Business in Society, 12 (5), 595-615.


Purpose – This paper aims to explore the issue of corporate governance mechanisms by including the importance of stakeholders, primary objectives of the firm and the ownership of top financial managers of listed firms in Kuwait in the survey tool. It attempts to investigate whether theory aligns with the behaviour of financial managers in practice in an emerging market case.

Design/methodology/approach – A survey was developed to focus primarily on the current corporate finance practices implemented by CFOs in listed companies in Kuwait. The target respondents are listed firms in the Kuwaiti Stock Exchange (KSE). The survey includes questions on topics that are closely related to capital budgeting, capital structure, cost of capital and dividend policy. For example, the survey asks the managers how they estimate their cost of equity (CAPM or other methods) and whether the impact of the weighted average cost of equity is taken into consideration in their capital structure choices.

Findings – A surprising number of firms are now widely using IRR for decision making. CAPM is also in use, whereas WACC remains the most popular method used. There is some support for the ‘‘bird-in-hand’’ dividend theory in the tax-free environment. Firms in Kuwait do not have any particular source of capital structure choices when it comes to how best to finance their projects as is the case in the US market. Firms in Kuwait are consciously striving for maximizing profits and those managers are regarded as their most important stakeholders. This may indicate the existence of agency problems.

Research limitations/implications – The limitation of this study lies in the absence of empirical investigation on how corporate finance decisions may affect firms’ performance in Kuwait. Hence, empirical validation will be performed by the authors in the next stage of this research, which will form the basis for further research. Empirical validation for the impact of corporate governance on performance is needed.

Practical implications – This research may benefit managers and decision makers in many aspects, including having an understanding of applying popular and the most suitable corporate finance and corporate governance techniques in the management of their companies. In this research, the authors have identified the gap between practice and academia.

Originality/value – To the best of the authors’ knowledge, this is the first study to examine comprehensively major areas of financial policies and practices and corporate governance in an emerging market case, especially in the Middle East. Kuwait provides a unique institutional setting in its taxation system. Therefore, this study will make a contribution to the general literature in this field.

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