The review of the theoretical and empirical literature on corporate governance mechanisms demonstrates the
importance of governance mechanisms in limiting agency conflicts and mitigating agency costs. In this context,
the objective of this study is to explore the effects of institutional and government ownership on the performance
of firms listed on the KSE. A market-based measure (Tobin’s Q) and an accounting-based measure (ROA) are
used to assess firm performance. Based on a sample of 134 firms listed on the KSE in 2010, the results of
regression analysis show a positive relationship between institutional investors and KSE firm performance,
suggesting the powerful and influential role that institutional investors play as a corporate governance
mechanism. In contrast, the results show a negative relationship between government ownership and KSE firm
performance, implying a worse market performance for firms when government ownership exists and supporting
the notion that government generally lacks sufficient entrepreneurial drive and tends to be politically rather than
commercially motivated. In addition, the results show a positive relationship between dividend payouts and firm
performance, implying that firm performance tends to be better with higher dividend payouts. An insignificant
relationship was observed between board size, role duality, and audit quality and KSE firm performance,
suggesting the weakness of these corporate governance mechanisms in influencing firm performance. These
results are robust when controlling for firm size, leverage, and industry category. The results of this study
provide partial support for the theoretical literature on corporate governance concerning the effects of
governance mechanisms on firm performance. In addition, it contributes to the empirical literature by
highlighting how effective some corporate governance mechanisms are in an emerging market in which highly
concentrated ownership is predominant.