The Impact of Corporate Governance on Banking Financial Performance: A Comparative Analysis of the United Arab Emirates (UAE) and the Middle East and North Africa Region (MENA)

Amjed Ahmed, Mohammed (2024) The Impact of Corporate Governance on Banking Financial Performance: A Comparative Analysis of the United Arab Emirates (UAE) and the Middle East and North Africa Region (MENA). PhD thesis, International Journal of Applied Economics, Finance and Accounting.

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Abstract

The examination of corporate governance emerges as a critical discourse in the backdrop of significant global economic crises, such as the OPEC oil price shock in 1973, the Asian crisis in 1997, and the World financial crisis in 2008. The Middle East and North Africa (MENA) region, particularly impacted by various economic challenges, including fluctuating oil prices and global financial crises, witnessed pivotal moments in 1998, 2008, and 2014, according to the World Bank and the Institute of International Finance. Despite these challenges, certain countries in the MENA region, notably the United Arab Emirates (UAE), have demonstrated resilience and sustained economic growth, attributed to effective policies in infrastructure, tourism, logistics, and trade. The UAE, in particular, stands out for its remarkable economic diversity and high growth rates, fostered by a stable political and economic environment. However, the MENA region, including the UAE, faces corporate governance disparities, as not all nations align with the four thematic areas proposed by the Organisation for Economic Cooperation and Development (OECD). While the corporate governance initiative for 2016-2020 aimed at improving transparency and disclosure, achieving gender balance in corporate leadership, and enhancing state-owned enterprises (SOEs), a critical need exists to assess its impact, especially on financial institutions in the UAE and other MENA countries. This study focuses on comparing the performance of banks in the UAE and the broader MENA region, exploring the relationship between corporate governance and bank performance. It seeks to ascertain whether UAE banks employ a more effective corporate governance mechanism than their counterparts in the MENA region and aims to comprehend corporate governance issues in the MENA region. Key areas of investigation include ownership patterns, accountability mechanisms, reporting methods, and the application of corporate governance principles. Employing various theories such as agency theory, stewardship theory, resource dependency theory, and stakeholder theory, this study delves into corporate governance practices, emphasizing critical performance indicators like Tobin's Q (TBQ), Return on Equity (ROE), and Return on Total Assets (ROTA). This study employs a robust research methodology, including a Dynamic Panel Data Model (DPD) with Generalized Method of Moments and regression analysis, spanning both static and dynamic dimensions. The dynamic analysis reveals a significant positive impact of corporate governance on UAE banks' market capitalizations (TBQ), while static analysis in the MENA region indicates an insignificant impact on market capitalizations (TBQ) and leverage (lev). ROE in the MENA region exhibits a consistently positive and significant impact. In conclusion, this study suggests that UAE banks demonstrate a more effective corporate governance mechanism than those in the broader MENA region, contributing to the UAE's attractiveness for investments due to strong government laws and policies promoting economic growth and stability. UAE's openness to foreign investments and initiatives to attract skilled expertise further solidify its position as an investment hub in the MENA region.

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