The Influence of Board Ownership on Bank Performance: Evidence from Saudi Arabia
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Omer Saeed HABTOOR / Journal of Asian Finance, Economics and Business Vol 8 No 3 (2021) 1101–1111 1101
Print ISSN: 2288-4637 / Online ISSN 2288-4645
doi:10.13106/jafeb.2021.vol8.no3.1101
The Influence of Board Ownership on Bank Performance:
Evidence from Saudi Arabia
Omer Saeed HABTOOR1
Received: November 30, 2020 Revised: February 01, 2021 Accepted: February 16, 2021
Abstract
The current study aims to investigate the influence of different categories of ownership held by different types of board members on bank
performance. The study uses a sample of Saudi listed banks for the period from 2011 to 2018. The results of the panel data analysis using
firm fixed-effects regression model indicate that bank performance is significantly and positively affected by the chairman ownership
and the CEO ownership. However, board independent members’ ownership has a negative influence on bank performance. While
non-executive board members’ ownership and family board members have an insignificant impact on bank performance. Control variables,
including board size, non-executive board members, government ownership, leverage, and bank size are significantly associated with bank
performance. Overall, the results indicate that Saudi bank performance is higher in smaller banks that have smaller boards with lower
non-executive members, lower portion of shares held by independent board members, higher portion of shares held by the chairman,
CEO, and government, and higher leverage. The results of this study provide important implications for regulatory authorities and market
participants in Saudi Arabia and countries with ownership concentration to understand the actual role of different categories of board
ownership on firm performance in addition to optimize board ownership.
Keywords: Board Ownership, Chairman Ownership, CEO Ownership, Bank Performance, Saudi Arabia
JEL Classification Code: G32, G21, L25
1. Introduction suggested, such as board composition, inside ownership or
board ownership and outside ownership as means to control
The association between ownership structure and firm agency conflicts and mitigate agency costs.
performance has become an issue of interest and attracted a Accounting theories, including agency theory and
considerable attention among academics, regulatory bodies, entrenchment theory highlight the critical role of inside
and market participants. Agency theory suggests that the type ownership or board members’ ownership such as executive,
of the company owners and the size of their ownership could non-executive, and independent board members’ ownership,
significantly affect agency conflicts, and thus, firm performance. chairman ownership, CEO ownership, and family board
Haniffa and Hudaib (2006) argue that there are various members’ ownership. These theories suggest that such types
internal and external governance mechanisms have been of board ownership can act as a double-edged sword in terms
of their influence on agency costs and firm performance.
Board members’ ownership could reduce agency
conflicts as a result of the alignment of interests between
First Author and Corresponding Author. [1] Assistant Professor,
1
board members and owners. However, higher levels of board
Department of Administrative Sciences, Community College,
Northern Border University, Saudi Arabia [2] Department of ownership could create a state of entrenchment, and thus,
Accounting, Faculty of Administrative Sciences, Aden University, exacerbate agency conflicts by encouraging controlling
Yemen [Postal Address: Community College Rafha, Al Qadisiyah shareholders to act opportunistically to expropriate wealth
Street, Rafha, 76321, Northern Borders Region, Saudi Arabia]
Email: omer.habtoor@nbu.edu.sa; omerhabtoor@hotmail.com
from other shareholders (Morck et al., 1988; Shleifer &
Vishny, 1997).
© Copyright: The Author(s)
This is an Open Access article distributed under the terms of the Creative Commons Attribution Despite the extensive research on the relationship
Non-Commercial License (https://creativecommons.org/licenses/by-nc/4.0/) which permits
unrestricted non-commercial use, distribution, and reproduction in any medium, provided the
between ownership structure and firm performance, most
original work is properly cited. efforts focused on the impact of outside ownership such as1102 Omer Saeed HABTOOR / Journal of Asian Finance, Economics and Business Vol 8 No 3 (2021) 1101–1111
government, institutional, and foreign ownership on firm attempts to narrow the gap in literature on the influence of
performance (e.g., Ehrhardt et al., 2006; Hu & Izumida, board ownership on firm performance by investigating the
2008; Kao et al., 2019), and less attention has been paid potential role of different types of ownership held by board
to the potential role of inside ownership, in general, and members on Saudi bank performance. Second, this study
board ownership, in specific, such as the chairman, CEO, extent the existing literature by the focus on an emerging and
independent, non-executive, and executive board members’ developing country with different social, economic, legal,
ownership on bank performance. Moreover, most research and institutional contexts from developed countries. Third,
on the influence of board ownership on firm performance the results of this study provide a comprehensive view of
is mostly conducted in developed countries and the the role of different types of board ownership on Saudi bank
evidence is even inconclusive (e.g., Bhagat & Bolton, performance, which have not been previously documented.
2013; Krivogorsky, 2006; Merendino, & Melville, 2019; Finally, the results of the current study have important
Shan, 2019). Furthermore, little research has been directed implications for policy makers, regulatory authorities, and
at emerging markets such as the Gulf Cooperation Council market participants in Saudi Arabia and countries with high
(GCC), in general, and Saudi Arabia, in particular. concentrated ownership to understand the potential role of
In addition, prior work on the relationship between different types of board ownership on firm performance, and
board ownership and firm performance has either addressed to optimize board ownership and improve firm performance.
a specific type of board ownership or use a single scale of The remainder of this study is structured as follows.
different types of ownership related to board members and Section 2 presents the literature review and hypotheses
executive managers (e.g., Al Farooque et al., 2020; Amran development. Section 3 explains the research methodology.
et al., 2008; Berke-Berga et al., 2017; Bhagat & Bolton, Section 4 discusses the main results of the study. Conclusions,
2013; Krivogorsky, 2006; Shan, 2019; Tleubayev et al., limitations, and future research are presented in Section 5.
2020) instead of using an accurate measure representing each
type of board members’ ownership Therefore, the current 2. Literature Review and
study aims to narrow the gap in literature by investigating Hypothesis Development
the potential impact of different types of ownership related
to board members, including independent board members’ Accounting theories suggest that ownership structure
ownership, non-executive board members’ ownership, have strong and mixed effects on agency conflicts, and thus,
chairman ownership, CEO ownership, and family board firm performance. While prior empirical studies focused
members on Saudi bank performance. on the role of outside ownership on firm performance, less
The focus on board ownership in Saudi listed banks attention has been given to inside ownership and board
is motivated by the following reasons. First, this study is ownership such as independent board members’ ownership,
motivated by the call of Almoneef and Samontaray (2019), non-executive board members’ ownership, chairman
Habtoor (2020), Habtoor (2021), and Leung et al. (2014) for ownership, CEO ownership, board and family board
further research on the potential role of different mechanisms members’ ownership.
of corporate governance and ownership structure on
bank performance in Saudi Arabia and GCC countries. 2.1. Independent and Non-executive Directors’
Second, accounting theories, including agency theory and Ownership and Firm Performance
entrenchment theory highlight the critical effect of board
members’ ownership as a double-edged sword in terms of Agency theory indicates that the main purpose of the
their influence on agency costs and firm performance. Third, creation of the board of directors is to mitigate agency
Saudi firm ownership is highly concentrated (Habtoor, 2020; conflicts between firm owners and managers. Therefore,
Habtoor et al., 2019b) with different types of inside and monitoring and directing executive management behavior to
outside controlling shareholders who have potential mixed act in line with shareholders’ interests is the key function
effects on agency costs and firm performance (Habtoor et al., of the independent and non-executive board members.
2019a). Fourth, ownership structure and board ownership, in According to Jensen (1993), firm shares owned by
specific, and its impact on governance and performance is independent and non-executive directors would align their
important in banking industry due to the unique role plied by interests to other shareholders, which encourage them to
banks in the overall economy and in its credit provision and monitor and supervise the firm’s activities to enhance firm
liquidity functions (Abraham, 2013). value (Bhagat & Bolton, 2013; Farrer & Ramsay, 1998).
The current study contributes to the literature on the However, entrenchment theory suggests that when
impact of ownership structure, in general, and board independent and non-executive directors’ ownership exceeds
ownership, in particular, on firm performance and provides a certain threshold, they may become more entrenched and
important practical implications as follows. First, this study less fearful of disciplinary actions, and thus, they tend to serveOmer Saeed HABTOOR / Journal of Asian Finance, Economics and Business Vol 8 No 3 (2021) 1101–1111 1103
their self-interests at the expense of minority shareholders In contrast, Abor and Biekpe (2007) and Waheed and Malik
(Morck et al., 1988). (2019) document a positive impact of CEO duality on firm
Empirical evidence on the impact of independent and performance. However, Al-Matari et al. (2012), Arora and
non-executive directors’ ownership on firm performance is Sharma (2016), and Merendino and Melville (2019) find
inconclusive and still rather controversial (e.g., Al Farooque an insignificant relationship between CEO duality and firm
et al., 2020; Berke-Berga et al., 2017; Bhagat & Bolton, performance.
2013; Krivogorsky, 2006; Shan, 2019; Tleubayev et al., One possible reason of such inconclusive results is
2020). A possible reason of contradicting results is that most the potential role of ownership held by firm leadership,
of previous studies use a single measurement of most types of including the chairman ownership and CEO ownership,
ownership related to board members and executive managers which may directly influence firm performance and/or
instead of using of an accurate measurement representing indirectly through affecting the direction and significant of
each type of board members’ ownership. For instance, the relationship between leadership and firm performance.
Al Farooque et al. (2007), Berke-Berga et al. (2017), Bhagat Prior research on the association between leadership and firm
and Bolton (2013), Amran et al. (2008), Krivogorsky (2006), performance largely ignored the potential role of ownership
and Tleubayev et al. (2020) investigate the relationship related to leadership on firm performance.
between firm performance and board ownership as measured From agency theory perspective, acquiring bank shares
by the percentage of shares owned by all board members by the bank leaders (i.e., chairman and CEO) would align
(executive, independent, and non-executive directors). their interests with other shareholders and enhance actions
Moreover, Al Farooque et al. (2020), Demsetz and Villalonga and decisions that protect shareholders’ rights and maximize
(2001), Krivogorsky (2006), Morck et al. (1988), and Shan bank value.
(2019) examine the impact of managerial ownership However, the entrenchment theory suggests that when
(measured by the percentage of shares owned by executives the bank leaders (i.e., chairman and CEO) owns a significant
and CEO) on firm performance. The results are mixed where portion of bank shares, they become more entrenched and
some studies reveal a positive impact on firm performance less fearful of replacement and other disciplinary actions
while others report a negative influence or an insignificant with greater power to act in their interests apart from the
effect on firm performance. rights of shareholders, which in turn negatively affects
In Saudi Arabia, A large portion of Saudi companies’ bank performance. It is worth noting that the inclusion of
shares are owned by a variety of groups of board members, the ownership held by the CEO among board ownership
including independent and non-executive directors’ ownership, categories is based on the results of descriptive statistics,
which are expected to have different and mixed effects which reveal that more than one-half (57%) of the CEOs
on bank performance. Therefore, it can be hypothesized in Saudi banks are board members. Accordingly, this study
(without specific direction) that. proposes a significant effect (without specific direction)
of bank leaders (i.e., chairman and CEO) on Saudi
H1: There is a significant relationship between bank performance.
independent directors’ ownership and bank performance.
H2: There is a significant relationship between non- H3: There is a significant relationship between the
executive directors’ ownership and bank performance. chairman ownership and bank performance.
H4: There is a significant relationship between the CEO
2.2. Ownership of Leadership ownership and bank performance.
and Firm Performance
2.3. Family Board Members
Corporate governance literature indicates that firm’s and Firm Performance
leadership structure is critical in monitoring management
and enhancing firm performance and success. The separation The hypothesis of the convergence of interest proposed
of the positions of the chairman of the board and CEO is by agency theory suggests that ownership held by controlling
a good governance practice in many corporate governance shareholders such as families’ members would alleviate
codes (Krivogorsky, 2006). On the other hand, Jensen and agency conflicts between majority and minority ownership
Meckling (1976) and Mallette (1992) argue that CEO duality as a result of the alignment of interest of family owners with
can challenge the board’s ability to monitor management. other shareholders.
Empirical evidence on the role of leadership on firm However, the entrenchment theory argues that higher
performance reveals mixed and inconclusive results. For levels of family ownership could lead to entrenchment,
example, Al Farooque et al. (2020) and Kao et al. (2019) which creates incentives for family controlling shareholders
find a negative impact of CEO duality on firm performance. to expropriate wealth from other shareholders and extract1104 Omer Saeed HABTOOR / Journal of Asian Finance, Economics and Business Vol 8 No 3 (2021) 1101–1111
private benefits from the company at the cost of minority dependent variables, independent variables, and control
shareholders (Morck et al., 1988; Shleifer & Vishny, 1997). variables, with full definitions as reported in Table 1.
The business environment and corporate governance is
strongly affected by the social and institutional environment
contexts within a country (Adams et al., 2010; Aguilera & Table 1: Definition and Measurement of Variables
Jackson, 2010; Alamri, 2014; Wanyama et al., 2009). Saudi
society depends on a strong structure of tribal and family Abbreviated Description /
Full Name
system which plays a significant role in Saudi business and Name Measurement
governance. Dependent variable (firm performance)
Most of previous studies aimed to investigate the
ROA Return on Net income divided by
impact of family ownership on firm performance used the assets book value of total assets
percentage of shares held by families as a measurement
of family ownership (e.g., Al-saidi, 2013; Bennouri et al., ROE Return on Net income divided by
2018; Habbash & Bajaher, 2015; Kao et al., 2019; La Rosa equity book value of total equities
& Bernini, 2018) and ignored the potential role played by Q Tobin’s Q Market value of total
family members sitting on the board on firm performance. shares plus book value
In countries such as Saudi Arabia where families own of debt divided by book
substantial equities, little physical separation exists between value of assets
those who own the firm and those who are delegated to run Independent variables (board ownership)
it. Consequently, and regardless of the volume of firm shares Ind_Own Independent Percentage of bank
they owned, Saudi family members sit on firms’ boards both board shares owned directly
as executive and non-executive directors, and have strong members’ and / or indirectly by
voting power to nominate and elect board and management ownership independent board
members, and even the CEO or the chairman to serve their members
own interests at the expense of other shareholders (Alanezi & Non_Exe_ Non-executive Percentage of bank
Albuloushi, 2011). Therefore, it is worthwhile to investigate Own board shares owned directly
the potential impact of family board members on the Saudi members’ and / or indirectly by
bank performance, and thus, a hypothesis cab be formulated ownership non-executive board
as follows. members
Chairman_ Chairman Percentage of bank shares
H5: There is a significant relationship between family Own ownership owned directly and / or
board members and bank performance. indirectly by the chairman
Ceo_Own Chief Percentage of bank
3. Research Methodology executive shares owned directly
officer’s and / or indirectly by the
3.1. Sample Selection and Data Collection ownership chief executive officer
Fam_Board_ Family board Number of family
To examine the influence of board ownership on bank
Mem members members on the board
performance, this study examines a sample of 12 Saudi banks
listed in the Saudi Stock Exchange (Tadawul) over a period Control variables (board, ownership, and firm
of eight years, from 2011 to 2018. The study excludes non- characteristics)
financial and other financial firms from the sample as they Board_Size Board size Total number of board
are less-regulated and the applied accounting standards differ members
from those of banks. Moreover, eight bank-year observations Non_Exe_ Non-executive Percentage of non-
are also dropped from the sample due to missing data for Mem board executive members on
some independent and control variables. Data on variables members the board
included in the study is collected from the banks’ annual Gov_Own Government Percentage of bank
reports downloaded from Tadawul and banks websites. ownership shares held by
government agencies
3.2. Variables Definition and Model Specification Leverage Leverage Ratio of total debt to total
assets
To test hypotheses of the study, variables involved in
the regression analysis are classified into three categories: Bank_Size Bank size Total bank employeesOmer Saeed HABTOOR / Journal of Asian Finance, Economics and Business Vol 8 No 3 (2021) 1101–1111 1105
Firstly, the dependent variable is bank performance, which
is measured in three different ways. Return on Assets (ROA)
(13)
as an operational performance measure, Return on Equity
1
(ROE) as financial performance measure, and Tobin’s Q (Q)
as a market-based performance measure (refer Table 1).
0.029
(12)
Secondly, to test the impact of main hypotheses (H1-
1
H5) related to board ownership on bank performance, the
independent variables are the independent board members’
–0.274**
0.267*
(11)
ownership, non-executive board members’ ownership,
1
chairman ownership, CEO ownership, and family board
members (refer Table 1).
0.007
0.141
0.164
(10)
Finally, to control for potential omitted variable bias
1
(Gujarati, 2003; Wooldridge, 2010) and to rule out alternative
explanations for the mean results (Singh et al., 1986), this
0.323**
–0.286**
0.331**
0.143
study uses a number of control variables, including board
(9)
characteristics (board size, non-executive board members),
1
ownership structure (government ownership), and firm-
0.557**
**
0.599**
0.385
–0.195
0.091
specific characteristics (leverage, bank size,) (refer Table 1).
(8)
It is worth noting that there is an extensive body of research
1
suggesting a significant effect of such variables on firm
*
*
0.484** –0.246*
performance (e.g., Al Farooque et al., 2020; Dang et al., 2020;
–0.100
–0.302
–0.405
0.199
0.116
(7)
Hamdan, 2018; Hardiyansah et al., 2021; Kao et al., 2019;
1
Majeed et al., 2020; Merendino & Melville, 2019; Nguyen,
0.295**
**
0.295**
2020; Nguyen & Nguyen, 2020; Omer et al., 2020; Rahman &
0.495
0.156
–0.152
0.071
(6)
Saima, 2018; Shan, 2019; Waheed & Malik, 2019).
1
3.3. Data Analysis
**
0.252*
*
0.189
0.618
–0.070
0.216
0.147
–0.011
–0.011
(5)
1
Due to the panel nature of the data, this study applies
panel data analysis using STATA statistical software to
0.438**
**
0.096
0.131
0.378
0.039
–0.026
–0.023
0.147
0.111
examine the impact of board ownership on bank performance.
(4)
Note: *, ** significant at the 0.05, and 0.01 levels (2−tailed) respectively.
Compared to cross-sectional or time-series techniques, panel
1
data analysis controls for individual heterogeneity, mitigates
0.391**
**
0.461**
0.555**
0.150
–0.038
–0.100
0.562
0.174
–0.149
0.187
multicollinearity problems, alleviate the undesirable effects
(3)
Table 2: Pearson Correlation Matrix and VIF of Variables
resulting from the use of a relatively small sample size, and
1
provide more informative data (Baltagi, 2008; Hsiao, 2003).
0.642**
0.278**
0.463**
**
0.458**
**
0.562**
*
*
0.246
0.207
0.459
0.075
–0.082
0.501
Prior to analysis, the main assumptions of multivariate
(2)
analysis, such as outliers, normality, linearity, multicollinearity,
1
heteroskedasticity, in addition to endogeneity are checked,
0.807**
**
0.282**
0.507**
**
0.457**
0.542**
*
and then corrected or controlled. Skewness and kurtosis are
0.591
0.214
0.082
0.471
0.067
0.156
0.013
(1)
among the common statistical tests for normality. One of the
1
criteria for using skewness and kurtosis as a measurement of
normality is based on the values of skewness and kurtosis.
VIF
1.61
4.84
2.45
5.69
3.31
2.51
1.71
5.42
1.64
3.48
3.26
Thus, a data-set with values that fall within the threshold of
+/– 3 for skewness (Kline, 2011) and within the threshold
of +/– 10 for kurtosis (Hoyle, 1995; Kline, 2011) represents
(8) Fam_Board_Mem
(10) Non_Exe_Mem
(6) Chairman_Own
(5) Non_Exe_Own
an acceptable level of normality. The results show that the
skewness and kurtosis values for variables fall within the
(9) Board_Size
(13) Bank_Size
(11) Gov_Own
(7) Ceo_Own
(12) Leverage
(4) Ind_Own
thresholds of the acceptable level of normality, which means
that the data is normally distributed (refer Table 3).
Variables
Mean VIF
(1) ROA
(2) ROE
Linearity is tested using the scatter plots, which show
(3) Q
no clear departure from linearity. In addition, the results of
Ramsey test indicate an appropriate linear specification of the1106 Omer Saeed HABTOOR / Journal of Asian Finance, Economics and Business Vol 8 No 3 (2021) 1101–1111
regression models of the study. Concerning multicollinearity, Where, ROA is return on assets; ROE is return on equity;
the results of Pearson correlation matrix and variance inflation Q is Tobin’s Q; Ind_Own is independent board members’
factor (VIF) tests indicate no severe multicollinearity problem ownership; Non_Exe_Own is non-executive board members’
since the maximum values do not exceed the threshold value ownership; Chairman_Own is chairman ownership; Ceo_
(0.80) of correlation and (10) of the VIF (Gujarati, 2003; Hair Own is chief executive officer’s ownership; Fam_Board_
et al, 2010) as reported in Table 2. Mem is family board members; Board_Size is board size;
To determine whether the ordinary least squares (OLS) Non_Exe_Mem is non-executive board members; Gov_
or panel data (fixed or random effects) technique is more Own is government ownership; Leverage is the leverage;
appropriate to analyze the data, the Lagrange Multiplier (LM) Bank_Size is bank size; ε is error term.
test (Breusch & Pagan, 1980), the F-test, and the Hausman
test (Hausman 1978) are performed, and the results (for 4. Empirical Results and Discussion
brevity not reported here, but available on request) indicate
that the panel data analysis using fixed effects model is an 4.1. Descriptive Statistics
appropriate technique of analysis.
Regarding heteroscedasticity and autocorrelation in fixed The descriptive statistics of variables included in the study
effects models, the Modified Wald statistic test for groupwise are reported in Table 3. The main finding is that ownership
heteroscedasticity in fixed effects regression models structure of Saudi banks is concentrated and controlled by
(Greene 2003), and Wooldridge test for autocorrelation board members as the mean of bank shares held by independent
(Wooldridge 2002) are run, respectively. The results (for directors (0.086), non-executive directors (0.516), the chairman
brevity not reported here, but available on request) confirm (0.06), and the CEO (0.136) are significant. Moreover, the
the presence of both heteroscedasticity and autocorrelation descriptive statistics indicate a weak representation of family
problems, which need to be solved or controlled. Therefore, members on the board of directors with a mean of less than one
a fixed effects regression model clustered at the bank level board member (0.795). Overall, the variations among variables
is developed and employed by this study as it controls measurements are almost consistent with previous evidence.
for endogeneity and produces a robust estimator to cross-
4.2. Univariate Analysis
sectional heteroscedasticity and within-panel correlation
(Li, 2016; Rogers, 1993). Accordingly, the following fixed Table 2 shows the results of correlation among variables,
effects regression models are performed to examine the which can be used as a mean to check for multicollinearity and
impact of board ownership on bank performance. to enhance the results of multivariate analysis (Field, 2013).
Model 1: 4.3. Multivariate Analysis
ROAit = β 0 + β1Ind_Ownit + β2Non_Exe_Ownit Table 4 presents the fixed effects regression results of
+ β3Chairman_Ownit + β4Ceo_Ownit the influence of board ownership on bank performance. The
+ β5Fam_Board_Memit + β6Board_Sizeit results show a significant negative impact of independent
+ β7Non_Exe_Memit + β8Gov_Ownit board members’ ownership on bank performance measured by
+ β9Leverageit +β10Bank_Sizeit + εit ROA and ROE. However, no evidence is found on the role of
independent directors’ ownership on Tobin’s Q. These results
Model 2: indicate that bank shares held by independent board members
ROEit = β 0 + β1Ind_Ownit + β2Non_Exe_Ownit are related to lower operational (ROA) and financial (ROE)
bank performance, which is consistent with the theoretical
+ β3Chairman_Ownit + β4Ceo_Ownit perspective of the entrenchment theory and hypothesis
+ β5Fam_Board_Memit + β6Board_Sizeit + development. Accordingly, H1 is partly accepted. The
β7Non_Exe_Memit + β8Gov_Ownit significant negative impact of independent board members’
+ β9Leverageit + β10Bank_Sizeit + εit ownership can be justified and confirmed by the results from
the descriptive statistics that indicate that independent board
Model 3: members hold around (9%) of bank shares. Morck et al.
Qit = β 0 + β1Ind_Ownit + β2Non_Exe_Ownit (1988) suggest that the convergence-of-interest effects tend to
dominate over the low ownership range (e.g., less than 5%),
+ β3Chairman_Ownit + β4Ceo_Ownit
while entrenchment effects begin to appear beyond this level.
+ β5Fam_Board_Memit + β6Board_Sizeit Moreover, the results reveal an insignificant relationship
+ β7Non_Exe_Memit + β8Gov_Ownit between non-executive board members’ ownership and bank
+ β9Leverageit +β10Bank_Sizeit + εit performance, which reject H2. This result contradicts theOmer Saeed HABTOOR / Journal of Asian Finance, Economics and Business Vol 8 No 3 (2021) 1101–1111 1107 Table 3: Descriptive Statistics of Variables Variables Obs Mean Std. Dev. Min Max Skew. Kurt. ROA 88 0.019 0.005 0.008 0.033 0.348 3.663 ROE 88 0.132 0.033 0.061 0.225 0.621 3.355 Q 88 1.067 0.072 0.963 1.323 1.318 4.849 Ind_Own 88 0.086 0.114 0 0.494 1.672 5.7 Non_Exe_Own 88 0.516 0.202 0.005 0.804 –0.623 2.483 Chairman_Own 88 0.06 0.091 0 0.443 1.689 5.926 Ceo_Own 88 0.136 0.184 0 0.442 0.651 1.491 Fam_Board_Mem 88 0.795 1.532 0 6 2.12 6.983 Board_Size 88 9.807 0.814 7 11 –0.533 3.611 Non_Exe_Mem 88 0.935 0.059 0.8 1 –0.171 2.047 Gov_Own 88 0.216 0.2 0 0.644 0.807 2.206 Leverage 88 0.856 0.023 .804 0.908 –0.118 2.486 Bank_Size 88 4721.989 3511.573 1071 13684 1.602 4.231 Table 4: Firm Fixed Effects Regression Results of the Impact of Board Ownership on Bank Performance Variables Model 1 (ROA) Model 2 (ROE) Model 3 (Q) Independent Variables Ind_Own –0.007** (0.003) –0.054** (0.019) –0.062 (0.036) Non_Exe_Own –0.005 (0.005) –0.039 (0.039) –0.018 (0.15) Chairman_Own 0.010*** (0.003) 0.074*** (0.018) 0.139* (0.066) Ceo_Own 0.010** (0.004) 0.054** (0.020) 0.100 (0.172) Fam_Board_Mem 0.000 (0.000) 0.0025 (0.002) 0.006 (0.007) Control Variables Board_Size –0.001** (0.001) –0.0100** (0.004) –0.032*** (0.006) Non_Exe_Mem –0.0012*** (0.000) –0.013*** (0.004) –0.002 (0.006) Gov_Own 0.0184*** (0.004) 0.121*** (0.031) 0.032 (0.156) Leverage –0.043 (0.031) 0.615** (0.234) 1.057** (0.384) Bank_Size –0.001* (0.000) –0.001** (0.000) –0.001* (0.000) Constant 0.072** (0.023) –0.265 (0.160) 0.554 (0.266) N 88 88 88 F-value 706.32*** 87.94*** 496.61*** R2 within 0.239 0.308 0.251 Note: *, **, *** significant at the 0.10, 0.05, and 0.01 levels respectively.
1108 Omer Saeed HABTOOR / Journal of Asian Finance, Economics and Business Vol 8 No 3 (2021) 1101–1111
theoretical perspectives of agency and entrenchment theories For family board members, the results reveal an
that propose a significant influence of bank shares owned insignificant impact of family board members on bank
by non-executive board members on bank performance. performance. This means that family members setting on the
However, this result is consistent with Habtoor et al. (2019a) board have no influence on bank performance, and thus, H5
who finds an insignificant impact of non-executive board is rejected. The poor role of family board members could
members’ ownership on cooperate risk disclosure in Saudi be attributed to the weak or marginal representation of
non-financial firms. This finding is explainable by the results families on the board of directors, which is about less than
from the descriptive statistics, which indicate that the mean of one board member (0.795) according to the results from the
non-executive board members’ ownership is about (52%) of descriptive statistics.
bank shares. This ratio may have insignificant effect because With respect to control variables, the results indicate
it almost falls on the edge between two levels of ownership that board size, non-executive board members, and bank
that have an opposite effect on bank performance. In this size are significantly and negatively associated with bank
regard, Stulz (1988) finds that company value increases performance. However, government ownership and leverage
when the management control of voting rights is less than are positively related to bank performance. These results are
50%, whereas company value decreases as management in line with theoretical perspectives and previous empirical
control reaches or exceeds 50%. evidence.
Regarding firm leadership, the results demonstrate a
positive and significant effect of the chairman ownership 5. Conclusion
on bank performance. This result is consistent with the
argument of agency theory that bank shares holding by This main purpose of this study is to investigate the impact
the chairman would align his interests with those of other of different categories of board ownership on performance
shareholders which can be reflected in higher monitoring role of a sample of Saudi listed banks over a period of eight years
and an improvement in bank performance. Therefore, H3 is from 2011 to 2018. Unbalance panel data analysis is applied
supported. Moreover, the results of the descriptive statistics using firm fixed effects regression models to test the main
support this finding as the mean of the chairman ownership hypotheses and control for endogeneity issues and produces
is about (6%), which justifies the significant positive such a robust estimator to cross-sectional heteroscedasticity
level of ownership on firm performance (Morck et al., 1988). and within-panel correlation. The results of multivariate
Moreover, the CEO ownership has a positive and analysis reveal a significant positive impact of the chairman
significant relationship with bank performance measured ownership, CEO ownership, government ownership, and
by ROA and ROE, which indicates that the operational and leverage on bank performance. However, independent
financial bank performance improve when the CEO hold board members’ ownership, board size, non-executive board
higher portion of bank stocks. This result partly supports members, and bank size have a significant negative influence
H4, and may confirm the dominance of the convergence on bank performance. While non-executive board members’
of interests proposed by agency theory on the association ownership and family board members have an insignificant
between the CEO ownership and bank performance. In this effect on bank performance. These results indicate that Saudi
regard, it worth noted that the descriptive statistics reveal bank performance is higher in smaller banks that have smaller
that the mean of the CEO ownership is 13.6% which may boards with lower non-executive members, lower portion of
encourage the CEO to act opportunistically towards other shares held by independent board members, higher portion
shareholders (Morck et al., 1988). However, Chau and of shares held by the chairman, CEO, and government, and
Leung (2006) find that at a medium level of ownership higher leverage.
(between 5% and 25%), the convergence-of-interest effect The current study contributes to the literature as
is dominant. Furthermore, the positive impact of the CEO follows. First, this study aims to fill the gap in the literature
ownership on Saudi bank performance can be supported on the association between board ownership and firm
and justified by the results of the study of Habtoor (2021) performance by investigating the potential role of different
who finds that about one-half (46%) of the CEOs of Saudi types of ownership held by board members on Saudi bank
listed banks are foreigners and they almost represent the performance. Second, this study analyzes the relationship
foreign ownership in Saudi banking industry, which evident between board ownership and bank performance using
its positive role on firm performance. Empirically, Habtoor multiple theoretical perspectives, which is essential to deeper
(2021) finds a positive impact of foreign CEO on Saudi bank understand how and which types of board ownership could
performance. This indicates that the CEO ownership may affect bank performance. Third, the results of this study
also reflect the positive role of foreign ownership on bank provide important implications for policy makers, regulatory
performance evident by previous studies. bodies, and market participants in Saudi Arabia and countriesOmer Saeed HABTOOR / Journal of Asian Finance, Economics and Business Vol 8 No 3 (2021) 1101–1111 1109
with ownership concentration to understand the role of Al-Matari, Y. A., Al-Swidi, A. K., Fadzil, F. H. B., & Al-Matari, E. M.
different types of board ownership on firm performance, and (2012). Board of directors, audit committee characteristics and
to optimize board ownership and improve firm performance. performance of Saudi Arabia listed companies. International
Despite the robustness of the empirical results, they are Review of Management and Marketing, 2(4), 241–251.
subjected to some limitations that evident in prior empirical Almoneef, A., & Samontaray, D. P. (2019). Corporate governance
studies. For example, the relatively small sample size used and firm performance in the Saudi banking industry. Banks
by this study may be considered a major limitation, despite and Bank Systems, 14(1), 147–158. https://doi.org/10.21511/
applying panel data analysis. Therefore, future research may bbs.14(1).2019.13
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listed banks in GCC countries as they have similar ownership performance: The case of Kuwait. Jordan Journal of Business
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study focuses on board ownership, including the chairman Amran, A., Che Haat, M. H., & Abdul Manaf, R. (2008). Ownership
and the CEO, further research may address the potential role structure and risk disclosure: A study of Malaysian listed
of different characteristics of the chairman and the CEO and companies. Corporate Ownership & Control, 5(4), 451–460.
board committees’ characteristics on bank performance. Arora, A. & Sharma, C. (2016). Corporate governance and firm
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