On the relation between internal corporate governance and bank risk-taking: evidence from gulf cooperative council countries

Abstract

This study investigates the relationship between ownership structure, board composition and risk-taking of listed banking companies in the Gulf Cooperative Council (GCC) countries during 2004-2010. Building on limited literature and using OLS and Fixed-effect models, we document that both ownership structure and board composition are important determinants of bank risk-taking behaviour, in particular foreign ownership and larger board size in bringing financial stability and less risk while government ownership and CEO duality having detrimental effect on bank risk-taking, and no particular effect of institutional ownership. These findings have important policy implications for the banking industry in GCC countries with distinct economic, financial and cultural background, and nature of banking system in shaping corporate governance system to restrict the unrestrained risk- taking behavior of banking firms to avoid financial turmoil in the Gulf region.