Board of directors’ characteristics and bank performance: Evidence from the Egyptian banking sector

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Abstract

This paper examines the impact of the board of directors’ characteristics on bank performance in an Egyptian context. Board of directors’ size and composition diversity in terms of gender, nationality, and independence are used as proxies for the board of directors’ characteristics. Bank performance is measured using the return on assets as an accounting-based profitability indicator besides stock return volatility as a market-based performance indicator while controlling for the bank, regulatory and country-specific characteristics. Regression analysis is performed for a sample of 21 Egyptian banks covering the period from 2012 till 2018. The results show that banks with large boards including a high proportion of female and foreign directors achieve higher performance. Also, the higher is the proportion of independent directors, the lower is the performance, which contradicts with the agency theory proponents. Most importantly, the findings provide empirical evidence that market-based performance indicators react negatively to females’ directorship, while the opposite is found with independent directors as reflected in the positive market reaction. The findings are highly relevant since improved financial performance is one of the key objectives of bank supervisors and regulators to sustain economic growth.

Keywords: Board of Directors’ Characteristics, Board Size, Board Diversity, Bank Performance, Egyptian Banking Sector

Authors’ individual contribution: Conceptualization – S.S. and M.H.A-A.; Methodology – S.S. and M.H.A-A.; Formal Analysis – S.S.; Writing – S.S.; Funding Acquisition – S.S.

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

JEL Classification: E50, G32, E58

Received: 12.10.2020
Accepted: 25.12.2020
Published online: 28.12.2020

How to cite this paper: Abdel-Azim, M. H., & Soliman, S. (2020). Board of directors’ characteristics and bank performance: Evidence from the Egyptian banking sector. Journal of Governance & Regulation, 9(4), 116-125. https://doi.org/10.22495/jgrv9i4art10