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At the present moment, every party in the Gulf Cooperation Council (GCC) succeeds in utilizing the designed corporate governance model. In some of these countries, organizations do not respect legal regulations regularly and are thus liable to the officials (Al-Shammari et al., 2008). To control the level of compliance with the management standards, some GCC states arranged task groups aimed to analyze the practice of good governance and the realization of ethical and professional codes (Al-Hadi et al., 2016).
For example, Al-Shammari et al. (2008) state that financial organizations included in the GCC follow the International Financial Reporting Standards and the International Accounting Standards as required by the corporate governance framework. Moreover, Eulaiwi et al. (2016) observe that the officials emphasize the importance of a more transparent and ethical selection of candidates for the boards of directors. Additionally, the GCC central banks adhere to the Basel II Capital Accord effectively.
It is considered that in contrast to financial markets in newly industrialized countries, financial markets operating in the GCC are unrefined and ineffective (Al‐Kuwari, 2013). At the same time, equity capital markets are of insufficient size, and the process of fundraising in the region is complicated (Al‐Kuwari, 2013). The volume of liquid assets is limited in the local stock markets, while equity trading is meager and speculative in nature. Moreover, there is a high level of volatility in the GCC stock market, which results in substantial informational dissymmetry.
There is a significant, negative correlation between the interest on borrowing and the finance council. Therefore, the given research concludes that the outcomes are different in companies owned by the government and non-governmental companies. Additionally, we found significant, negative links between the number of experts included in the council and the cost of debt. Moreover, the analysis revealed a positive correlation between such variables as state ownership and the interest on borrowing.
According to Baydoun and Willett (2006), the majority of the GCC organizations are owned by the state. The Saudi officials possess a substantial volume of the country’s public firms. It can be explained by the inclination of the local government for privatization. One more cause is a high level of investment in public companies by the Saudi treasury funds. As a result, it elevates the rate of government ownership in public enterprises (Al-Janadi et al., 2016).
It is also worth noticing that a high degree of government ownership is a characteristic of inefficient markets. Compared to national companies, private firms have more massive revenues and are more productive (Megginson & Netter, 2001). It is also observed that state-owned organizations often fail to monitor employee performance because the leadership is not sufficiently involved in operations (Shleifer, 1998).
A large number of governance practices influence the interest on borrowing. They include the establishment of the board of directors, ownership structures, transparency, shareholders’ rights plans, et cetera. In the present study, distinct elements of governance will be analyzed separately.
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