Impact of Board of Directors on the firm value of the

Public joint stock companies in Oman

by

TABLE OF CONTENTS

CHAPTER # 1: INTRODUCTION1

Aim3

Outline3

CHAPTER # 2: LITERATURE REVIEW5

Economy of Oman5

Research Question10

Experienced Directors Affect Firm Value10

Numbers of Independent Directors Affect Firm Value13

Transactions of Board of Directors Affect Firm Value14

Board Has Multiple Positions Does It Affect Firm Value15

Does structure of the board of directors affects firm value15

Agency Theoretic View of Boards of Directors17

REFERENCES20

CHAPTER # 1: INTRODUCTION

In business the history of the largest acquisitions began in January 2000 when Time Warner Inc. agreed to acquisition by America Online Inc. in a stock swap valued at $284 billion. Though for the reason of tax and accounting deal was structured as an acquisition, it was an intended merger of equals. The board of sixteen members was split evenly between former directors of each company, and an executive from each company filled each of the two positions of co-COO (Chief operating officer). The merger of an Old Media company with a fast growing dot.com was heralded as a symbol of the new economy. Two and half years later, the stock was valued at $61 billion representing a loss in shareholder wealth of $223 billion. A boardroom fight erupted in 2001 apparently initiated by then Chairman Stephen Case, former AOL CEO, when Case contacted directors one by one to argue for removal of AOL Time Warner CEO, Gerald M. Levin. Although the board supported Levin, forcing Case to retreat, Levin stepped down anyway in late 2001 in favour of Dick Parsons, his chosen successor. Case subsequently stepped down as well, followed roughly a year later by Vice Chairman Ted Turner (Vermeer and Forgione 2006 75). The boards of two companies play a key role for the decision of acquisition.

Directors are themselves often executives or directors at other firms in similar technological, competitive, and regulatory environments (Abdul and Kenichi 2004 34). The knowledge, experience, and expertise they accumulate may be a resource that is integrated with focal firm strategies in ways that produce positive focal firm performance outcomes. Research on boards of directors has primarily examined the relationship between outside representation on the board and firm financial performance.

The board of directors is comprises of directors who themselves are often managers or directors at other firms and come to the firm with a host of experiences and expertise. This may supplement and/or alter the effects of their impartial monitoring of management. Furthermore, the previous research work on the corporate governance recognizes that directors do more than simply monitor. It's also the duty of directors to provide advice and counsel to the firm's CEO. Moreover, the directors tent to have some involvement with the strategy of the firm. Even though, they are not normally actively involved in strategy formulation. The directors may provide input, in their advice and counsel role, during the formulation phase, and they are actively involved in monitoring the outcomes of management choices of firm strategy (Abdul and Kenichi 2004 34). Consequently, by primarily focusing on the relationship of employees or ...