Corporate Governance and Bank Performance, Valuation, and Risk Evidence from the MENA Banking Sectors

Corporate governance plays a crucial role in increasing the access to external funding by firms, lowering cost of funding and boosting firm value, increasing operational performance, and decreasing financial crises risk. Moreover, sound corporate governance practices are essential to achieve and maintain public trust in banks in particular, where poor corporate governance can contribute to bank failures, which in turn poses significant macroeconomic consequences. Due to the important financial intermediation role of banks, the public have a high degree of sensitivity to difficulties arising from corporate governance deficiencies in banks. Consequently, the interrelation between corporate governance mechanisms and bank efficiency, valuation, and stability is still triggering more research, but until today, there is no consensus on the definite impact of the corporate governance frameworks on bank overall performance, and every study on this topic presents different results, which is attributed to the studied sample, covered period, and adopted empirical methodology.
This thesis participates in this continuous debate by studying a sample formed of the largest banks operating in the MENA region over the period 2011-2018. The MENA banks represent an interesting case study because: a considerable number of them are state-owned, a considerable number of them are Islamic banks, they are characterised by considerable high ownership concentration, they have low gender diversity, and a considerable number of them adopt a CEO-chairman role duality.
This thesis examines the impact of nine corporate governance variables (which fall under two main categories: ownership structure and board of directors’ composition) on MENA banks’ operational performance and efficiency (in chapter two), value (in chapter three), and risk and stability (in chapter four). Moreover, to detect if and how bank type (conventional or Islamic) shapes the relationship between corporate governance variables and the adopted dependent variables, where the sample under study is split between conventional and Islamic banks in the econometric estimations. Indeed, the obtained results reveal that the explanatory variables influence the two categories of banks differently. These results allow drawing several policy recommendations for MENA banks and for regulatory authorities regarding the optimal corporate governance structure that maximises operational performance, value, and stability.