Corporate governance and firm performance in the Saudi banking industry

  • Received December 20, 2018;
    Accepted February 12, 2019;
    Published March 6, 2019
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  • Article Info
    Volume 14 2019, Issue #1, pp. 147-158
  • Cited by
    24 articles

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This work is licensed under a Creative Commons Attribution 4.0 International License

The current research aims to explore the impact of corporate governance on the Saudi banking performance for the period of 2014–2017. Though many researchers tested the relationship of corporate governance and firm performance, globally as well as in Saudi Arabia, however, during the literature review, it was found that many excluded the banking industry. This study tries to fill the gap by looking exclusively at the Saudi banking industry. Firm performance is measured through return on assets, return on equity, and Tobin’s Q as the dependent variables. The corporate governance practices are measured through the board characteristics (size, meeting, number of committees, independence, foreign board membership), and an audit committee (size, meeting, independence) as the independent variables. Firm size and firm age are the controls. Panel data analysis was implemented, using both descriptive and multivariate analysis through multiple regression to investigate the governance practices and firm performance. The empirical findings demonstrate that board size, audit committee meeting and bank size have a positive impact on ROE, whereas board independence has a negative impact on ROE. Similarly, board size and bank size have a positive relationship with ROA and board meeting has a negative relationship with ROA. Further, board (size and independence) and bank size have a positive relationship with Tobin’s Q, whereas number of board committees and bank age have a negative relationship with Tobin’s Q. Finally, audit committee (size and independence) and foreign board membership have no impact on the bank performance.

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    • Table 1. Summary of the literature review
    • Table 2. Variable definitions and measures
    • Table 3. Descriptive statistics
    • Table 4. Pearson correlation analysis, N = 48, significance (two-tailed)
    • Table 5. Regression results – Dependent Variable – ROA
    • Table 6. Regression results – Dependent variable – ROE
    • Table 7. Regression results – Dependent variable – Tobin’s Q