Board Governance Mechanisms and Liquidity Creation: A Theoretical Framework

Abstract

Objective – The highly concentrated ownership structure, lack of quality information, and weak regulatory environments caused imbalances in the movement of cash flows and thereby put the liquidity levels of Gulf Cooperation Council (GCC) banks on a downward trend. This prompted policymakers in the GCC region to modify their Corporate Governance (C.G.) codes to boost the financial position of the GCC banking industry as liquidity providers and minimize systemic risk. Therefore, the purpose of this study is to conceptually investigate the relationship between board governance attributes and liquidity creation in the GCC banking sector. Methodology – The methodology employed in this study is a review of prior research on bank governance mechanisms and liquidity creation to gather perspective and establish a prediction about the association between board attributes and liquidity creation in the GCC banking industry. Findings – The study concludes that there is a positive correlation between the analyzed board governance features and the creation of liquidity based on several theories gleaned from a review of prior research. Novelty – The study evaluates bank liquidity creation and how board attributes influence it. Type of Paper: Review JEL Classification: M41, M49. Keywords: Liquidity Creation, Corporate Governance, Agency Theory, Board Attributes, GCC. Reference to this paper should be made as follows: Mousa, A.K.A; Hassan, N.L; Pirzada, K. (2022). Board Governance Mechanisms and Liquidity Creation: A Theoretical Framework, J. Fin. Bank. Review, 7(2), 122 – 134. https://doi.org/10.35609/jfbr.2022.7.2(3) _______________________________________________________________________________________