Impact of Corporate Governance on Banks: Evidence from Yemen and GCC Countries

Abstract

There is no specific optimal corporate governance model that may be applied to all banks since banks operate under different management, board of directors, ownership structures, and government regulations. This study examines the impact of internal corporate governance mechanisms such as board structure, ownership structure, and audit function as well as other variables such as bank size and bank age on bank financial performance. The sample of the study consists of both conventional and Islamic banks operating in Yemen and the six Gulf Cooperation Council (GCC) countries, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates. Regression analysis (OLS) is used to test the aforementioned impact. The results of this study show that there is a significant relationship between internal corporate governance and bank financial performance. Board meetings and bank age have positive and significant impacts on ROE. Meanwhile, board independence and bank size have negative and significant impacts on ROA. In addition, bank age and board committees have positive impacts on Profit Margin while ownership concentration has a negative impact on this profitability measure. These results are consistent with previous studies. However, the literature indicate that the above correlation and consequent impact of internal corporate governance mechanisms on bank performance in developing countries are still not clearly established.