Sector Heterogeneity in the Effect of Board Monitoring Intensity and Board Independence on Firm Profitability: Implications for ESG Governance Scoring

الملخص

The governance analytics systems convert the structure of the board into the numerical indicators and they usually assume that a given indicator works in the same way in every sector, and this study tests that assumption. The study uses a panel of 362 firm-year observations which are collected from 66 non-financial firms that are listed on the Amman Stock Exchange (ASE) over the period from 2020 to 2025, in which the firms belong to the industrial sector and to the services sector. The model is estimated by the two-way fixed effects estimator, that is, with the firm effects and the year effects included together and with the standard errors clustered at the firm level, in which the dependent variable is the return on assets (ROA) and the explanatory variables are the board monitoring intensity, the board independence, the board size and the ownership of the board members. The results show that the board monitoring intensity is positively and significantly associated with the profitability (β = 0.0086, p = 0.026) and that this association holds in the two sectors, while the board independence is positively associated with the profitability only in the industrial sector (β = 0.1114, p = 0.040), in which the interaction with the services sector is negative and significant (β = −0.1293, p = 0.046) and the implied net effect in that sector is −0.0179. The split-sample estimation reproduces the same pattern. The study then builds a governance score from the same four attributes and validates it by the leave-one-firmout cross validation, in which the sector-conditional weighting gives the highest fit inside the sample (R2 = 0.0658) together with the lowest fit outside it (R2 = −0.0082), while the pooled estimated weighting is the only scheme which keeps a positive fit outside the sample (R2 = 0.0029). Accordingly, the intensity of the monitoring travels across the sectors while the independence of the board does not, and it is worth mentioning that the rejection of the uniform weighting inside the sample is not by itself a licence to re-weight the score by the sector, because at the sample sizes which are available in the emerging markets the additional flexibility costs more in the noise of the estimation than it gains in the fit.

الكلمات المفتاحية

• governance analytics
• board monitoring intensity
• board independence
• firm profitability
• sector heterogeneity
• panel fixed effects
• Amman Stock Exchange

التوثيق

Alomari, A. M. I. (in press). Sector Heterogeneity in the Effect of Board Monitoring Intensity and Board Independence on Firm Profitability: Implications for ESG Governance Scoring. 3rd International Conference on Innovation, Sustainability and Applied Sciences (ICISAS 2026), Curtin University Dubai.