Benchmarking banks’ board characteristics and profitability in the MENA region

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Abstract

This paper examines the significance and robustness of banks’ board characteristics and profitability. As far as the design of a board is examined in the literature using qualitative analysis, this paper adds a quantitative analysis to the board design that contributes significantly to bank profitability. Three distinct profitability indicators are examined in order to reach robust outcomes. The paper extends the related studies to develop a quantitative benchmark for the outperformance of bank profitability and board characteristics. The data used in this paper includes 113 rated banks in the Middle East and North Africa (MENA) region during the annual period 2013–2020. The issues of linearity of the data, effects of fixed and random effects, and heteroskedasticity are examined. The cointegration regression is carried out to reach relevant and robust estimates. A discriminant analysis is utilized for benchmarking robust board characteristics and bank profitability. The results of the robustness test show that (a) two robust board characteristics have negative impacts on bank profitability, namely the number of independent directors, and the number of women on the board, (b) the relative weight of the negative impact of women on board is much greater than the negative impact of independent directors, (c) the negative impact of these two characteristics match other related studies in other countries. As far as many other related studies in the literature have examined common board characteristics, this paper contributes to the related literature by examining two issues. The first issue has to do with the robustness of the board characteristics and bank profitability. The second issue has to do with building a benchmark using the robust board characteristics. This benchmark is a practical guide for managing bank profitability.

Keywords: Bank Profitability, MENA Region, Board Characteristics, Cointegration Regression, Robustness, Benchmarking

Authors’ individual contribution: Conceptualization — T.I.E. and D.Y.E.; Methodology — T.I.E.; Software — N.E.; Validation — M.R.; Formal Analysis — T.I.E. and N.T.; Investigation — M.R.; Resources — D.Y.E.; Data Curation — N.T.; Writing — Original Draft — T.I.E. and M.R.; Writing — Review & Editing — T.I.E. and N.E.; Visualization — M.R.; Supervision — T.I.E. and M.R.; Project Administration — T.I.E.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G21, G28, G38

Received: 01.03.2024
Accepted: 27.06.2024
Published online: 02.07.2024

How to cite this paper: Eldomiaty, T. I., Eid, N., Tarek, N., ElBatrik, D. Y., & Rashwan, M. (2024). Benchmarking banks’ board characteristics and profitability in the MENA region. Corporate Ownership & Control, 21(3), 59–68. https://doi.org/10.22495/cocv21i3art5