The Relationship between Corporate Governance and Bank's Performance: Evidence from Arabian Countries

This paper will examine the relationship between one of the most important corporate governance mechanisms (board size), and two bank's financial performance measures (return on asset ROA and return on equity ROE). The study employs pooled data, and OLS estimation method to examine empirically the relationship between board size and Arabian bank's performance for 55 banks across seven Arabian countries namely; Jordan, Kuwait, United Arabian Emirates, Saudi Arabia, Lebanon, Egypt and Oman, for the period 2008 - 2012. The results of this study provide an evidence of a positive significant relationship between board size and both proxies of bank's financial performance (ROA and ROE). As per the results of this study, board size is becoming a significant variable in determining the performance of Arabian banks. Therefore, it is better for the shareholders and regulators to give special attention when determining board size since they benefit from having more members in the board. This result suggests that further research should be done regarding other corporate governance mechanisms such as; board composition, chief executive status and foreign ownership. We also recommend extending the study using non financial measures, and it would be very interesting if both financial and non financial performance measures were used.