The relationship between corporate governance and bank’s performance in MENA region

The required outline included on the first page of the document and please add the reference list by the end of the paperOutlineCorporate governance in general DefinitionMechanismImportanceCorporate governance system in banks (measures with a special focus on board characteristicsMembers of board of directorsIndependent non-executive’s directors CEO duality roleTime spent as executive directors Age of board membersNationality of board membersGender of board members Firm performance measurements (i.e ROA, ROE,…etc)Description of the economy of the MENA region especially with focus on banking system.Citation of the studyFinding Reasons of selecting the MENA region as the focus for the research Previous results of research studies (table)Research gabResearch objective Chapter 1 Corporate Govrenance IntroductionEffective corporate governance is critical to the proper functioning of the banking sector and the economy as a whole. Banks perform a crucial role in the economy by intermediating funds from savers and depositors to activities that support enterprise and help drive economic growth. Banks’ safety and soundness are key to financial stability, and the manner in which they conduct their business, therefore, is central to economic health. Unlike Corporate Governance (CG) practices in SMEs and Big – Sized firms, financial institutions especially banks are special. First because, bank managers tend to have dual responsibilities; unlike that in SMEs where there is only one responsibility towards maximizing shareholders’ wealth – one towards the depositors who are risk averse and the other towards the investors who are risk takers (Mullineux, 2006). Second banks are the most important financing source for the different economies especially in developing countries, so they must receive the highest attention from the government oversight. Hence, governance weaknesses at banks that play a significant role in the financial system can result in the transmission of problems across the banking sector and the economy as a whole (Bank for International Settlements, 2015). In light of this, we explore the relationship between corporate performance and corporate governance in financial institutions by focusing on the relationship between performance variables and corporate governance to provide a conceptual framework for the theoretical studies mentioned above. Nonetheless, statistical results from previous studies indicate that while there exists a negative correlation between P/E ratios and corporate governance, there is no significant relationship between ROE, ROA, and investment return and corporate governance rating (Papanikolaou Ermina, & Patsi Maria, 2009).Literature ReviewCorporate Governance DefinitionEssentially, corporate governance is broadly defined, but maintains the same concept. As it has been studied heavily in the last twenty years and below is some introduction to its definition and some of the concerns, which were concluded from the last financial scandals, that took place in the last 20 years. Corporate governance (CG) is defined as a system of law and well-established approaches that direct and control corporations, while focusing on the internal and external organizational structures. The intention is to monitor the behavior of management and company directors as a way of preventing agency risks, which may come from corporate officers’ misdemeanors. CG can also be defined as a system of rules, practices, and processes used to control and direct a company’s internal affairs. In this case, corporate governance is considered as the element which balances the interests of the shareholders including organization management, suppliers, financiers, customers, as well as government and community agencies. Consequently, corporate governance provides the framework to accomplish the organizational goals and objectives, by encompassing several spheres of management including action plans and internal control in the form of performance assessment. Last but not least CG can be perceived as a structure, where rules and practices are oriented around corporate accountability, fairness, and transparency to organization’s stakeholders. A solid CG framework involves both the defined and undefined contract between the organization and the shareholders in the allocation of responsibilities, rights, and rewards, the procedures used to reconcile conflicting interests between stakeholders in accordance with their responsibilities, rights, and duties and the procedure to ensure proper supervision, control, and flow of information to enhance system check.Internal Corporate Governance Mechanism2.3.1 Board StructureKula (2005), found that the structure and process of boards could have a significant impact on the performance of the firm. By introducing the importance of the board size and structure, he stressed on the segregation between the chairman and general manager positions.  However, he also agreed with the first category in the result that the organization’s performance is directly linked to the effectiveness of the evaluation performance conducted by the board itself, and through the unremitting feedback, the board will be able to enhance the performance towards the business benefits. Add to this, that the accessibility of the board members to the information is very critical for enhancing the organization and the board performance.Consistent with the same internal factor on corporate governance that improves the bank risk management and overall performance, Sumner & Webb, (2003); have examined the connection between the structure of the bank’s board of directors and the bank loan portfolio choice. Since the board is accountable and responsible for managing and controlling the bank’s approach in granting the loan, then how they manage the risk in their outstanding loan portfolio.  Hence, it is expected that the structure and characteristics of the bank board itself as related to the degree of education, gender, experience or nationality can affect its financial performance, thus, the following hypothesis can be formulated.H1: There is positive relationship between board structure and firm performance.Corporate governance system in banks:Financial firms are different than nonfinancial firms. First, their failure may have more serious consequences because of their unique position in financial intermediation and the payment system. Thus, excessive risk-taking by banks can create significant negative externalities and systemic risk, which is one of the reasons that the financial sector is more heavily regulated than nonfinancial sectors (Flannery, 1998). As pointed out by Laeven (2012), the owners of banks do not internalize the risks that the failure of their bank will pose on the rest of the financial system, even though such systemic risk can pose significant threats to the broader economy.9 Paradoxically, their systemic importance creates incentives for large financial firms to take even more risk. As a consequence, failure of a large bank is supposedly more feared by supervisors than the failure of a small bank, because the former is more likely to result in macroeconomic externalities (Boyd and Runkle, 1993). Banks that are “too big to fail” receive a de facto government guarantee, which will be reflected in their riskiness as perceived by creditors.10Second, banks rely on depositors for their funding. Using demand–deposit contracts allows banks to provide loans, but this maturity transformation function exposes them to potential coordination failures among depositors and subsequent bank runs (Diamond and Dybvig, 1983). In addition, funding via deposits creates an incentive to take too many risks. This is because high-risk investments may bring in more revenues that accrue to the intermediary, while if it fails a substantial part of the costs will be borne by the depositors. As pointed out by Shleifer and Vishny (1997), debt holders have power as their loans typically have a short maturity so that borrowers (i.e., the banks) have to come back at regular, short intervals for more funds. However, as banks have diffuse debt in the form of many small depositors, debt renegotiations are difficult, weakening this mechanism (Laeven, 2012). In addition, depositors do not have good incentives to monitor bank managers due to high information asymmetry and coordination costs (Demirgüç-Kunt and Detragiache, 2002).11 Depositors are therefore generally protected by some deposit–insurance system, but this provides the intermediary with an even stronger incentive for risky behavior (Merton, 1977). As depositors are protected, they are less sensitive to bank risk than other investors (i.e., uninsured creditors) and hence do not demand adequate compensation for bank risk-taking, which makes debt a cheap source of funds and biases banks toward it (Mehran et al., 2011; Avgouleas and Cullen, 2014). Financial firms are therefore much more leveraged than nonfinancial firms (Acharya et al., 2009; Avgouleas and Cullen, 2015). According to Laeven (2012), the typical leverage ratio of a bank is about 10, which is much higher than that of most nonfinancial firms.In sum, even though nonfinancial corporations are also prone to excessive risk-taking, especially if they are weakly capitalized, the agency problems of banks are exacerbated by the presence of government guarantees and deposit insurance, which distort bankers’ incentives and encourage risk-taking. In addition, the special role of banks and the negative externalities of their failure make banks’ agency problems costlier for the economy at large.In view of the foregoing analysis, corporate governance of banks that align the manager’s interests with those of the equity holders may deviate substantially from those features that maximize firm value. In other words, corporate governance of banks should be designed so as to align the manager with the interests of debt holders (including depositors) as well (Acharya et al., 2009).Another stakeholder is the regulator. Absent adequate creditor discipline, the regulator takes over the monitoring role and acts on behalf of small depositors who may find it costly to monitor banks individually (Dewatripont and Tirole, 1994). The regulator aims to create adequate incentives for good governance and to this end expects boards to ensure the safety and soundness of the financial institution, an objective that may not necessarily be in the shareholders’ best interest (Adams and Mehran, 2003). To enforce this objective, regulators have several instruments available (Demsetz and Lehn, 1985). In most countries, regulators have, for instance, the authority to restrict the type of activities that banks may engage in and to require sufficient regulatory capital.Theoretically, the impact of regulation on the effectiveness of corporate governance is not clear. On the one hand, if regulation restricts managerial discretion and its scope to adversely affect shareholder wealth, shareholders may need fewer mechanisms to monitor managers. In other words, regulation may act as a substitute for monitoring by boards. On the other hand, strict regulatory environments may promote firm-level governance that is effective in controlling for agency cost so that a complementary relationship exists between governance and regulation (Hagendorff et al., 2010). Either way, the presence of regulation will affect the design of internal governance mechanisms and their impact on firm performance.12The foregoing analysis implies that cross-country studies on corporate governance of financial institutions have to take differences in national regulations into account. In addition, differences in country-level governance should be included. The country-level governance mechanisms include a country’s laws, its culture and norms, and the institutions that enforce the laws (La Porta et al., 1997, 1998, 2002b; Aggarwal et al., 2011). The importance of national governance is illustrated in a study by Bruno and Claessen (2010). These authors report that companies with good governance practices operating in stringent legal environments (as captured by La Porta et al.’s (1998) Anti-Director index and the International Country Risk Guide Law and Order index) show a valuation discount relative to similar companies operating in flexible legal environments. Good governance practices encompass the existence of various committees (e.g., audit, compensation, and nomination), existence of anti-takeover provisions, independence of the board, and separation between the CEO and chairman roles. Similarly, Yeh et al. (2011) report that the presence of independent directors on risk and auditing committees helps most in civil law countries, which have poor shareholder protection practice.Board of directors:By appointing the board of directors,7 shareholders have an instrument to control managers and ensure that the firm is run in their interest. The two most important roles of a board of directors are monitoring and advising. As a monitor the board supervises the managers so as to ensure that their behavior is in line with the interests of the shareholders. As an advisor the board provides opinions and directions to managers for key strategic business decisions. In the corporate governance literature several features are identified as “good governance.” For instance, a large board is considered not to be in the interest of shareholders (Aebi et al., 2012), as large boards reduce the value of a firm because of free-rider problems (Mehran et al., 2011). Similarly, a strong representation in the board of directors without social or business connections to management (independent directors) is considered another element of “good governance.” As argued by Adams and Mehran (2012), outsiders may be more effective monitors of management because they are, in theory, less beholden to management while they may also bring a different perspective to bear on problems the management faces, which may be particularly important in complex firms.CEO duality roleCEO duality is an important issue in corporate governance because the status of the CEO and chairperson may have an influence on firm performance. There are arguments in favor of CEO duality, meaning CEO duality has a positive impact on firm performance, and the result is consistent in favor of the stewardship theory. Likewise, there are arguments against CEO duality, asserting that it has a negative impact on firm performance and these support the agency theory (Huining, 2014). The monitoring role of the board and its effectiveness on the behalf of shareholders depend upon its size and composition while carrying out the functional areas of the corporate governance (John and Senbet, 1998). The board characteristics like size, independence and meetings have an impact on current or prior performance, and a weak association was found between the two in the case of Indian firms (Arora and Sharma, 2015).Another study by Brick and Chidambaran (2010) also stated the intensity of board activity as an important dimension of oversight function performed by the board. Furthermore, it had used number of “director-days” to proxy for the level of board monitoring activity. Some studies were used the board composition and board size to represent the board’s monitoring ability; it is the outside directors who have the ability to provide more effective than internal monitoring, more specifically, appointment of the independent directors leads to effective monitoring (Mak and Li, 2001; Choi et al., 2007; Agarwal and Knoeber, 1996). The board index which consist of composition and meetings has been found to have a negative and significant association on firm performance of selected IT companies in India (Palaniappan and Rao, 2015). Kathuria and Dash (1999) observed that size of the board increased with the size of the corporation. Using a sample of top Indian Bombay Stock Exchange (BSE)-listed companies, Jackling and Johl (2009) had also showed significant positive correlation between firm size and size of the board (Kumar and Singh, 2013). The average board size was significantly different between small and large firms. However, in contrast, Lange and Sahu (2008) in their study on Nifty-listed Indian companies found an insignificant (but negative) effect of firm size (measure for scale) on board size. Substantiating the same, Linck et al. (2008) found that small firms had the smallest boards, with greatest proportion of insiders. In addition to the frequency, board meeting attendance also acts as a proxy for supervising quality of the board (Lin et al., 2013). The measures of board attendance have been determined the participation of directors in meetings, also called board diligence that have been tested in supplement to the governance measures which was conducted on the firms listed on the NSE in India (Ghosh, 2007).As far as the relationship between board characteristics and firm-specific characteristics is concerned, the past literature has established that large firms need more number of directors due to the complexity involved in their operations (Boone et al., 2007; Chen and Al-Najjar, 2012; Coles et al., 2008; Monem, 2013). However, in those studies, the percentage of non-executive directors (NEDs) on the board and firm performance was found to be statistically insignificant Connell and Cramer (2010) also noticed a significant difference between the average board size of small and large firms listed on Irish stock markets. Indeed, previous studies in several other countries also found a negative relationship between board size and firm performance. A positive relationship between the variables of corporate governance and firm’s performance was found in Sri Lankan companies (Velnampy and Pratheepkanth, 2012). According to the studies of Black et al. (2006), Drobetz et al. (2004), Ong et al. (2003) and Gedajlovic and Shapiro (2002), there was a positive significant relationship between corporate governance practices and firm performance in various countries; in contrast, based on the studies of Gugler et al. (2001), Hovey et al. (2003) and Alba et al. (1998), there was no significant relationship between corporate governance and firm performance. The primary contribution of the study is that it examines the determinants of firm performance on board characteristics for which existing literature is limited, especially in the Indian context. This study further contributes to the literature by providing a comprehensive analysis of the relationship between board characteristics and firm performance. The empirical analysis focuses on a large number of companies (around 275 firms) covering 18 important industries from the manufacturing sector in India; moreover, instead of considering just a single measure of firm performance, the study considers three alternate measures of performance covering both accounting (ROA and ROE) and market-based (Tobin’s Q) measures. Finally, this study also proposes another governance measure, board meeting, which is also related to firm performance.CEO dualityThe literature argues that the status of CEO has direct impact on governance of firms. CEO position should be independent of the chairperson of the board to enable balance and check on misuse of power by the same. Agency theory supports the same to avoid conflict of interest for the board chairman to formulate the strategies and be responsible for implementing the same. This in turn would check firms’ performance through better monitoring. Jensen (1993) argued that lack of independent leadership creates a difficulty for boards to respond to any failure. Fama and Jensen (1983) also argued that concentration of decision making makes it difficult for the board in independent decision making, and it affects the performance of a firm. Contrary to this view, Rechner and Dalton (1991) argued for role CEO duality as it would provide better incentives by linking CEO pay which will affect the firms’ performance. Klein (2002) shows that role duality leads to unchecked powers and finds significant positive association with firm performance. Sanda et al. (2005) found a positive relation between CEO duality and performance of a firm, while Dalton et al. (1998) could found no significant relationship between CEO duality and firm performance. A number of studies report no significant relationship. Berg and Smith (1978) and Brickley et al. (1997) stated that it increases the conflict of interest, and the agency cost increases when CEO and the board chair is the same person. However, in another study, Rechner and Dalton (1991) argued that it is good if the board chair and the CEO is the same person as it reduces the bureaucracy in decision making. The study used CEO duality as a dummy variable and used a score of 1 when a person holds both position and 0 otherwise. This proposes that firms segregating the role of the chairperson of the CEO positively and significantly contributes to the firm’s performanceExpertiseBanks have become bigger, more complex, and more opaque, making the job of boards more difficult (Mehran et al., 2011). Therefore, the sector-specific expertise of bank directors is an important policy concern, in particular from the perspective of the role played in risk management.23 Several studies report that outside directors of financial institutions often do not have any significant recent experience in the banking industry (Minton et al., 2010). Without sufficient knowledge of banking, supervisory board members cannot effectively monitor the executive board. The issue of expertise has become increasingly important. For instance, the Dutch Banking code states that: “Each member of the supervisory board shall be capable of assessing the main aspects of the bank’s overall policy in order to form a balanced and independent opinion about the basic risks involved. Each member of the supervisory board shall also possess the specific expertise needed to perform his or her role in the supervisory board.”The empirical evidence on the relationship between director experience and firm performance is mixed (see the second panel in Table 1). Aebi et al. (2012) include the percentage of directors with experience (present or past) as an executive officer in a bank or insurance company as explanatory variable in their model for returns. The coefficient of this variable is negative in all specifications and significant in two of them. This negative relationship between the financial expertise of non-executive directors and bank performance in the crisis is consistent with the findings of Minton et al. (2010).24 Their results suggest that financial expertise is negatively related to stock market performance and changes in overall firm value, whereas the probability of receiving TARP funds is not statistically related to the financial expertise among independent directors.However, Fernandes and Fich (2009) report a significant positive (negative) relationship between financial expertise and stock performance (the amount of bailout funds that banks received). Minton et al. (2010) also find that in the run-up to the crisis, financial expertise was positively and significantly related to total firm risk (the standard deviation of daily stock returns) and stock performance, especially for large financial institutions.Also studies for other countries than the United States yield mixed results. Cuñat and Garicano (2010) report that Spanish cajas, which had a chairman without postgraduate education or without previous banking experience performed worse. Similarly, Hau and Thum (2009) report that lack of financial experience of board members in German banks was positively related to realized losses in 2007/2008. Their analysis is based on a close examination of the biographical background of 592 supervisory board members in the 29 largest German banks. This lack of experience was much more present in public banks (Landesbanken). In contrast to these two studies, Erkens et al. (2012) do not find a significant relationship between financial experience of board members and firms’ stock returns during the crisis.One possible explanation for the mixed findings as discussed earlier is the time period under consideration. Minton et al. (2010, p. 5) conclude that in “stable times, the presence of external financial experts on the board is associated with higher risk-taking and performance. Since financial expertise on the board is related to more risk-taking, it is not surprising that these banks suffer larger stock losses during the crisis.”Another potential explanation is the use of different proxies for financial expertise. For instance, Minton et al. (2010) classify an independent director as a financial expert if he works within a banking institution, a nonbank financial institution, or has a finance-related role within a non-financial firm or academic institution, or is a professional investor. In contrast, Fernandes and Fitch (2009) proxy expertise as the average years of experience of the directors in the financial sector.DiversitySeveral countries promote board diversity. For instance, in Norway all listed companies must abide by a 40% gender quota for female directors since January 2008.28 Diversity can have positive effects on group performance since it endows a group with flexibility, which can be valuable if the group’s tasks change or become more complex (Hall, 1971). In addition, if individual private information is valuable and is not fully correlated across board members, it would thus seem that a more diverse board would collectively possess more information and therefore would have the potential to make better decisions.In the organizational psychology literature, diversity has been widely debated. It is possible to distinguish between task-related diversity, such as education or functional background, and nontask-related diversity, such as gender, age, race, or nationality. There are many studies on the relationship between (various types of) diversity and performance. If anything, the effect of diversity is complex and depends on context. On the basis of a meta-analysis, Webber and Donahue (2001) find no support for a relationship between various types of diversity and group cohesion or board performance. Similarly, Mathieu et al. (2008) conclude that most studies suggest that diversity – along various dimensions – is not positively related to board performance.A recent line of literature has tried to rationalize potential negative effects of demographic diversity drawing on the notion of “faultlines” (Lau and Murnighan, 1998). Faultlines divide a group on the basis of one or more characteristics, such as gender, age, or race. Faultlines increase the likelihood of subgroup formation and conflict, which may reduce board effectiveness. Demographic faultlines are likely to be associated with in-group/out-group stereotyping (Li and Hambrick, 2005), which, in turn, can be expected to have disruptive consequences for board decision-making processes. Using data on 313 Dutch pension fund boards, Veltrop et al. (2015) find that faultlines negatively affect board performance, measured as perceived board effectiveness and return on investment.Several studies focus on gender diversity, examining whether a stronger presence of women in the board affect board effectiveness and firm performance. A good example is the study by Nielsen and Huse (2010) on which we draw here. The literature on gender-based differences asserts that women and men are different in their leadership behavior and these differences may affect board functioning. Nielsen and Huse (2010) argue that the impact of female board members depends on the nature of the tasks performed. The ratio of female directors has a positive direct relationship with board strategic control but no direct relationship with board operational control in their research among Norwegian firms. They also find that boards with high ratios of women are more likely to use board development activities and are less likely to have conflicts. Similarly, Adams and Ferreira (2009) provide evidence that boardroom gender diversity improves several important aspects of board behavior in their sample of 1939 U.S. firms over the period 1996–2003, such as director attendance at board meetings. They also find evidence that more diverse boards are more likely to hold CEOs accountable for poor stock price performance as CEO turnover is more sensitive to stock return performance in firms with relatively more women on boards, suggesting that gender-diverse boards are tougher monitors. However, their results also suggest that, on average, firms perform worse (based on Tobin’s Q) the greater is the gender diversity of the board. The explanation given is that gender diversity only is beneficial when additional board monitoring would enhance firm value. Consistent with this view, Adams and Ferreira (2009) find that gender diversity has beneficial effects in companies with weak shareholder rights, but detrimental effects in companies with strong shareholder rights. The studies referred to above do not specifically focus on financial firms. The only studies that we are aware of focusing on the impact of gender diversity on financial firm performance are Muller-Kahle and Lewellyn (2011) and Berger et al. (2012b). These studies report opposing views. Although the former finds that firms with more gender-diverse boards were less involved in sub-prime lending, the latter finds that a higher proportion of female board members is associated with an increase in risk-taking.GenderFor board diversity, female on board has a positive significant on ROA and ROE (Mertzanis, Basuony, and Mohamed, 2019). García-Meca et al., (2015) results suggest that the presence of women on bank’s board improves governance and bank profitable. This finding also suggests that women directors are not substitutes for traditional corporate directors with identical abilities but rather that qualified women directors have unique characteristics that  create  additional  value  in banks. Moreover,  females bring  forward  new  opinions and perspectives that would not be demonstrated if the board were to be homogeneous, and this may improve financial performance  (De  Cabo,  Gimeno,  & Nieto,  2012).  Pathan  and Faff  (2013)  study large  US  bank holding companies over the period 1997–2011 and find that gender diversity improves bank performance. Zakaria et al. / International Journal of Finance & Banking Studies, Vol 7 No 4, 2018     ISSN: 2147-4486 Peer-reviewed Academic Journal published by SSBFNET with respect to copyright holders.  Page41’However, this positive effect declines after financial crisis periods respectively. Due to difference in culture, economic background and bank’s size, Tu, Loi, & Yen (2015) find that    percentage of women on boards of directors has a neutral effect on firm’s performance in Malaysia. However, according to Adams and Ferreira (2009) and Gul, Srinidhi, and Ng (2011) gender diversity will only improve performance in weak corporate governance settings because firms will benefit from women directors that can provide additional monitoring on their boards of directors. For board diversity, female on board has a positive significant on ROA and ROE (Mertzanis, Basuony, and Mohamed, 2019). García-Meca et al., (2015) results suggest that the presence of women on bank’s board improves governance and bank profitable. This finding also suggests that women directors are not substitutes for traditional corporate directors with identical abilities but rather that qualified women directors have unique characteristics that  create  additional  value  in banks. Moreover,  females bring  forward  new  opinions and perspectives that would not be demonstrated if the board were to be homogeneous, and this may improve financial performance  (De  Cabo,  Gimeno,  & Nieto,  2012).  Pathan  and Faff  (2013)  study large  US  bank holding companies over the period 1997–2011 and find that gender diversity improves bank performance. Zakaria et al. / International Journal of Finance & Banking Studies, Vol 7 No 4, 2018     ISSN: 2147-4486 Peer-reviewed Academic Journal published by SSBFNET with respect to copyright holders.  Page41’However, this positive effect declines after financial crisis periods respectively. Due to difference in culture, economic background and bank’s size, Tu, Loi, & Yen (2015) find that    percentage of women on boards of directors has a neutral effect on firm’s performance in Malaysia. However, according to Adams and Ferreira (2009) and Gul, Srinidhi, and Ng (2011) gender diversity will only improve performance in weak corporate governance settings because firms will benefit from women directors that can provide additional monitoring on their boards of directors. For board diversity, female on board has a positive significant on ROA and ROE (Mertzanis, Basuony, and Mohamed, 2019). García-Meca et al., (2015) results suggest that the presence of women on bank’s board improves governance and bank profitable. This finding also suggests that women directors are not substitutes for traditional corporate directors with identical abilities but rather that qualified women directors have unique characteristics that  create  additional  value  in banks. Moreover,  females bring  forward  new  opinions and perspectives that would not be demonstrated if the board were to be homogeneous, and this may improve financial performance  (De  Cabo,  Gimeno,  & Nieto,  2012).  Pathan  and Faff  (2013)  study large  US  bank holding companies over the period 1997–2011 and find that gender diversity improves bank performance. Zakaria et al. / International Journal of Finance & Banking Studies, Vol 7 No 4, 2018     ISSN: 2147-4486 Peer-reviewed Academic Journal published by SSBFNET with respect to copyright holders.  Page41’However, this positive effect declines after financial crisis periods respectively. Due to difference in culture, economic background and bank’s size, Tu, Loi, & Yen (2015) find that    percentage of women on boards of directors has a neutral effect on firm’s performance in Malaysia. However, according to Adams and Ferreira (2009) and Gul, Srinidhi, and Ng (2011) gender diversity will only improve performance in weak corporate governance settings because firms will benefit from women directors that can provide additional monitoring on their boards of directors. For board diversity, female on board has a positive significant on ROA and ROE (Mertzanis, Basuony, and Mohamed, 2019). García-Meca et al., (2015) results suggest that the presence of women on bank’s board improves governance and bank profitable. This finding also suggests that women directors are not substitutes for traditional corporate directors with identical abilities but rather that qualified women directors have unique characteristics that  create  additional  value  in banks. Moreover,  females bring  forward  new  opinions and perspectives that would not be demonstrated if the board were to be homogeneous, and this may improve financial performance  (De  Cabo,  Gimeno,  & Nieto,  2012).  Pathan  and Faff  (2013)  study large  US  bank holding companies over the period 1997–2011 and find that gender diversity improves bank performance. Zakaria et al. / International Journal of Finance & Banking Studies, Vol 7 No 4, 2018     ISSN: 2147-4486 Peer-reviewed Academic Journal published by SSBFNET with respect to copyright holders.  Page41’However, this positive effect declines after financial crisis periods respectively. Due to difference in culture, economic background and bank’s size, Tu, Loi, & Yen (2015) find that    percentage of women on boards of directors has a neutral effect on firm’s performance in Malaysia. However, according to Adams and Ferreira (2009) and Gul, Srinidhi, and Ng (2011) gender diversity will only improve performance in weak corporate governance settings because firms will benefit from women directors that can provide additional monitoring on their boards of directors. For board diversity, female on board has a positive significant on ROA and ROE (Mertzanis, Basuony, and Mohamed, 2019). García-Meca et al., (2015) results suggest that the presence of women on bank’s board improves governance and bank profitable. This finding also suggests that women directors are not substitutes for traditional corporate directors with identical abilities but rather that qualified women directors have unique characteristics that  create  additional  value  in banks. Moreover,  females bring  forward  new  opinions and perspectives that would not be demonstrated if the board were to be homogeneous, and this may improve financial performance  (De  Cabo,  Gimeno,  & Nieto,  2012).  Pathan  and Faff  (2013)  study large  US  bank holding companies over the period 1997–2011 and find that gender diversity improves bank performance. Zakaria et al. / International Journal of Finance & Banking Studies, Vol 7 No 4, 2018     ISSN: 2147-4486 Peer-reviewed Academic Journal published by SSBFNET with respect to copyright holders.  Page41’However, this positive effect declines after financial crisis periods respectively. Due to difference in culture, economic background and bank’s size, Tu, Loi, & Yen (2015) find that    percentage of women on boards of directors has a neutral effect on firm’s performance in Malaysia. However, according to Adams and Ferreira (2009) and Gul, Srinidhi, and Ng (2011) gender diversity will only improve performance in weak corporate governance settings because firms will benefit from women directors that can provide additional monitoring on their boards of directors. For board diversity, female on board has a positive significant on ROA and ROE (Mertzanis, Basuony, and Mohamed, 2019). García-Meca et al., (2015) results suggest that the presence of women on bank’s board improves governance and bank profitable. This finding also suggests that women directors are not substitutes for traditional corporate directors with identical abilities but rather that qualified women directors have unique characteristics that  create  additional  value  in banks. Moreover,  females bring  forward  new  opinions and perspectives that would not be demonstrated if the board were to be homogeneous, and this may improve financial performance  (De  Cabo,  Gimeno,  & Nieto,  2012).  Pathan  and Faff  (2013)  study large  US  bank holding companies over the period 1997–2011 and find that gender diversity improves bank performance. Zakaria et al. / International Journal of Finance & Banking Studies, Vol 7 No 4, 2018     ISSN: 2147-4486 Peer-reviewed Academic Journal published by SSBFNET with respect to copyright holders.  Page41’However, this positive effect declines after financial crisis periods respectively. Due to difference in culture, economic background and bank’s size, Tu, Loi, & Yen (2015) find that    percentage of women on boards of directors has a neutral effect on firm’s performance in Malaysia. However, according to Adams and Ferreira (2009) and Gul, Srinidhi, and Ng (2011) gender diversity will only improve performance in weak corporate governance settings because firms will benefit from women directors that can provide additional monitoring on their boards of directors. For board diversity, female on board has a positive significant on ROA and ROE (Mertzanis, Basuony, and Mohamed, 2019). García-Meca et al., (2015) results suggest that the presence of women on bank’s board improves governance and bank profitable. This finding also suggests that women directors are not substitutes for traditional corporate directors with identical abilities but rather that qualified women directors have unique characteristics that  create  additional  value  in banks. Moreover,  females bring  forward  new  opinions and perspectives that would not be demonstrated if the board were to be homogeneous, and this may improve financial performance  (De  Cabo,  Gimeno,  & Nieto,  2012).  Pathan  and Faff  (2013)  study large  US  bank holding companies over the period 1997–2011 and find that gender diversity improves bank performance. Zakaria et al. / International Journal of Finance & Banking Studies, Vol 7 No 4, 2018     ISSN: 2147-4486 Peer-reviewed Academic Journal published by SSBFNET with respect to copyright holders.  Page41’However, this positive effect declines after financial crisis periods respectively. Due to difference in culture, economic background and bank’s size, Tu, Loi, & Yen (2015) find that    percentage of women on boards of directors has a neutral effect on firm’s performance in Malaysia. However, according to Adams and Ferreira (2009) and Gul, Srinidhi, and Ng (2011) gender diversity will only improve performance in weak corporate governance settings because firms will benefit from women directors that can provide additional monitoring on their boards of directors. For board diversity, female on board has a positive significant on ROA and ROE (Mertzanis, Basuony, and Mohamed, 2019). García-Meca et al., (2015) results suggest that the presence of women on bank’s board improves governance and bank profitable. This finding also suggests that women directors are not substitutes for traditional corporate directors with identical abilities but rather that qualified women directors have unique characteristics that  create  additional  value  in banks. Moreover,  females bring  forward  new  opinions and perspectives that would not be demonstrated if the board were to be homogeneous, and this may improve financial performance  (De  Cabo,  Gimeno,  & Nieto,  2012).  Pathan  and Faff  (2013)  study large  US  bank holding companies over the period 1997–2011 and find that gender diversity improves bank performance. Zakaria et al. / International Journal of Finance & Banking Studies, Vol 7 No 4, 2018     ISSN: 2147-4486 Peer-reviewed Academic Journal published by SSBFNET with respect to copyright holders.  Page41’However, this positive effect declines after financial crisis periods respectively. Due to difference in culture, economic background and bank’s size, Tu, Loi, & Yen (2015) find that    percentage of women on boards of directors has a neutral effect on firm’s performance in Malaysia. However, according to Adams and Ferreira (2009) and Gul, Srinidhi, and Ng (2011) gender diversity will only improve performance in weak corporate governance settings because firms will benefit from women directors that can provide additional monitoring on their boards of directors. For board diversity, female on board has a positive significant on ROA and ROE (Mertzanis, Basuony, and Mohamed, 2019). García-Meca et al., (2015) results suggest that the presence of women on bank’s board improves governance and bank profitable. This finding also suggests that women directors are not substitutes for traditional corporate directors with identical abilities but rather that qualified women directors have unique characteristics that  create  additional  value  in banks. Moreover,  females bring  forward  new  opinions and perspectives that would not be demonstrated if the board were to be homogeneous, and this may improve financial performance  (De  Cabo,  Gimeno,  & Nieto,  2012).  Pathan  and Faff  (2013)  study large  US  bank holding companies over the period 1997–2011 and find that gender diversity improves bank performance. Zakaria et al. / International Journal of Finance & Banking Studies, Vol 7 No 4, 2018     ISSN: 2147-4486 Peer-reviewed Academic Journal published by SSBFNET with respect to copyright holders.  Page41’However, this positive effect declines after financial crisis periods respectively. Due to difference in culture, economic background and bank’s size, Tu, Loi, & Yen (2015) find that    percentage of women on boards of directors has a neutral effect on firm’s performance in Malaysia. However, according to Adams and Ferreira (2009) and Gul, Srinidhi, and Ng (2011) gender diversity will only improve performance in weak corporate governance settings because firms will benefit from women directors that can provide additional monitoring on their boards of directors. or board diversity, female on board has a positive significant on ROA and ROE (Mertzanis, Basuony, and Mohamed, 2019). García-Meca et al., (2015) results suggest that the presence of women on bank’s board improves governance and bank profitable. This finding also suggests that women directors are not substitutes for traditional corporate directors with identical abilities but rather that qualified women directors have unique characteristics that  create  additional  value  in banks. Moreover,  females bring  forward  new  opinions and perspectives that would not be demonstrated if the board were to be homogeneous, and this may improve financial performance  (De  Cabo,  Gimeno,  & Nieto,  2012).  Pathan  and Faff  (2013)  study large  US  bank holding companies over the period 1997–2011 and find that gender diversity improves bank performance.or board diversity, female on board has a positive significant on ROA and ROE (Mertzanis, Basuony, and Mohamed, 2019). García-Meca et al., (2015) results suggest that the presence of women on bank’s board improves governance and bank profitable. This finding also suggests that women directors are not substitutes for traditional corporate directors with identical abilities but rather that qualified women directors have unique characteristics that  create  additional  value  in banks. Moreover,  females bring  forward  new  opinions and perspectives that would not be demonstrated if the board were to be homogeneous, and this may improve financial performance  (De  Cabo,  Gimeno,  & Nieto,  2012).  Pathan  and Faff  (2013)  study large  US  bank holding companies over the period 1997–2011 and find that gender diversity improves bank performance.or board diversity, female on board has a positive significant on ROA and ROE (Mertzanis, Basuony, and Mohamed, 2019). García-Meca et al., (2015) results suggest that the presence of women on bank’s board improves governance and bank profitable. This finding also suggests that women directors are not substitutes for traditional corporate directors with identical abilities but rather that qualified women directors have unique characteristics that  create  additional  value  in banks. Moreover,  females bring  forward  new  opinions and perspectives that would not be demonstrated if the board were to be homogeneous, and this may improve financial performance  (De  Cabo,  Gimeno,  & Nieto,  2012).  Pathan  and Faff  (2013)  study large  US  bank holding companies over the period 1997–2011 and find that gender diversity improves bank performance.or board diversity, female on board has a positive significant on ROA and ROE (Mertzanis, Basuony, and Mohamed, 2019). García-Meca et al., (2015) results suggest that the presence of women on bank’s board improves governance and bank profitable. This finding also suggests that women directors are not substitutes for traditional corporate directors with identical abilities but rather that qualified women directors have unique characteristics that  create  additional  value  in banks. Moreover,  females bring  forward  new  opinions and perspectives that would not be demonstrated if the board were to be homogeneous, and this may improve financial performance  (De  Cabo,  Gimeno,  & Nieto,  2012).  Pathan  and Faff  (2013)  study large  US  bank holding companies over the period 1997–2011 and find that gender diversity improves bank performance.H4: There is positive relationship between board gender and bank performance. Rahman and Islam (2019) disclose there is a positive relationship of a CEO status on the profitability (ROA) of publicly traded banks in Bangladesh. However, CEO status has a negative impact on ROE. In line with their finding, Mertzanis, Basuony, and Mohamed (2019) state that CEO duality is a significant predictor for ROA and Tobin’s Q as measures of performance. While the role of leadership factor in firm performance is controversial, it seems that in the MENA region countries separating the role of the CEO and the chairman exerts a positive role on performance of firms. On the other hand, the ROE model of CEO duality does not document a significant effect. When independent directors account for a small proportion of a board’s membership, CEO duality has negative and significant impacts on operating performance (Duru, Iyengar, & Zampelli, 2016). However, as the proportion of independent directors rises, these negative impacts are mitigated to an extent that they eventually disappear and turn positive as the proportion of independent director increases further. Grove et al., (2011) show that CEO duality is negatively associated with financial performance (measured by ROA and excess stock returns) in the pre-crisis period but not in the crisis period. Over-powerful CEO would lead banks into risky strategies and in turn bank poorly performance. As a result, several major banks separated the role. In addition, Pathan (2009) shows that CEO power (CEO’s ability to control board decision, including CEO duality) negatively affects bank risk-taking because bank managers including CEOs may prefer lower risk due to their non-diversifiable wealth, including human capital invested in their banks, and comparatively fixed compensation (e.g., salary). Also, Wang et al., (2012) report a negative impact on BHCs performance from CEO duality.AgeH3: There is positive relationship between board average age and bank performance. For board diversity, female on board has a positive significant on ROA and ROE (Mertzanis, Basuony, and Mohamed, 2019). García-Meca et al., (2015) results suggest that the presence of women on bank’s board improves governance and bank profitable. This finding also suggests that women directors are not substitutes for traditional corporate directors with identical abilities but rather that qualified women directors have unique characteristics that create additional value in banks. Moreover, females bring forward new opinions and perspectives that would not be demonstrated if the board were to be homogeneous, and this may improve financial performance (De Cabo, Gimeno, & Nieto, 2012). Pathan and Faff (2013) study large US bank holding companies over the period 1997–2011 and find that gender diversity improves bank performance. Zakaria et al. / International Journal of Finance & Banking Studies, Vol 7 No 4, 2018 ISSN: 2147-4486 Peer-reviewed Academic Journal published by SSBFNET with respect to copyright holders. Page41 However, this positive effect declines after financial crisis periods respectively. Due to difference in culture, economic background and bank’s size, Tu, Loi, & Yen (2015) find that percentage of women on boards of directors has a neutral effect on firm’s performance in Malaysia. However, according to Adams and Ferreira (2009) and Gul, Srinidhi, and Ng (2011) gender diversity will only improve performance in weak corporate governance settings because firms will benefit from women directors that can provide additional monitoring on their boards of directors.CEO dualityThere is negative relationship between CEO duality and bank performance. Chimkono, Muturi, and Njeru (2016) reveal that non-performing loan ratio (NPLs) has a significant effect on the performance of commercial banks sector. NPLs had a negative influence on bank performance (Mausya, 2009; Qin & Pastory, 2012; Li & Zou, 2014; Lata, 2014; Roy, 2015). High percentages NPLs are often associated with performance problems of banks and financial crises in both developing and developed countries (Khemraj & Pasha, 2009). Evidence from Asia indicates that there was more than threefold increase in the volume of NPLs in Indonesian banks in the period leading up to the financial crisis. Besides, over 60 banks collapsed during the crisis due to their NPLs represented about 75% percent of its total loan portfolios (Cortavarria, Dziobek, Kanaya, & Song, 2000). Loan loss provision is negative and significant influence on bank profitability (Miller & Noulas, 1997; Vong, 2005; Ramlall, 2009; Sufian & Habibullah, 2009). It reveals that the major portion of banks operations are involves in borrowing and advancing activities due to banks face threats of high credit risk and they create a loan loss provisions to lessen the risk. This risk adverse policy of banks leads towards decrease in profitability. It could be due to firstly according to accounting principles the loan loss provisions are created from earnings of banks on annual basis. Secondly banks tends to be more profitable when they are able to undertake more lending activities if a higher level of provision is maintained then bank’s ability to give loan will decrease and thus depresses banks’ return on asset significantly (Vong & Chan, 2009). A well-managed bank is perceived to be of lower loan loss provision and such an advantage will be translated into higher profitability (Mustafa, Ansari, & Younis, 2012). Albertazzi & Gambacorta (2009) use five performance indicators (net interest income, non-interest income, operating cost, provisions, profit before tax, and ROE) to investigate the influence of stock market volatility on bank performance for main industrialized countries during the period 1981-2003. They report that net interest income, non-interest income, provision and ROE are positively related to stock market volatility, while the stock market volatility is negatively related to profit before tax. Further, no relationship between stock market volatility and provisions is reported. Due to the fluctuation of the stock market volatility, consumers are more likely to deposit their money into banks than investing in the stock market which makes banks have better performance (Albertazzi & Gambacorta, 2010). Tan and Floros (2012) find that the more volatile the stock market, the better performance the Chinese banks have. A high market capitalization ratio means economic expansion, while the easy access for firms to finance through stock markets reduces bank’s business opportunities which results in a deterioration of performance (Liu & Wilson, 2009).Chapter 2: Corporate Governance in BankingCorproate Goveneance In General Context  Corporate governance has been studied heavily in the last twenty years and below is some introduction about its definition and some of the concerns which were stemmed from the financial scandals occurred in the last 20 years in the untied stated and western Europe.Blanchard (2003) has defined corporate governance as a control system designed to monitor the firm’s operations and possible conflict of interest among various stakeholders.  He took up the issue related to the potential clash between risk management polices and those related to the maximization of the shareholders values, this conflict has involved heavily the issue of corporate governance. His argument was very important as many organizations have a dedicated risk management committee, and from other side, the arguments was based on the fact the board has to approve the objectives or the organization’s risk management policies, and also has to oversee the achievement of such goals, though the board is considered as one of the most significant mechanism used to resolve any conflicts between risk management policies and maximizing the firm’s value. Also the board has to play a critical role not limited to setting the objectives and recruit and compensate management of the firm and monitor their activities, but also expanded to stand for the interest of the firm’s shareholders.  Blanchard (2003) has taken Enron case to discuss the reason. This is simply because the same lessons could have been taken to other cases. This scandal has derived the attention to corporate governance and issue of manipulating information by senior management. He has also confirmed that it is very hard even for sophisticated professional including authorities to evaluate the firm’s total risk in case the financial statements use mark to market instead of the historical values. This means that even capital market authorities could never be able to discover any negative signals took place prior to the bankruptcy.  A huge blame has been bundled on the external auditors who has a conflict of interest ranging from being the public auditors and the private consultants for the same firm. Since the scandal was very serious the United States Congress, via the 2002 Sarbanes-Oxley Act, created, among other bodies, the Public Company Accounting Oversight Board (PCAOB) one of whose roles is to register external auditing firms and to establish standards of auditing, quality control, ethics, and independence for such firms. Financial analysts and observers had also put a lot of blame of the company board of directors, and other sub committees as they fail to protect the shareholders rights.Blanchard (2003), has concluded that post Enron bankruptcy in 2001 many rules of corporate governance have been introduced in the United States of America, these rules are later on approved by the New York Stock Exchange(NYSE) summarized as follows:Boards of directors must be composed mostly of independent directors.The appointment/governance and remuneration committees must be composed entirely of independent directors.All listed firms must have an audit committee composed exclusively of independent directors and counting at least three members, this committee has to discuss the risk management policies.All listed firms must have an internal audit function.All listed firms must adopt minimum standards of practice and issue directives concerning their corporate governance.In this interpretation Blanchard (2003), has ring fenced the risk management in the responsibility of the firm’s management. Management has to evaluate and oversee the firm’s exposure to different risks. The audit committee, from independent angle has to discuss the policies and directives governing the process for evaluating the main risks to which the firm is exposed and the measures to be taken to monitor and control this exposure.Since risk evaluation and risk management instruments are difficult to use and monitor. Understanding them often requires a good grasp of mathematics and statistics. It is, consequently, not clear that audit-committee members without specialized training would be up to monitoring the in-and-outs of coverage and even speculations presented to them, often in rapid and very summary fashion. In monitoring and approving the firm’s risks, a number of firms (especially financial ones) replace the audit committee with other mechanisms such as the risk management committee. In such cases, the audit committee is no longer obliged to be solely responsible for evaluating and managing risks, but must still discuss the risk evaluation and risk management processes. In other words, the process set up by these firms is to be reviewed but not replaced by the audit committee.Finally at the end, Blanchard (2003), has concluded that the board’s risk management committee must be composed of competent and independent directors who hold no options to purchase the firm’s shares, as It is now a well-known fact that risk management issues can give rise to conflicts of interest between corporate executives and shareholders, notably when executives are remunerated with their firm’s stock options.Despite the notion of independence of board members has been considered a quite technical issue, which requires a long definition,  but it was also seen that the composition of the board of directors does have an influence on the risk management policies of firms. The greater the number of external directors on the board, the greater is the number of risk hedging activities undertaken by the firm.Polo (2007) uses also the debt holders’ perspective to define corporate governance. He stated that the effective exertion of corporate monitoring by diffuse debt holders depends on the efficiency of the legal and bankruptcy system whether these debtors are diffused or large creditors. Legal rights of debt holders should be clearly specified in debt contracts. In case of violations of debt covenants or default on the payments by the debtor, the debt holder should have the right to repossess collateral, to force the firm into bankruptcy and to vote on decisions about the assets of the firm. All this, of course, reduces the power of diffuse debt holders to limit managerial discretion. Large creditors, typically banks, find it easier to exert corporate governance. Banks can avoid the problem of inefficient bankruptcy proceedings by renegotiating the terms of their loans. From different angle the research uses product market competition and the takeovers as two other factors that contribute in the solutions of corporate governance problems. He concluded that in a competitive environment firms are forced to adopt corporate control mechanisms in order to minimize the cost of raising external finance. The second form of competition is takeovers: if a fluid takeover market exists, managers will have the incentives to maximize firm value in order not to be fired in a takeover. The conclusion drawn is that there is some scope to improve the corporate governance of firms. Government intervention should be aimed at forcing firms to be more transparent, at increasing competition, both in product market and in takeovers, at protecting investors through a more efficient legal and bankruptcy system. Polo (2007)To discuss the corporate governance from bank perspective, he also stated that corporate governance of banks is vital for growth and development; he defined corporate governance as the ways in which suppliers of finance to corporations assure themselves of getting a return on their investments. He also agreed and confirmed on the fact that the recent scandals and corporate failure in the United States and Europe have brought the issue of corporate governance in the center of arguments for development and growth. In that instance the researcher agreed that because of the greater vagueness in banking and huge involvement of regulators, it is very difficult to diffuse debt and equity holders to monitor the bank management and make it difficult to design contracts that align the interest of managers and shareholders and gives advantages to insider to make use of outside investors. In the light of the discussions above and taking into account an increased difficulty by supervisors to monitor in a timely manner large and complex banking organizations, supervisors have started to rely on market mechanisms to supplement their traditional supervisory methods.Polo (2007) has stated that one of the differences between the Basel Capital Accord (1988) and the New Basel Capital Accord (2004) is the introduction of market discipline as one of the three pillars on which financial regulation is based. As the other two pillars are minimum capital standards and supervisory review of capital adequacy. This third pillar focuses on regulation that requires accurate information disclosure and facilitates market oversight and discipline of banks.As part of the research, Polo (2007) has grouped the private bank-stakeholders into three classless: depositors, debt holders and equity-holders can signal market discipline. Depositors can either demand a higher return or withdraw their deposits if the bank risk increases. Similarly, debt-holders can demand a higher yield on bank debt, thereby increasing the cost of funds for riskier institutions and equity holders can sell their shares, putting pressure on share prices and placing management under increased scrutiny. For this to happen, investors must consider themselves at risk in the event of default and must be able to effectively observe bank risk thanks to reliable and timely information disclosure At the end, the paper presented the current debate on the corporate governance of banks. On the basis of the existing works we find two conflicting views. On the one hand,  the specificity of banks: the common mechanisms of corporate governance, which are valid for firms in general, are not equally valid in banking and this legitimates the regulatory authorities to influence, or even dominate, the corporate governance of banks in place of private monitors. The justification is based on a variety of different grounds in the course of time. The traditional argument is the opacity of banks: bank assets are extremely difficult for outsiders to value and, consequently, market mechanisms cannot adequately control bank managers and shareholders. On the other hand, there is a confirmation that the same core corporate control mechanisms that influence the governance of non-financial firms also influence bank operations: bank valuation is, indeed, influenced by shareholder protection and ownership structure as non-bank firms. Sensible regulation, on the opposite, does not seem to have any impact either on market valuation of banks or on their risk taking behavior. The regulatory goal of preventing excessive risk-taking should be better pursued through the introduction of incentives for appropriate behavior by bank shareholders, debt holders and depositors.  And through government intervention there will be reduction in the opacity of banks, thus fostering the private ability to assess and price bank risk, by improving the flow of information through increased disclosure requirements. Polo (2007) has organized his research in fashion that explained the corporate governance concept in general from different angles and then he focused on corporate governance in banks. He stated that corporate governance in banks is much more sophisticated due to the opaqueness of banks more than in any other corporations, and it requires greater regulatory involvement. From generic term, he has defined corporate governance as how holders of equity and debt influence managers to act in the best interest of capital providers.As a general concept of corporate governance, Polo has started by triggering the corporate governance from the angle of the concentration of shareholders. He confirmed that diffuse and scattered shareholders will exercise corporate governance directly through their voting rights and indirectly through the board of directors they elect. Moreover, executive directors compensation packages that link compensation with the achievement of particular results help align the interests of managers with those of shareholders. On the other side, when shareholders are concentrated, they do have the incentive and motivation to obtain information and monitor managers to be able to overcome the case when management exert a control over the board of director, so concentrated shareholders can be corporate governance mechanisms by themselves.As a result it is concluded that market discipline and good corporate governance play the role of restraining bank risk taking, objective that regulators and supervisors have been trying to pursue through prudential regulation. The final  conclusion was summarized in the fact that banks are also considered corporations, hence corporate governance of banks also affect their valuations, cost of capital through risk behavior and finally their performance.This research had examined the association between firms’ debt financing structure and operating performance based on the common understanding that good corporate governance will lead to better performance. The assumption used was corporate governance has developed through the agency theory, and then it came to the attention the efficiency of levered organization   to meet its debts. Their positioning of corporate governance was all about the role of the board of directors, since debt financing is considered as one of the governance mechanism, as a result, the company financing strategies and performance can be observed as a tool of corporate governance. One of the important aspects is the relevancy of the debt financing to its usage, that is to say bank loan relevancy is the extent to which debt financing decisions were directly related to the company’s operating performance. The research used the three well-known operating measures like operating income/assets, operating income/sales and asset turnover to measure the performance of the company.The results also showed that short-term borrowing is preferred and in most cases is renewed at multiple points in time on a long-term basis. Regarding firms’ operating performance, the results show the following: (1) in the high-debt firms, most of the changes in firms’ assets are associated with the changes in short-term and long-term debt respectively. In addition, neither short-term debt nor long-term debt (as indigenous determinants) has significant effects on operating performance; (2) In the medium-debt firms, both short-term and long-term debt help adjust the three performance measures to a target level; and (3) In the low-debt firms, long-term debt in particular has a negative effect on operating income/sales. In general, a relatively high association between debt financing and operating performance is realized, which insures that debt structure has a governance role on firms’ operating performance. A general conclusion is that the premises of the agency theory of debt are highly likely transferable from developed markets to transitional markets.Mülbert (April 2010) had introduced the notion that the generally accepted definition of corporate governance has not yet evolved. He had highlighted some traditional concepts describe corporate governance as a complex set of constraints that shape the ex post bargaining of power over decision-making within a firm.  He put differently, corporate governance deals with the decision-making at the level of the board of directors and top management, and the different internal and external mechanisms that ensure that all decisions taken by the directors and top management are in line with the objectives of a company and its shareholders, respectively.  Then he defined corporate governance as the mechanism that provides the firm structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.  Though he stressed on the fact that good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and its shareholders, and should facilitate effective monitoring. Vasudev and Watson (2012) have pointed out at all times, we must also remember the primary objective of business corporations, which is to generate and distribute wealth through enterprise. Though the persistent theme in corporate governance summarized in the notion that corporations perform best when left alone. This idea has been strongly supported since the 1970s by the doctrine of the law- and- economics model of corporate governance which has been thrown open to question by the developments of the last decade or so. This basic function of corporate governance has become more challenging in this age of globalization, mobility of capital, and international markets. While the market may lack the self- corrective qualities attributed to it, it is apparent that regulation finds it equally hard to arrive at neat solutions. An important development in recent decades is the emergence of a surplus number of codes of corporate governance. They represent a new source of materials on corporate governance, falling in the category of ‘soft law’. Many agencies have been engaged with the subject, including the OECD, stock exchanges, United Nations, trade associations, investor councils and civil society organizations. They have all taken initiatives to develop norms that can influence the management practices of business corporations. As a result, there appears to be a codification and institutionalization trend in corporate governance. Mechanisms such as independent directors, audit and compensation committees and codes of ethics have now emerged as norms in most jurisdictions and this can be traced to the efforts of several agencies to promote healthy and responsible corporate governance. (Vasudev and Watson, 2012)These developments reflect the need, in this age of transnational corporations and global markets, for greater streamlining of corporate governance through the formulation and codification of standards. The universe of corporate governance is now populated – some might say overcrowded – by a number of actors. In addition to the traditional elements – namely, market forces, government actors, business and professional groups and chambers of commerce – we now have multilateral agencies, such as the United Nation and OECD, civil society organizations and investor councils. Interest in corporate governance is now more widespread. This is not surprising considering the reach and influence of business corporations and their impact on our lives. Hopefully, the results from this rich interplay of forces will have a beneficial effect on corporate governance and help us to understand and manage these vehicles better as we emerge from the Financial Crisis. (Vasudev and Watson, 2012)Corporate Governance In BanksCiancanelli and Gonzalez (2000) have introduced the corporate governance in banking as a conceptual framework. They generally argued the framework from the management control issue in the bank to the level at which the operating practices in banks increase the systemic risk and generate crises. They declared that corporate governance of banks must be seen differently from other firms, and might be seen as complex this is simply due to three reasons: first, the argument of governance will be more complex within a bank that does not only have shareholders but also depositors. Second, the relationship between the management referred to be the agent of the owners and the shareholders referred to be the principals is exceptional as it is arbitrated by external forces. Finally the third, the owners of the banks may be looked as the sole important cause of moral and ethical risk. In this context, they concluded that owners of the bank despite their position as principal for the bank, but in fact the owners of the bank share the risk with regulators. And they are considered potentially the greatest source of general risk, this is why the banking reforms program undertaken in many countries have changed the parameters of controls in banking in way that appears to have augmented moral hazard and in certain cases to have fertile soil for unethical behavior by both management and shareholders. Based on this the researches had accepted the notion that there is no best type of governance and each country may have specific corporate governance and control methods, but the most important thing is banking regulatory framework which considered an influential external force in shaping the behavior of the banks’ management and shareholders, and any corporate governance theory should address the integration between both the internal and external forces to obtain the optimum balance between the public and the private interests.  Macey and O”Hara (2003) have also agreed that corporate governance in banks is different than any other organization as the shareholders are not the only beneficiaries of fiduciary duties of the board of directors, this is due to the following facts: the role of banks in liquidity production in term of credit extensions, the deposit insurance fund, asset structure and loyalty problems and the conflict between the debt holders and shareholders, as banks capital structure is very unique as most of financing activities are supported by debts not equity.From the management side, Macey and O”Hara (2003) had noticed that all directors owe fiduciary duties to the corporation and its shareholders, and that these duties include the duty of care and the duty of loyalty. In banks in particular, its nature makes it susceptible to greater moral hazard problems than a typical firm is. They both had believed that the main reasons behind the wave of bank failures that occurred between 1929 and 1933 placed heavy strains on the double liability system and ultimately sudden its collapse. That is to say, many of the shareholders being assessed had no insider connection to the failed bank, either by way of family relationships or employment status. Many had purchased their shares in wealthy times without serious consideration of their potential liability in the event of bank failure. These factors resulted in political pressure during the 1930s to cancel double liability force. At the end they have concluded that in a clear case the bank directors are being held to a higher, standard of care than other directors. The structure of bank balance sheets—particularly banks’ highly leveraged condition and the mismatch in the term structure and liquidity of their assets and liabilities—supports the argument that bank directors should owe fiduciary duties to fixed debt holders as well as to shareholders. The issue of directors’ duties arises in two contexts. The first context in particular, focused on the fact that directors are obliged to inform themselves of whether a particular decision will: 1) impair the ability of the financial institution to pay its debts as such debts come due in the ordinary course of business, 2) materially increase the riskiness of the bank, as measured by the variance in returns on the bank’s investments, or 3) materially reduce the bank’s capital position, as measured both by a risk-based  calculation and by the leverage test. With other board decisions, directors should be entitled to rely on expert opinions and reports. But such reliance must be reasonable. Based on the above the responsibilities of corporate directors extend beyond the confines of the shareholder population. There is some evidence that this alternative approach has allowed banks to avoid the pitfalls associated with applying the pure Anglo-American model to the special case of bank corporate governance. Finally, as financial institutions become more complex and less centralized organizations, the risks they create to the financial system also increase. Although regulators clearly have an important monitoring and oversight role, the connected role and responsibility of the board of directors cannot be ignored. Macey and O”Hara (2003).Chakrabarti (2004) has declared his agreement with the argument that corporate governance in banks is more vital than in any other financial institution, this is simply because banks have a fundamental role in the financial and economic system of the developing countries. This crucially is based on the fact that banks have a level of insensitiveness of mind in their functioning which cannot be penetrated easily, this forms some sort of irregularity  and asymmetries between management who are considered insiders from their perspective, and shareholders and other creditors who are considered outsiders. These asymmetries make it much more difficult to the owners of the bank to monitor how appropriately the bank is managed. And he concluded that the evolution of norms and guidelines are crucial to improve corporate governance especially in developing countries, this will make the future of corporate governance promising comparing to the past.Mülbert (April 2010) had echoed what had been mentioned by the researchers mentioned above, that banks have different forces for corporate governance other than in those of industrial firms, this simply due to the economics and functions of banks, which makes them subject to stringent prudential regulation of their capital and risk. From other side, given banks’ high leverage, debt holders, i.e., depositors and bondholders, as well as a bank’s management will prefer the firm to take on substantially less risk than diversified shareholders. However, deposit insurance and prudential regulation, although aimed at compensating for deficits in the monitoring and control of banks, weaken debt holder monitoring and control, this also makes Banks’ corporate governance differs from that of a generic firm. Moreover, these differences are reflected in corporate governance practices observed in the banking sector and in theoretical works on the “good corporate governance of banks. He stated that poor corporate governance of banks has increasingly been acknowledged as an important cause of the recent financial crisis. This made banking supervisors have taken up the issue in particular, to the Basel Committee on Banking Supervision which has already published two editions of a guideline entitled “Enhancing corporate governance for banking organizations” which perfectly reflects the supervisors’ perception of and approach to the issue still, only during the second year of the financial crisis, the issue of banks’ good corporate governance has again started to attract pronounced interest. Given the numerous reforms to improve banks’ corporate governance that have either been proposed or already implemented at the international level, national, and supranational, e.g. E.U., levels, the article takes stock of relevant theory and examines recent reforms in light of the empirical evidence. Taking the well-known question “What makes banks different?”, the theoretical part of this research had analyzed the particularities of banks’ corporate governance with respect to a bank’s financiers (shareholders, depositors, and bondholders) in a principal agent framework and finds that banks’ corporate governance mostly differs from that of a generic firm because of deposit insurance and prudential regulation. While aimed at compensating for shortfalls in the monitoring and control of banks, the theoretical part, had presented the supervisors’ financial stability perspective as illustrated by the Basel Committee’s guidance, and concludes with a discussion of the functional relationship between corporate governance and banking regulation and supervision: Whereas banking regulation and supervision acts as a functional substitute for debt governance, equity governance benefits less from such regulation and intervention. In a few words, shareholder interests and supervisors’ interests do not run exactly parallel, not even from a long-term perspective. The article concludes with some tentative reflections on the lessons from banks’ corporate governance other than for corporate governance of generic firms, i.e., firms not subject to prudential regulation and supervision. Because of the particularities due to the existence of deposit insurance and prudential regulation/supervision, one may doubt whether banks’ corporate governance should map the way forward for corporate governance.Corporate Governance (As Per Basel Committee Definition)Under Basel committee accords issued September 2009, the aim was Enhancing Corporate Governance for Banking Organizations. The reason behind this was due to the great deal of attention given recently to the issue of corporate governance in various national and international arenas. In particular, the OECD has issued a set of corporate governance standards and guidelines to help governments “in their efforts to evaluate and improve the legal, institutional and regulatory framework for corporate governance in their countries, and to provide guidance and suggestions for stock exchanges, investors, corporations, and other parties that have a role in the process of developing good corporate governance. As part of its on-going efforts to address supervisory issues, the Basel Committee on Banking Supervision has been active in drawing from the collective supervisory experience of its members and other supervisors in issuing supervisory guidance to foster safe and sound banking practices. The Committee has reinforced the importance for banks of the OECD principles, to draw attention to corporate governance issues addressed in previous Committee papers, and to present some new topics related to corporate governance for banks and their supervisors to consider. Banking supervision cannot function as well if sound corporate governance is not in place and, consequently, banking supervisors have a strong interest in ensuring that there is effective corporate governance at every banking organization. Supervisory experience underscores the necessity of having the appropriate levels of accountability and checks and balances within each bank. It is clear that sound corporate governance makes the work of supervisors infinitely easier. Sound corporate governance can contribute to a collaborative working relationship between bank management and bank supervisors including shareholders, regulators and other stakeholders. Recent sound practice papers issued by the Basel Committee underscore the need for banks to set strategies for their operations and establish accountability for executing these strategies. In addition, transparency of information related to existing conditions, decisions and actions is integrally related to accountability in that it gives market participants sufficient information with which to judge the management of a bank. The OECD paper defines corporate governance as involving “a set of relationships between a company’s management, its board, its shareholders, and other stakeholders.  Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and shareholders and should facilitate effective monitoring, thereby encouraging firms to use resources more efficiently.”Banks are a critical component of any economy as they provide financing for commercial enterprises, basic financial services to a broad segment of the population and access to payments systems. In addition, some banks are expected to make credit and liquidity available in difficult market conditions. The importance of banks to national economies is underscored by the fact that banking is virtually universally a regulated industry and that banks have access to government safety nets. It is of crucial importance therefore that banks have strong corporate governance.  From a banking industry perspective, corporate governance involves the manner in which the business and affairs of individual institutions are governed by their boards of directors and senior management, affecting how banks: Set corporate objectives (including generating economic returns to owners);Run the day-to-day operations of the business;Consider the interests of recognized stakeholders;Align corporate activities and behaviors with the expectation that banks will operateIn a safe and sound manner, and in compliance with applicable laws and regulations; and protect the interests of depositors.From the Basel committee publication, it is clear that the strategies and techniques that are basic to sound corporate governance include the following:The corporate values, codes of conduct and other standards of appropriate behavior and the system used to ensure compliance with them;A well-articulated corporate strategy against which the success of the overall enterprise and the contribution of individuals can be measured;The clear assignment of responsibilities and decision-making authorities, incorporating a hierarchy of required approvals from individuals to the board of directors;A establishment of a mechanism for the interaction and cooperation among the board of directors, senior management and the auditors Strong internal control systems, including internal and external audit functions, risk management functions independent of business lines, and other checks and balances;Special monitoring of risk exposures where conflicts of interest are likely to be particularly great, including business relationships with borrowers affiliated with the bank, large shareholders, senior management, or key decision-makers within the firm (e.g. traders);The financial and managerial incentives to act in an appropriate manner offered to senior management, business line management and employees in the form of compensation, promotion and other recognition; andAppropriate information flows internally and to the public.As mentioned above, bank’s supervisors including shareholders, regulators and other stakeholders have a keen interest in determining that banks have sound corporate governance and its impact on corporate performance. They should expect banks to implement organizational structures that include the appropriate checks and balances, and Regulatory safeguards to emphasize accountability and transparency. Supervisors should also determine that the boards and senior management of individual institutions have in place processes that ensure they are fulfilling all of their duties and responsibilities.A bank’s board of directors and senior management are ultimately responsible for the performance of the bank. As such, supervisors typically check to ensure that a bank is being properly governed and bring to management’s attention any problems that they detect through their supervisory efforts. When the bank takes risks that it cannot measure or control, supervisors must hold the board of directors accountable and require that corrective measures be taken in a timely manner. Supervisors should be attentive to any warning signs of deterioration in the management of the bank’s activities. They should consider issuing guidance to banks on sound corporate governance and the pro-active practices that need to be in place. In banks, sound corporate governance considers the interests of all stakeholders, including depositors, whose interests may not always be recognized. To conduct the organization activities there should be strategic objectives or guiding corporate values set by the board of directors. Therefore, the board should take the lead in establishing the “tone at the top” and approving corporate values for itself, senior management and other employees. These values should recognize the critical importance of having timely and frank discussions of problems. In particular, the importances of values are to prohibit corruption and bribery in corporate activities, both in internal dealings and external transactions.  The board of directors should ensure that senior management implements policies that prohibit (or strictly limit) activities and relationships that diminish the quality of corporate governance, such as:The conflicts of interest;Lending to officers and employees and other forms of self-dealing (e.g., internal lending should be limited to lending consistent with market terms and to certain types of loans, and reports of insider lending should be provided to the board, and be subject to review by internal and external auditors); and Providing preferential treatment to related parties and other favored entities (e.g., lending on highly favorable terms, covering trading losses, waiving commissions).From responsibilities and accountability perspective, effective boards of directors clearly define the authorities and key responsibilities for themselves, as well as senior management. They also recognize that unspecified lines of accountability or confusing, multiple lines of responsibility may worsen a problem through slow or diluted responses. Senior management is responsible for creating an accountability hierarchy for the staff, but must be cognizant of the fact that they are ultimately responsible to the board for the performance of the bank.The board of directors is ultimately responsible for the operations and financial soundness of the bank. The board of directors must receive on timely basis sufficient information to judge the performance of management. Boards of directors should ultimately add strength to the corporate governance of a bank when they understand their oversight role and their “duty of loyalty” to the bank and its shareholders. They should serve as a “checks and balances” function vis-à-vis the day-to-day management of the bank; by feeling empowered to question management and are comfortable insisting upon straight forward explanations from management; and finally, they should be able to recommend sound practices derived from other situations, and if they feel that they are incapable of giving sound advice they have to absent themselves from taking such decision. This means that the whole Board of directors has to provide unemotional advice without being overextended; to circumvent conflicts of interest in their activities with, and commitments to, other organizations.As a sound practice, the board of directors should meet regularly with senior management and internal audit to establish and approve policies, as well as set up communication lines and monitor progress toward corporate objectives, and with out participating in day-to-day management of the bank. The Basel committee has seen that it is beneficial to the bank board of director to establish certain specialized committees including:A Risk management committee – providing oversight of the senior management’s activities in managing credit, market, liquidity, operational, legal and other risks of the bank. (This role should include receiving from senior management periodic information on risk exposures and risk management activities).An Audit committee – providing oversight of the bank’s internal and external auditors, approving their appointment and dismissal, reviewing and approving audit scope and frequency, receiving their reports and ensuring that management is taking appropriate corrective actions in a timely manner to address control weaknesses,  non-compliance with policies, laws and regulations, and other problems identified by auditors. The independence of this committee can be enhanced when it is comprised of external board members that have banking or financial expertise.A Compensation committee – providing oversight of remuneration of senior management and other key personnel and ensuring that compensation is consistent with the bank’s culture, objectives, and strategy and control environment. Nominations committee – providing important assessment of board effectiveness and directing the process of renewing and replacing board members.The Basel committee has also derived the attention to the role of auditors, whether internal or external in shaping the corporate governance in the bank. The role of auditors is vital to the corporate governance process. The board should recognize and acknowledge that the internal and external auditors are their critically important agents. In particular, the board should utilize the work of the auditors as an independent check on the information received from management on the operations and performance of the bank.The effectiveness of the board and senior management can be enhanced by recognizing the importance of the audit process and communicating this importance throughout the bank. It is important that both the board and senior management have to take the measures that enhance the independence of auditors in approach and mental attitude; and this could be achieved through letting the head of unit reporting into the board or the board’s audit committee. Adding to the above, both the board and senior management are in need to engage with external auditors as well, to judge the effectiveness of internal controls; and utilizing the timely identification of audit findings which are raised by auditors; to ensure timely correction by management.The Basel committee accords also assumed that handling of corporate governance cannot be done with out having a link between incentive compensations of the board and senior management and the bank’s business strategy, this is simply because any malfunction in this link can cause or encourage managers to book business based upon volume and/or short-term profitability to the bank with little regard to short or long-term risk consequences. Based on this the board of directors should approve the compensation of members of senior management and other key personnel and ensure that such compensation is consistent with the bank’s culture, objectives, strategy and control environment, also these compensation should not overly depend on short-term performance, such as short-term trading gains. This will help to ensure that senior managers and other key personnel will be motivated to act in the best interests of the bank.Finally, at the end and as set out in the Basel Committee’s papers enhancing bank transparency was an ultimate objective, as it is difficult to hold the board of directors and senior management properly accountable for their actions and performance when there is a lack of transparency. This happens in situations where the stakeholders, market participants and general public do not receive sufficient information on the structure and objectives of the bank with which to judge the effectiveness of the board and senior management in governing the bank.Transparency can reinforce sound corporate governance. Therefore, public disclosure is desirable in the following areas like Board structure (size, membership, qualifications and committees); senior management structure (responsibilities, reporting lines, qualifications and experience); basic organizational structure (line of business structure, legal entity structure); and lastly information about the incentive structure of the bank (remuneration policies, executive compensation, bonuses, stock options);The Basel Committee recognizes that primary responsibility for good corporate governance rests with boards of directors and senior management of banks; however, there are many other ways that corporate governance can be promoted, including by: Governments – through laws; Securities regulators, stock exchanges – through disclosure and listing requirements;Auditors – through audit standards on communications to boards of directors, senior management and supervisors; and Banking industry associations – through initiatives related to voluntary industry principles and agreement on and publication of sound practices. For example, corporate governance can be improved by addressing a number of legal issues, such as the protection of shareholder rights; the enforceability of contracts, including those with service providers; clarifying governance roles; ensuring that corporations function in an environment that is free from corruption and bribery; and laws/regulations (and other measures) aligning the interests of managers, employees and shareholders. All of these can help promote healthy business and legal environments that support sound corporate governance and related supervisory initiatives.On the other part of the empirical study, the research had assessed the changes in The Return On Equity (ROE) to represent the banks’ overall performance and The Return On Total Assets (ROA) to represent the optimization of the banks’ risk management before and after the implementation of corporate governance rules issued by the central bank of Egypt in the 3rd quarter 2011. As indicated earlier, this assessment in the research aimed to test the implication of corporate governance during the period which corporate governance practice was based on best practice and according to each bank internal perspective,  and then shortly after the formal implementation of the governance rules imposed by the Central bank of Egypt. In the table 1 in the appendix, illustrated the total assets, total equity and profit after tax on quarterly basis starting from 4th quarter 2009, this table showed that prior to the first implementation of the new corporate governance rules in 4th quarter 2011, the total assets were generally increasing quarter on quarter, while the Return On Equity (ROE) percentages were fluctuating from 1% to 9%, this fluctuation sometimes increasing on the upside and sometimes decreasing on the down side from quarter to a quarter (graph 1 in the appendix). Also it was clear that there was linkage between the ROE and ROA, that is to say, that there was no efficient and effective risk management, as assets are growing and impairment and cost are growing in much higher pace, causing a decrease in the net profit and hence the ROE. While post the first implementation of the corporate governance rules in 4th quarter 2011 and having the effect of the governance committees, the assets balance continue to grow, while the ROE percentages were increasing quarter to quarter, from 2% to 6%. Also it was obvious that post the commencement of applying the governance rules, there is a linkage between the ROE and the ROA, that is to say, the assets are growing from 1 % to 4% and profit and hence the increase in ROA has a positive implication on the ROE.Despite the fact that the three banks are indifferent in term of the balance sheet and income generating, however, the three had the same trends when it came to assets growth and return on equity during the same time periods under testing. Since the three banks were working in similar economic, political and legal situation, so the only changes that took place was the introduction of the new corporate governance rules issued by 3rd quarter 2011, and required all banks to comply by maximum the end of 1st quarter 2012, or report to the Central Bank of Egypt any deviation with an action plan and target date to fulfill the remaining requirement. In that sense we can relate the changes in the ROA and ROE trends in the three banks to the new variables which was the corporate governance rules.It is also worth to mention, that the three banks might not be in the same level of embedment of the corporate governance culture, yet they are all working to meet the minimum required procedures. And some of them may need more time to fulfill all the minimum requirements; nevertheless, the impact of starting applying the requirement for good corporate governance had a direct effect on the bank performance and its risk management. It is relevant now to all banks which believe in enhancing long term shareholder value. Good corporate governance would be the optimum option, because simply it embodies both enterprise performance and accountability conformance including transparency and corporate social responsibilities.          Thesis Statement (Research Problem)As per the literature review, corporate governance becomes very important and it is increasing over years. The broad problem area identified which was the motive to start this research was (Is there a strong relationship between corporate governance and bank performance) and what is the impact of board member’s characteristics, background, experience, education, age, gender as well as the degree of board independence on the financial performance. Although the topic of corporate governance had been so much considered in developed economies, the topic of the corporate governance of financial institutions had not been so much considered in the literature of developing economies, (Arnur and Turner,2003). Research objectiveThe main objective of this paper is to assess the existence and strength of corporate governance practices in banks operating in the MENA region. This main objective is to be achieved through analyzing the relationship between Corporate Governance practices in banks operating in MENA region and its effect on their performance. Such an assessment will include focusing on Basel’s three pillars; bank regulations, risk related capital adequacy requirements and supervision and analyzing their effect on the banks’ financial performance Research methodology An empirical research method will be used in this paper using a field study to gain the information regarding the corporate governance practices in the banks operating in MENA region.Statistical technique will be applied using the multiple regression (SPSS) to analyze the impact of independents variables on the dependent ones across all hypothesis. According to the board ex data base, the total population of the banks operating in the Middle East and North Africa (MENA) region which includes 28 countries is 1250 banks and using a random sampling technique and based on a confidence level 90% lead to selecting 65 banks as a sample size.The dependent variable of this research is represented by the firm performance, firm performance, there are different aspects of the firm performance; however, the one that will be tested is the financial firm performance. The financial firm performance can be tested using many measures; the most famous are the profitability measures as represented by the Return on Assets (ROA) and the Return on Equity (ROE). Each of the them is an independent variable that can be used on its own, thus both will be employed using two independent models one determining the effect of the independent variables on the ROA and the other on the ROE, so as to validate the positive relationship more. The independent variables of this research represent the banks’ corporate governance mechanisms as represented by both the board structure and the degree of the board independence. The board structure can be measured by different variables, the percentage of females on board, the average years of experiences of the board members, the degree of board members education and perhaps their nationalities or country of origin. As for the degree of board independence it can be measured as a dummy variable of yes or no with respect to the existence of dual role (i.e. being a manager and a member on the BOD). The control variables that will be used across the sample are bank size (as measured by the log of total assets or the number of employees), bank age (as measured by years in operation) and bank type (local or multinational)The dependent variable of Board characteristics will be obtained throw board ex data base and bank scope database and the financial ratios will be obtained from bank scope date base.The results of this research are indicating the fact that there is a positive and significant link between the members nationality and the boards of directors dimensions and the solv-ability  of  the  analysed  banks  from  the  Romanian  banking  sector.  In  addition  to  that,  there  is a direct link of medium intensity between the level of the total own funds and the boards of directors characteristics, referring to the gender diversity, the members education and the Journal of Business Economics and Management, 2020, 21(5): 1248–12681251dimension of the boards of director, as well as between the level of risk exposure of the banks and the gender diversity, as well as the boards of directors dimension where there is a direct and significant link, but not to that large extent. Going further, the research is structures in this way: a section that is dedicated to the re-viewing of the speciality literature in this domain, a section where it is presented the research methodology that is used, and another part in which the discussions, results of the research are debated and a last section including the conclusions of the authors.

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