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Corporate Governance, Bank Stability and Risk-Taking: Differences Between Conventional and Islamic Banks

  • Ghaithaa El Mokdad und Ali Awdeh EMAIL logo
Veröffentlicht/Copyright: 24. März 2025
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Abstract

This study aims to detect the impact of the corporate governance structures on MENA banks’ stability and risk-taking. In particular, it aims at considering if bank type (conventional or Islamic) is a major determinant of the relationship between corporate governance, bank stability and risk-taking. The research adopts panel data econometrics on a sample containing the largest 100 MENA banks operating between 2011 and 2021. The empirical estimations examine the impact of board size, board independence, board gender diversity, role duality, the existence of risk, governance and nomination and remuneration committees as well as ownership blockholdings, on bank Z-scores and NPL ratios. The empirical results show that the exploited variables impact conventional and Islamic banks stability and risk differently. For instance, a larger board size has a positive effect on conventional bank stability, while it is irrelevant for Islamic banks. For role duality, the opposite findings have been observed. The risk committee plays an important role in Islamic banks risk mitigation, unlike the case of conventional banks. Finally, the existence of blockholdings poses considerable risk for conventional banks only.

JEL Classification: G21; G28; G32; G34

Corresponding author: Ali Awdeh, Lebanese University, Beirut, Lebanon, E-mail:

Appendix A: Explanation of the Exploited Variables

Variable Explanation
Dependent variables

Log Z-score (LNZ) Natural log of R O A + E / A σ R O A
Loan-loss-provisions (LLP) Loan-loss-provisions divided by gross loans

Independent variables

Board size (BOARD) Number of board members
Independent members (INDEP) The % of independent board members
Duality (DUAL) Dummy variable: 1 if the chairman is at the same time the CEO/GM, 0 otherwise
Board diversity (WOM) The % of women board members
Risk committee (RISK_COM) Dummy variable: 1 for the existence of risk committee within the board, 0 otherwise
Governance committee (GOV_COM) Dummy variable: 1 for the existence of governance committee within the board, 0 otherwise
Nomination and remuneration committee (NOM_COM) Dummy variable: 1 for the existence of nomination and remuneration committee within the board, 0 otherwise
Ownership concentration (CONC) The % of ownership of the top 3 shareholders

Control variables

Return on assets (ROA) After-tax net income divided by average assets
Bank capital (CAP) Equity-to-asset ratio
Size (SIZE) Natural log of bank assets
Public ownership (PUB) Dummy variable: 1 for majority government ownership (more than 50 %), 0 otherwise
GDP growth rate (GDPG) Real growth rate of gross domestic product
Regulatory quality (REG) The World Bank’s Regulatory Quality Index
Rule of law (LAW) The World Bank’s Rule of Law Index

Appendix B: Geographical Distribution of Included Banks

Country Conventional banks included in the study Islamic banks included in the study Total banks included in the study Total number of banks*
Algeria 3 0 3 8
Bahrain 6 5 11 66
Egypt 7 2 9 14
Jordan 3 1 4 14
Kuwait 5 4 9 10
Lebanon 9 0 9 24
Libya 3 0 3 20
Morocco 4 0 4 12
Oman 5 2 7 10
Palestine 1 0 1 8
Qatar 6 4 10 10
Saudi Arabia 6 5 11 11
Tunisia 1 0 1 9
United Arab Emirates 12 6 18 19
Total 71 29 100 235
Total assets $3.8 trillion $4.5 trillion
  1. Source: Countries’ central banks. Note: * local banks or banking groups only.

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Received: 2024-12-25
Accepted: 2025-03-06
Published Online: 2025-03-24

© 2025 Walter de Gruyter GmbH, Berlin/Boston

Heruntergeladen am 17.11.2025 von https://www.degruyterbrill.com/document/doi/10.1515/rmeef-2024-0034/pdf?lang=de
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