Journal of Accounting in Emerging Economies

Effects of board and ownership structure on corporate performance: Evidence from GCC
countries
Houda Arouri, Mohammed Hossain, Mohammad Badrul Muttakin,
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Board and
Effects of board and ownership
ownership structure on structure
corporate performance
Evidence from GCC countries 117
Houda Arouri
Department of Finance & Economics, College of Business and Economics,
Qatar University, Doha, Qatar
Mohammed Hossain
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Department of Accounting, Finance and Economics, Griffith University,

Nathan, Australia, and
Mohammad Badrul Muttakin
School of Accounting, Economics and Finance, Deakin University,
Burwood, Australia

Abstract
Purpose – The purpose of this paper is to examine the effect of ownership structure and board
composition on bank performance as measured by Tobin’s Q and market to book value in Gulf
Co-Operation Council (GCC) countries.
Design/methodology/approach – A dataset of 58-listed banks of GCC countries for the period 2010
is used. The methodology is based on multivariate regression analysis.
Findings – The result shows that the extent of family ownership, foreign ownership and institutional
ownership has a significant positive association with bank performance. However, government
ownership does not have a significant impact on performance. Other governance variables such as
CEO duality and board size appear to have an insignificant impact on performance.
Practical implications – Better corporate governance mechanisms are imperative for every
company and should be encouraged for the interest of the investors and other stakeholders. The study
implies that ownership by corporate governance is more effective for GCC countries. The study also
suggests that unlike in western countries, corporate boards may not be an effective corporate governance
mechanism in GCC countries.
Originality/value – The paper extends the findings of the corporate governance and bank performance
relationship in GCC countries that are neglected in the previous literature.
Keywords Ownership structure, Firm value, GCC, Board composition
Paper type Research paper

1. Introduction
This study investigates the relationship between ownership structure, board
composition and performance of listed banking firms in Gulf Co-Operation Council
(GCC) countries during the period 2010. Due to the separation of ownership and control
in large corporations, there is a problem with aligning the interests of dispersed
shareholders with that of management, leading to the agency problem (see Jensen and
Meckling, 1976). To mitigate the agency problem, the literature offers a number of Journal of Accounting in Emerging
internal and external mechanisms known as corporate governance. The governance Economies
Vol. 4 No. 1, 2014
mechanisms include board composition, debt financing, equity ownership by pp. 117-130
r Emerald Group Publishing Limited
insiders and outsiders and market for corporate control (Haniffa and Hudaib, 2006). 2042-1168
The role of board composition (Baysinger and Butler, 1985; Rechner and Dalton, 1991; DOI 10.1108/JAEE-02-2012-0007
 JAEE Yermack, 1996; Bhagat and Black, 2002) and ownership structure (Morck et al., 1988;
4,1 Choi and Hasan, 2005; Dahlquist and Robertsson, 2001; McConnell and Servaes, 1990)
in monitoring management and improving firm performance has been largely
examined in the empirical corporate governance literature.
Many studies on corporate governance exist. However, only a few papers focus on
banks’ corporate governance (e.g. Adams and Mehran, 2003, 2005; Caprio et al., 2007;
118 Levine, 2004; Andres and Vallelado, 2008; Elyasiani and Jia, 2008; Macey and O’Hara,
2003). These studies analysed the effectiveness of the boards of directors in monitoring
and advising managers in the bank industry. It is expected that banks with boards that
are more effective in monitoring and advisory terms are better governed, and that
better governance creates shareholder value. The governance of banking firms may
be different from that of unregulated, non-financial firms for several reasons. One is
that the number of parties with a stake in an institution’s activity complicates the
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governance of financial institutions. In addition to investors, depositors and regulators

also have a direct interest in bank performance. On a more aggregate level, regulators
are concerned with the effect of governance on the performance of financial institutions
because the health of the overall economy depends upon their performance. As a result,
the board of directors and ownership structure of a banking firm is crucial to the
firm’s governance structure. Therefore, this study examines the relationship between
the board composition, ownership structure and performance of listed banking firms
in GCC countries.
During early 1980s, the boom in oil markets allowed countries such as Bahrain,
Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) to form
the Arab GCC, and to build up substantial financial wealth. The combined asset value
of the top 50 GCC banks was around US$506.4 billion in 2005 (Mostafa, 2007).
The increase in income per capita and savings capacity in GCC countries have resulted
in the development of a modern banking sector that has grown remarkably over time
(Mostafa, 2007). As noted by Omran (2007), the GCC countries are characterised by
growing privatisation, banking regulation, market-oriented financial institutions and
privately owned banks of different organisational structure. For example, within the
GCC, countries that have been most successful in privatising their banking institutions
have also been involved in opening up their markets to foreign participants. Foreign
investors’ joint ventures in the domestic banking system are mostly from the GCC and
non-GCC investors. The shareholdings patterns of the GCC banks are often dominated
by influential ruling or merchant families or governments. For example, a 65 per cent
stake of the Gulf Bank in Kuwait is controlled by the Al Ghanim family[1], 29 per cent
of the shareholders of Abu Dhabi Islamic Banks are the members of Al Nahyan royal
family and 35 per cent of shareholdings of the Bank of Sharjah is held by the ruling
family (GCC Banking Sector, 2005). This fact can be considered a major problem for the
introduction of corporate governance principles because managers do not have the
autonomy, flexibility or objectivity for monitoring all the processes inside the company
or the ability to follow its objectives. The economies of GCC countries’ are characterised
by ownership concentration (particularly family-oriented firms), poor investor protection
and poor legal system. It is therefore an academic issue as to whether board
composition and bank ownership structure and its impact on performance of the
banking companies in the GCC is the same as in other areas of the world, but in fact,
very few research studies have been conducted in this area. Most of the existing studies
on the ownership-performance relationship have concentrated on developed countries,
or focused on a single market, mainly the USA (Lang and So, 2002). In addition, in 2008,
 the corporate governance survey of GCC countries by the Institute of International Board and
Finance and Hawkamah, the Institute of Corporate Governance, found that corporate ownership
governance practices across the GCC countries are lagging behind international
standards[2]. This survey found that not a single publicly listed company in the region structure
followed best practice of corporate governance, and only 3 per cent of surveyed
firms followed good practice. Most firms mentioned that they did not have better
practices because it was not required. Earlier, in 2009, the Qatar Financial Markets 119
Authority brought in a corporate governance code for all listed companies, based on the
“comply-or-explain” basis. Recently, UAE and Saudi Arabia issued a draft code for
corporate governance for publicly listed companies (Al-Rashed, 2010).
The purpose of this study is to undertake an empirical analysis of ownership
structure and its relationship to the performance of the banking companies in the GCC
contexts. We find that family ownership, foreign ownership and institutional ownership
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have a significant positive association with bank performance in both measures of

performance Tobin’s Q and market to book value (MTB). However, government
ownership does not have any significant effect on performance. Other governance
variables such as CEO duality and board size appear to have an insignificant impact on
performance. This paper offers new insights into corporate governance practices in the
GCC countries and underlines the need for reform in this area.
We contribute to the literature by examining the impact of ownership structure and
board composition on bank performance in GCC countries with a recent dataset from 2010.
Our findings offer new evidence on the ownership-performance relationship, in particular
with reference to GCC banks. The findings of this study may be useful to make a
comparison with banks of other countries. Moreover, the outcome of the paper is helpful in
supporting claims for the adoption of an appropriate balance of legislation and regulatory
reform to make improvements in the corporate governance practice of the GCC banks.
The remainder of the paper is structured as follows. Section 2 reviews related
literature and develops the hypotheses. Section 3 describes the research methodology.
Section 4 presents the empirical results and, finally, section 5 concludes the paper.

2. Literature review and hypotheses

2.1 Family ownership and bank performance
Previous research indicates that family ownership has a significant positive impact on
performance (Maury, 2006; Villalonga and Amit, 2006; Anderson and Reeb, 2003). Family
relationships improve monitoring, which in turn results in better firm performance.
Moreover, founding family managers may have a longer time horizon than non-family
managers and they have the potential to reduce the moral hazards of combining
ownership and control (Anderson and Reeb, 2003). Previous studies also suggest that
family ownership can be detrimental to firm performance (Cronqvist and Nilsson, 2003;
Oreland, 2007) as well. The family shareholders with substantial cash flow rights may
have opportunities to take action that benefits their family members at the expense of
firm performance. Since prior literature finds mixed results in regards to the relationship
between family ownership and firm performance, we propose the following hypothesis:

H1. Family ownership has a significant impact on bank performance.

2.2 Foreign ownership and bank performance

The effect of foreign ownership on firm performance has been an issue of interest
in most previous research, but the results are mixed. For instance, Drakos (2002),
 JAEE Jemric and Vujcic (2002) and Choi and Hasan (2005) all conclude that the level of foreign
4,1 ownership may improve the overall performance of the banking system. Additionally,
Hasan and Marton (2003) find that bank efficiency is more positively related to foreign
ownership than it is to state ownership. They argue that foreign investors provide
outside monitoring of managers and bring technological advances. Further, Fries and
Taci (2005) find that privatised banks with majority foreign (domestic) ownership are
120 most (least) efficient. Bonin et al. (2005) find that foreign-owned banks are significantly
more cost efficient than are domestic banks. The main reasons that have been put
forward to explain the association between high performance and foreign ownership
are, first, foreign owners are more likely to have the ability to monitor managers, and
provide them with performance-based incentives, such that they are more serious,
provide investors with the right information, and avoid the entrenchment of any
passive behaviour that destabilises the value creation of the firm. Second, the
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technology provided by foreign investors helps managers to enhance their efficiency

by reducing operating expenses and generating savings for the firm. However, Nikiel
and Opiela (2002) observe that foreign banks are less profit efficient than domestic
banks, and Lensink et al. (2008) find that an increase in foreign ownership is negatively
linked to banking efficiency. Therefore, we propose the following hypothesis:

H2. Foreign ownership has a significant positive effect on bank performance.

2.3 Institutional ownership and bank performance

Several studies have focused on the impact of institutional ownership on firm
performance. The empirical results present mixed findings (McConnell and Servaes,
1990; Lakonishok et al., 1992). McConnell and Servaes (1990) find the proportion of
institutional ownership is positively related to a firm’s Tobin’s Q. Smith (1996) and
Cornett et al. (2007) find a positive relation between institutional ownership and firm
performance. The study of Elyasiani and Jia (2008) reveals that institutional ownership
has a significant positive impact on bank performance. Institutional investors are often
regarded as active monitors who strive to maximise the value of their equity investments
in firms (Chen et al., 2007). The main reason offered to explain the phenomenon of high
performance associated with institutional ownership is the expectation that institutional
ownership would reduce the principal-agent problem between managers and
shareholders, which would in turn lower the incentives and opportunities for managers
to control earnings while raising the effectiveness of the performance.
Conversely, a group of prior studies argues that institutional investors’ goal of
maintaining the liquidity of their holdings and their desire for short-term profit outweighs
the benefits of monitoring management in the hope of obtaining higher long-term
performance (Bhide, 1994; Maug, 1998). Agrawal and Knoeber (1996), Karpoff et al. (1996)
and Faccio and Lasfer (2000) find an insignificant relationship between institutional
ownership and performance. Therefore, the effect of the institutional ownership on the
bank performance is an empirical question. Thus:

H3. Institutional ownership has a significant positive impact on bank performance.

2.4 Government ownership and bank performance

The academic literature has only recently started to shed the light on the outcomes
of the government-owned banks, and the results of studies conducted in this field
suggest a negative effect of government ownership on the bank value. For example,
 Arun and Turner (2004) argue that in state-owned banks, the principal (public) has no Board and
power to control the agents, and therefore, the value of the bank decreases. Moreover, ownership
they argue that (2004) argues that in terms of regulators exerting governance, the
government is virtually removed as an effective monitor in the case of government- structure
owned banks. If the government acts as both the owner and regulator, there will be a
conflict of interest in its two roles. More recently, Megginson (2005, p. 1941) concludes
that “state ownership of commercial banks yields few benefits, yet is associated with 121
many negative economic outcomes”. Micco et al. (2007) examine the relationship
between bank ownership and performance using a large sample of commercial banks
in 179 countries during the period 1995-2002. They find that state-owned banks
operating in developing countries tend to have lower profitability, lower margins and
higher overhead costs than their privately owned counterparts. Xu and Wang (1999)
and Tian and Estrin (2005) find that government ownership reduces corporate value
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due to political interference. In contrast, prior studies find a positive relationship

between government ownership and performance (Sun et al., 2002; Ang and Ding,
2006). They argue that government ownership sends a positive signal to the market
by being effectively involved in monitoring the management. Therefore, the impact
of government ownership on bank value is an empirical issue and we propose the
following hypothesis:

H4. Government ownership has a significant negative effect on bank performance.

2.5 Board size and bank performance

Prior research has found significant links between board size and firm performance.
Earlier studies such as those of Lipton and Lorsch (1992) and Jensen (1993) recommend
limiting the number of directors on a board to seven or eight, as numbers beyond that
would be difficult for the CEO to control. Where boards consist of too many members,
agency problems may increase since some directors may tag along as free riders.
Hermalin and Weisbach (2003) argue that larger boards can be less effective than small
boards. In contrast, more recent studies have revealed a positive relationship between
board size and performance (measured by Tobin’s Q) in the US banking industry
(Adams and Mehran, 2005; Dalton and Dalton, 2005). It is argued that larger boards
may enhance performance because they have valuable business experience, expertise,
skill and social and professional networks that might add substantial resources
(Setia-Atmaja et al., 2009). Therefore, it is true that the size of the board is an important
factor in dealing with corporate decisions and performance. Within this framework, we
can hypothesise that:

H5. Board size has a significant impact on bank performance.

2.6 CEO duality and bank performance

Early studies beginning with Fama and Jensen (1983) argue that the concentration of
decision management and decision control in one individual reduces a board’s
effectiveness in monitoring top management. Likewise, Kang and Zardkoohi (2005)
argue that CEO duality reduces firm performance due to CEO entrenchment and a
decline in board independence. In addition, CEO duality provides the CEO with the
power to negotiate with the board, which may help the CEO to pursue self-serving
interests. Yermack (1996) finds that firms are more valuable when the CEO and board
chair positions are separate. Sanda et al. (2003) find a positive relationship between
 JAEE firm performance and separating the functions of the CEO and chairperson, therefore
4,1 advocating separation of the leadership roles as a means of raising the independence
of the board, eliminating a very real source of conflict and increasing performance.
However, prior research also concludes that CEO duality has no impact on bank
performance (Adnan et al., 2011; Cooper, 2009; Griffith et al., 2002). Griffith et al. (2002)
argued that CEO duality has no significant impact on bank performance because
122 the additional responsibilities do not significantly add to the CEO’s capacity to
affect performance. They further argued that, “in commercial banks, management
entrenchment may offset the effects predicted by Jensen and Meckling’s (1976)
convergence-of-interest hypothesis” (Griffith et al., 2002, p. 171). Therefore, both
convergence of interest and entrenchment influence performance, but the marginal
impact of these factors differs with the level of CEO ownership (Cooper, 2009). Based on
the above discussion, we propose the following hypothesis:
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H6. Role duality has a negative effect on bank performance.

3. Methodology
3.1 Sample
The sample for this study consists of all banks of the GCC countries excluding Kuwait
(because of data restrictions). The data for 2010 have been used and collected from
respective stock exchanges. We limit our sample to listed banking firms because
firm-level data on the ownership structure of all firms cannot be collected from the
present position. Data on both corporate performance and ownership structure is
collected from annual reports or publications by the respective stock exchanges. Our
final sample comprises 58 banks from GCC countries.

3.2 Model specification

The following is the general form of the OLS regression model which has been fitted to
the data in order to assess the effect of each variable on the firm performance and to
test the associated hypotheses:

PERFORMANCE ¼ aþb1 FAMOWN þb2 FOROWN

þb3 INSTOWN þb4 GOVTOWN
þb5 BSIZEþb6 CEODU þb7 FSIZE
þb8 GROWTH þb9 LEV þe
The dependent variable measuring firm performance is Tobin’s Q. Tobin’s Q is defined
as the market value of equity plus the book value of total debt divided by the book
value of total assets (Setia-Atmaja et al., 2009). Tobin’s Q is popularly adopted as a
measure of firm performance because it reflects the market’s expectations of future
earnings. The market to book ratio (MTB) is measured as the market value of equity
divided by the book value of equity.
In relation to the independent variables, we define family ownership (FAMOWN) as
percentage of total shares hold by family members. Institutional ownership (INSTOWN) is
denoted as institutional shareholdings as a percentage of the total outstanding shares
(McConnell and Servaes, 1990) and foreign ownership (FOROWN) is measured as foreign
shareholdings as a percentage of the total outstanding shares (Choi and Hasan, 2005).
Government ownership (GOVTOWN) is defined as government shareholdings as a
 percentage of the total outstanding shares. Board size is defined as the number of directors Board and
on the board (denoted as BSIZE) (Setia-Atmaja et al., 2009). CEO duality (CEODU) refers to ownership
the situation where the same person serves the role of the CEO of the firm as well as the
chairman of the board. This study uses the CEO duality variable as a dummy, which is structure
equal to 1 if the CEO and chairman are the same person and 0 otherwise (Boyd, 1995).
We control bank size, growth and leverage which may affect firm performance. Bank
size (FSIZE): larger firms may have fewer growth opportunities (Morck et al., 1988) and 123
more co-ordination problems (Williamson, 1967) which may negatively influence their
performance. Bank size is measured as a natural logarithm of total assets (Yermack,
1996). Growth: faster growth is more likely to be positively correlated with performance.
The growth of a firm is measured by taking the firm’s assets growth ratio. Leverage
(LEV): the leverage of a firm could lead to external corporate control (Chen and Jaggi,
2000). Debt holder would actively monitor the firm’s capital structure to protect their own
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interest (Hutchinson and Gul, 2004). Therefore leverage influences firm performance
through monitoring activities by debt holders. On the other hand, a negative relationship
could be expected between leverage and performance according to the pecking order
theory, whereby a firm prefers to fund operations through retained earning rather than
debt and equity (Myers, 1984). Leverage is measured by taking the ratio of book value of
total debt to book value of total assets (Anderson and Reeb, 2003).

4. Findings and analyses

4.1 Descriptive statistics
Table I show that the number of directors average around nine, and that an average of
19 per cent of banks have CEO duality. With regard to ownership structure of the

Variables Mean SD Min Max n

Tobin’s Q 1.20 0.90 0.10 7.17 58.00

MTB 2.05 2.95 0.00 19.23 58.00
BSIZE 8.88 2.07 5.00 14.00 58.00
CEODU 0.19 0.40 0.00 1.00 58.00
FAMOWN 0.46 0.23 0.00 0.81 58.00
FOROWN 0.17 0.25 0.00 0.95 58.00
INSTOWN 0.29 0.19 0.00 0.92 58.00
GOVTOWN 0.11 0.12 0.00 0.45 58.00
FSIZE 16.44 2.30 10.24 21.01 58.00
GROWTH 0.21 1.32 0.38 10.01 58.00
LEV 0.81 0.16 0.09 1.23 58.00
Notes: The following table provides summary statistics for the data analysed. The data consists of
58 banks for the year 2010. Tobin’s Q is the market value of equity plus the book value of total debt
divided by book value of total assets. The market to book ratio (MTB) is measured as market value of
equity divided by the book value of equity. Family ownership (FAMOWN) percentage of total shares
hold by family members. Institutional ownership (INSTOWN) is defined as institutional shareholdings
as a percentage of the total outstanding shares and foreign ownership (FOROWN) is measured as foreign
shareholdings as a percentage of the total outstanding shares. Government ownership (GOVTOWN)
is defined as government shareholdings as a percentage of the total outstanding shares. Board size is
defined as the number of directors on the board. CEO duality (CEODU) is a dummy variable equal to one
when the chairperson is the CEO and zero otherwise. Bank size (FSIZE) is the natural log of book value
of assets. Growth (GROWTH) of a firm is measured by taking the firm’s assets growth ratio. Leverage Table I.
(LEV) is calculated as the ratio of book value of total debt to book value of total assets Summary statistics
 JAEE sample banks, average family ownership is 46 per cent, foreign investors hold around
4,1 17 per cent of shares and institutions hold 29 per cent of shares, respectively. The state
holds an average of 11 per cent.
Therefore, it is observed that the banks in the sample are characterised by a highly
concentrated level of family ownership and are dominated by a strong presence
of institutional investors with the participation of foreign investors and the state.
124 The average firm value (Tobin’s Q and MTB) is 1.20 and 2.05, respectively. The average
firm size is 16.44 (natural logarithm of total assets) and the leverage is 0.81.

4.2 Correlation matrix and multicollinearity analysis

Multicollinearity in explanatory variables has been diagnosed through analyses
of correlation factors and variable inflation factors (VIF), consistent with Weisberg
(1985). Table II presents the correlation matrix of the dependent and continuous
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variables, from which it has been observed that the highest simple correlation between
independent variables was 0.46 between bank size and performance (Tobin’s Q).
Bryman and Cramer (1997) suggest that the simple correlation between independent
variables should not exceed 0.8 or 0.9. A VIF in excess of 10 should be considered
an indication of harmful multicollinearity (Neter et al., 1989). Alternatively, if the
average VIF is substantially greater than 10, the regression be biased (Bowerman and
O’Connell, 1990). The average VIF (1.51) is close to 2 and this suggests that
multicollinearity between the independent variables does not pose a serious problem in
the interpretation of the results of the multivariate analysis.

4.3 Discussion of regression results

The focus of our analysis is to examine the effect of corporate governance on
GCC banks’ performance. The results are presented in Table III. We use two market
measures of performance: Tobin’s Q and MTB. In model 1, we find that family
ownership has a positive and significant effect on banks performance (i.e. b ¼ 0.0916,
t ¼ 1.844, po0.1). This is consistent with the findings of Anderson and Reeb (2003),
who suggest that family ownership improves monitoring, which leads to better firm
performance. We also note that the foreign ownership (FOROWN) has a significant
positive impact on bank performance measured by Tobin’s Q (i.e. b ¼ 1.180, t ¼ 2.080,
po0.05). This finding lends support to H2. This indicates that foreign ownership in
firms facilitates stronger outside monitoring of managers and helps to reduce agency
costs, thereby increasing the firm value. This result is consistent with the previous
studies that recognise that when a firm is exposed to international investment, the
governance of the firm improves and expropriation will reduce (Bekaert et al.,
2005; Mitton, 2006).
Another finding is that institutional ownership has a positive and significant
effect on firm value (i.e. b ¼ 1.066, t ¼ 1.709, po0.1). This finding supports our third
hypothesis. This result suggests that institutional investors have great experience and
financial resources that assist monitoring firm governance. Further, they can reduce
conflict of interests and, therefore, contribute to firm performance and improve firm
value (Chen et al., 2007; Cornett et al., 2007). However, state ownership (GOVTOWN)
does not appear to improve firm value in GCC banks due to lack of proper incentives to
positively influence the bank’s management. Other corporate governance variables,
such as board size (BSIZE) and CEO duality (CEODU), have an insignificant effect
on bank value. We obtain similar findings in model 2 when we employ MTB as
a performance measurement.
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Variables MTB Tobin’s Q BSIZE CEODU FAMOWN FOROWN INSTOWN GOVTOWN FSIZE LEV GROWTH

MTB 1.000
Tobin’s Q 0.075 1.000
BSIZE 0.112 0.043 1.000
CEODU 0.018 0.042 0.233** 1.000
FAMOWN 0.197** 0.068** 0.001 0.009 1.000
FOROWN 0.227** 0.073** 0.004 0.006 0.002 1.000
INSTOWN 0.172** 0.050** 0.002 0.013 0.011** 0.011** 1.000
GOVTOWN 0.065 0.009 0.002 0.004 0.004 0.004 0.003 1.000
FSIZE 0.457 0.907 0.146** 0.070 0.083 0.083 0.055 0.068** 1.000
LEV 0.028 0.000 0.002 0.011 0.004 0.004 0.008* 0.004 0.010 1.000
GROWTH 0.311 0.212 0.015 0.030 0.050 0.050 0.039 0.024 0.646* 0.130 1.000
Notes: The following table provides a correlation matrix. Tobin’s Q is the market value of equity plus the book value of total debt divided by the book value of
total assets. The market to book ratio (MTB) is measured as market value of equity divided by the book value of equity. Family ownership (FAMOWN)
percentage of total shares hold by family members. Institutional ownership (INSTOWN) is defined as institutional shareholdings as a percentage of the total
outstanding shares and foreign ownership (FOROWN) is measured as foreign shareholdings as a percentage of the total outstanding shares. Government
ownership (GOVTOWN) is defined as government shareholdings as a percentage of the total outstanding shares. Board size is defined as the number of
directors on the board. CEO duality (CEODU) is a dummy variable equal to one when the chairperson is the CEO and zero otherwise. Bank size (FSIZE) is the
natural log of book value of assets. Growth (GROWTH) of a firm is measured by taking the firm’s assets growth ratio. Leverage (LEV) is calculated as the ratio
of book value of total debt to book value of total assets. *,**Correlation is significant at the 0.05 and 0.01 levels (two-tailed), respectively
ownership

Correlation matrix
Board and

125

Table II.
structure
 JAEE Model 1 Model 2
4,1 Tobin’s Q MTB VIF
Variable Coefficient t-statistic Coefficient t-statistic

C 3.333 2.409** 8.371 1.725*

FOROWN 1.180 2.080** 4.291 2.291** 1.64
126 FAMOWN 0.916 1.844* 3.230 1.854* 1.32
INSTOWN 1.066 1.709* 3.703 1.694* 1.37
GOVTOWN 1.556 1.450 1.120 0.298 1.34
BSIZE 0.596 1.212 1.716 0.995 1.26
CEODU 0.061 0.218 0.050 0.050 1.19
FSIZE 0.095 1.722* 0.140 0.727 1.54
GROWTH 0.034 0.315 0.098 0.261 1.92
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LEV 0.416 0.467 1.567 0.501 2.08

Adjusted R2 0.268 0.155
F-statistic 3.321 2.161
Notes: The following table reports the regression results relating to corporate governance and
performance. The data consists of 58 banks for the year 2010. Tobin’s Q is the market value of equity
plus the book value of total debt divided by the book value of total assets. The market to book ratio
(MTB) is measured as market value of equity divided by the book value of equity. Family ownership
(FAMOWN) percentage of total shares hold by family members. Institutional ownership (INSTOWN)
is defined as institutional shareholdings as a percentage of the total outstanding shares and foreign
ownership (FOROWN) is measured as foreign shareholdings as a percentage of the total outstanding
shares. Government ownership (GOVTOWN) is defined as government shareholdings as a percentage
of the total outstanding shares. Board size is defined as the number of directors on the board. CEO
duality (CEODU) is a dummy variable equal to one when the chairperson is the CEO and zero
Table III. otherwise. Bank size (FSIZE) is the natural log of book value of assets. Growth (GROWTH) of a firm is
Corporate governance and measured by taking the firm’s assets growth ratio. Leverage (LEV) is calculated as the ratio of book
bank performance value of total debt to book value of total assets. ***po0.01; **po0.05; *po0.1

5. Conclusion
This study developed several hypotheses concerning corporate governance and bank
performance using agency theory. Empirical data for the study was derived from 58
banks in GCC countries in 2010. Using both Tobin’s Q and MTB measures of firm
performance, this study finds that family ownership (FAMOWN) has a significant
impact on the bank performance of GCC countries. Given that family wealth is closely
related to the welfare of the family businesses, family members are motivated to
increase their wealth by improving firm performance. Our results also reveal that there
is a positive and significant association between the foreign ownership (FOROWN)
and bank value measured by Tobin’s Q and MTB. This implies that foreign ownership
facilitates stronger outside monitoring of managers. Further, evidence indicates a
positive and significant impact of institutional investors (INSTOWN) on bank value
for both measures of performance. However, government ownership (GOVTOWN) is
insignificantly associated with bank value due to lack of proper incentives to positively
influence the bank’s management. Board size (BSIZE) has an insignificant impact on
performance. Our result suggests that bank boards in GCC countries do not have
impact on performance. One possible reason could be that boards in GCC countries are
still at an emerging stage. Consistent with Griffith et al. (2002) our findings suggest
that CEO duality does not have any impact on bank performance in the GCC countries.
Perhaps holding both positions (CEO and chairperson) has no significant impact on
performance because the added title and responsibilities do not significantly add to his
 or her ability to affect performance. Further, CEO’s ownership could be an important Board and
driver of performance, not his or her title. Therefore, future research may investigate ownership
the impact of CEO ownership on bank performance in the GCC countries.
We provide evidence that ownership structure in GCC countries has a positive impact structure
on bank performance. This implies that ownership structures such as family ownership,
foreign ownership and institutional ownership provide a better monitoring role to the GCC
banks. Our insignificant results for board variables also implies that bank boards in GCC 127
countries may not be an effective mechanism to ensure better corporate governance. One
limitation of this study is that we could not consider other corporate governance variables
such as board independence due to the unavailability of data in the annual reports.
Notes
1. Kuwaiti families own the major Kuwaiti banks (GCC Banking Sector, 2005).
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2. For more detail information see http://www.ameinfo.com/96664.html

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Limam, I. (1998), “A comparative study of GCC banks technical efficiency”, working paper,
Economic Research Forum, Cairo.

Corresponding author
Dr Mohammed Hossain can be contacted at: mohammed.hossain@griffith.edu.au

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