Multiple large shareholders and bank stability: the case of MENA banks

Abstract

PurposeThis study aims to investigate how multiple large shareholders individually and interactively influence Middle East and North Africa (MENA) bank stability.Design/methodology/approachThe empirical framework is based on a generalized dynamic two-step system and utilizes the method of moments estimation to analyze a panel dataset of 532 bank-year observations over the 2004–2017 period.FindingsThe estimation results show that large shareholders are crucial in explaining the differences in bank stability among MENA banks. Specifically, the first- and second-largest shareholders exacerbate bank instability. However, we found that the third-largest shareholder enhances bank stability. Additionally, the coalition between the two largest shareholders increases the moral hazard problem in MENA banks and significantly decreases stability. Meanwhile, the interaction between the three largest shareholders is associated with a control contestability problem, which impels better bank stability. The results support the dispersion effect of multiple large shareholders in MENA countries.Originality/valueThe role of large shareholders in corporate governance is widely recognized. However, very little is known about the role and the real impact that multiple large shareholders may have on the banking sector. To the best of the authors' knowledge, this work is the first to analyze the relationship between multiple large shareholders and bank stability in the MENA region.