The influence of corporate governance on the performance of the United Arab Emirates and other banks in the Middle East and North Africa region: A comparative analysis

Abstract

This study explores the impact of corporate governance (CG) on the performance of banks in the Middle East and North Africa (MENA) region, with a focus on the United Arab Emirates (UAE). The MENA region, characterized by diverse economic landscapes, is analysed through a comparative study encompassing 141 financial institutions across 12 countries from 2016 to 2020. Key performance indicators, such as Tobin's Q ratio (TBQ), Return on Equity (ROE), and Return on Total Assets (ROTA), are assessed in relation to CG mechanisms. The research employs principles components analysis (PCA) to delve into CG practices, covering board size, independence, diversification, meetings, remuneration, and ownership concentration. External factors such as GDP growth rate, bank size, and market capitalization are also considered. Findings indicate a stable relationship between CG and financial performance, emphasizing effective governance's significance. The UAE has emerged as a CG leader since 2007, boasting a legislative framework that strengthens practices. Disparities in CG standards across the MENA region are noted, with some countries relying on regulatory standards and others implementing comprehensive CG codes. The study highlights CG's positive impact on financial performance, particularly on ROE and ROTA, in the UAE and the broader MENA region. The UAE's robust CG mechanisms, recent regulatory changes, and investor-friendly policies make it attractive for investors. Economic factors, such as GDP growth rate and bank size, are also considered. Acknowledging limitations, such as reliance on historical data, the study suggests future research avenues, including exploring specific CG mechanisms contributing to performance improvement and investigating cultural and institutional factors' impact on governance practices.