Business and Economic Horizons

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Volume 16
Issue 2
Title Board characteristics and bank performance, evidence from Saudi Arabia // Article in press
Author Omer Saeed Habtoor
Abstract
Board characteristics are important determinants of board ability to fulfill its duties in mitigating agency conflicts and enhancing firm performance. Despite the relatively extensive research on corporate governance and firm performance, most empirical studies have focused on prevalent mechanisms of corporate governance, and have largely ignored banking industry. Therefore, this study aims to investigate the influence of various characteristics of board of directors on bank performance in the Saudi Stock Exchange (TADAWL) for a period of 10 years from 2009 to 2018. Bank performance is measured by return on assets (ROA), return on equity (ROE), and Tobin’s Q (Q). The results of the ordinary least squares (OLS) and the Two-Stage Least Squares (2SLS) regressions indicate that board independence, board members with master degree and PhD degree, foreign CEOs, board meeting attendance, and board IT experience are significantly and positively associated with bank performance. However, the number of educated board members has a negative impact on bank performance. While other board characteristics such as board size, executive members on the board, board directorship, and gender diversity have insignificant impact on firm performance. Control variables, including bank size, bank age, and bank leverage are significantly associated with bank performance, while ownership concentration has an insignificant influence on bank performance. The results suggest among others, that the appointment of board members should be strictly based on higher level of education and experience, notably in IT experience. Moreover, the presence of foreign CEOs would ensure better bank performance. The results are robust to endogeneity concerns and other assumptions of multivariate analysis. The analysis relays on a multi-theoretical approach supplemented by the implications of Saudi context. The results of this study have important implications for regulatory authorities, companies, and market participants in Saudi Arabia and developing countries to optimize board characteristics and improve firm performance. 
Citation
Keywords Board characteristics, bank performance, Saudi Arabia, Saudi Stock Exchange
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