Foreign institutional ownership and bank performance: Evidence from Tunisia

Abstract

AbstractThis paper aims to investigate the effect of foreign institutional investors on banks' performance for the case of a developing African country. Previous studies on the impact of foreign institutional investors on banks’ corporate governance and performance are inconclusive. The sample includes a unique dataset of Tunisian banks during the period 2005–2020. First, this study uses panel data regressions with fixed or random individual effects. Then it adopts the GMM system technique to account for potential endogeneity problems and the dynamic nature of the panel data. The results support a positive relationship between foreign institutional ownership and banks’ performance as measured by Tobin's Q and Return On Equity. They indicate that banks with more foreign institutional ownership perform better. Foreign institutional investors are considered as good monitors. They facilitate the transfer of technology and the development of new products and services. These findings contribute to the literature by providing empirical evidence on the role of foreign institutional investors in the banking sector for an African emerging economy, where the studies on this matter are scarce. Policymakers and bank managers in emerging economies should attract foreign institutional investors to benefit from their experience and enhance bank performance.