Governance mechanisms and board effectiveness: an empirical analysis in the context of Moroccan SMEs

Abstract

The literature on corporate governance has extensively examined the relationship between board characteristics and firm performance or value creation. However, several studies, notably Forbes and Milliken (1999), challenge the analysis of a direct link between board structure and organizational performance. These authors emphasize that the board’s contribution primarily depends on its internal functioning and the effectiveness of its roles. From this perspective, the demographic characteristics of the board do not constitute independent explanatory factors, but rather influence performance through their impact on internal board processes and the dynamics of interactions among directors.

However, empirical studies remain limited with regard to the determinants of board role performance, particularly in the context of non-listed small and medium-sized enterprises (SMEs) in emerging economies, where governance mechanisms exhibit specific institutional and organizational features.

Within this framework, the present study aims to provide a better understanding of the governance mechanisms that may influence the effectiveness of boards of directors in Moroccan small and medium-sized enterprises (SMEs). More specifically, it examines the effect of board characteristics, family ownership, and CEO age on the performance of the board’s service role. The empirical analysis is based on a sample of 31 SMEs from the Rabat-Salé-Kénitra region over a nine-year period (2015–2023). The methodology relies on static panel data, and the econometric estimations are conducted using a Feasible Generalized Least Squares (FGLS) model.

The empirical results indicate that board size (β = 0.203; p <0.001), the educational level of board members (β = 1.310; p <0.001), family ownership (β = 0.195; p <0.001), and CEO age (β = 0.148; p <0.001) have a positive influence on the performance of the board’s service role. In contrast, board meeting frequency (β = -0.148; p <0.001) and CEO duality (β =-0.304; p <0.001) exert a negative effect.

These findings provide an original contribution by highlighting the determinants of the board’s service role effectiveness in a relatively underexplored context, namely Moroccan non-listed SMEs, and emphasize the importance of internal governance mechanisms as a lever for organizational performance.

Classification JEL : G32, G34, M41

Paper type : Empirical Research