Efficiency and internal, external governance and control mechanisms of Tunisian banks

Abstract

This paper aims at determining the role of banking governance mechanisms in banking operational efficiency. To this end, we reviewed agency theory literature and its effects on banking efficiency in view of determining conflicts of interests between shareholders and managers. In particular, we aim at determining the role of majority shareholders and that of the Board of Directors. These actors govern under a context of financial liberalization known by increased competition. Accordingly, two main theories are distinguished. While the "Quiet Life" theory stipulates that competition leads to banking efficiency, the "Information-Generation" theory, on the contrary, asserts the opposite trend and argues for an imperfect competition in the market. Our empirical study focused on a sample of 10 Tunisian banks observed during the 1999 to 2016 period. This paper is the first in the Tunisian banking market, which aims to study the particularities of internal and external governance mechanisms of Tunisian banks and more particularly the mechanisms that act on the banking efficiency by introducing the index of IHH and the bank concentration ratio. The results show that Tunisian banks operate under a rather perfect competition reflected in ownership dilution, product homogeneity, capital fluidity and information transparency. This market has reinforced the beneficial role of competition in banking efficiency. As for the role of the internal and external governance mechanisms, all Tunisian banks allocate their resources in the same way, and their capitalization and institutional dimensions support more banking efficiency in terms of their productivity.