IMPACT OF MANAGERIAL ABILITY ON FOREIGN INVESTMENT AND THE SAUDI ECONOMY: A CASE OF LISTED COMPANIES IN SAUDI STOCK MARKET

Abstract

The present study examines how managerial capability influences foreign investment within firms listed on the Saudi stock exchange, alongside its implications for the national economy. An empirical investigation was undertaken using a sample of 145 listed firms over the period 2009 to 2021, generating a total of 2,039 observations. The analysis evaluates executives’ managerial efficiency and assesses its association with foreign investment flows and broader economic outcomes in Saudi Arabia. The findings indicate that the mean level of managerial capability among executives in Saudi firms is broadly comparable to that observed in advanced economies. Empirical results further demonstrate a statistically positive relationship between executives’ administrative competence and both foreign investment inflows and economic performance. In this context, the evidence supports the predominance of the “efficient contracting” perspective over alternative views such as rent extraction or benefit maximisation. The results also suggest that executive capability exerts a stronger influence on firm outcomes than inherent organisational characteristics. Moreover, foreign investment decisions appear to be significantly shaped by managerial ability, with additional implications observed for the Saudi Islamic economy. This relationship may be attributable to information asymmetry within listed firms in the Saudi stock market. Based on these insights, the study advocates greater emphasis on recruiting and retaining highly capable executives, given their critical role in enhancing foreign investment attraction and supporting economic development, in alignment with Saudi Arabia’s Vision 2030 objectives.