DO GOVERNANCE MECHANISMS MATTER FOR BANKS? BANK-LEVEL EVIDENCE FROM SAUDI ARABIA (2011–2024)

Abstract

To analyze the link between corporate governance mechanisms and bank financial performance in Saudi Arabia, this research utilizes panel data spanning from 2011 to 2024. The analysis employs the Generalized Method of Moments (GMM) estimator. Profitability is measured using three distinct dependent variables: Return on Assets (ROA), Return on Equity (ROE), and Net Interest Margin (NIM). The core conclusion of the research is that corporate governance mechanisms exert a favorable impact on bank profitability. This positive link, which is demonstrated across multiple financial metrics, is specifically attributed to key factors such as Board Size (BS), Board Independence (BIR), the frequency of Board Meetings (NBM), the size and independence of the Audit Committee (ACS and ACI), and the level of Institutional Ownership (IO). The persistence of profitability, demonstrated by the lagged of explained variables, showing that current profitability is related to past profitability patterns. This conclusion asserts the necessity for sustained long-term governance policies. These results confirm that corporate governance serves as a crucial strategic Catalyst for value creation, beyond its traditional role as a regulatory requirement. The findings of this paper translate into practical guidance for key stakeholders in Saudi Arabia, including top-level management, corporate decision-makers, and bank boards. This guidance is essential for maintaining momentum in establishing robust governance mandates that successfully meet the strategic targets of Vision 2030. However, there were limitations that includes its focus on the banks in Saudi Arabi. For greater generalizability, the next steps in this research area should include a comparative analysis of banks across GCC countries. Additionally, to provide a more comprehensive view of corporate governance, it is essential to introduce supplementary variables like CEO duality and the influence of Board Gender Diversity (BGD).