Do board characteristics affect bank performance? Evidence from the Bahrain Islamic banks

Abstract

Purpose

Although most previous studies interested in Islamic banks have focused on quantitative aspects such as performance, risk and stability, this paper aims to deal with the institutional dimension and focus precisely on the link between board characteristics and bank performance.

Design/methodology/approach

Based on a data related to 13 banks in Bahrain observed over the period of 2005-2011, this study investigates the impact of board directors on the level of performance. To this end, the authors have used two empirical approaches. The first one is the panel data analysis with regard to random effect (RE) regression. The second one is the generalized method of moments (GMM) in system, which checked the soundness of the first result.

Findings

The result of RE regression indicates that the board duality is positively and significantly correlated with the bank performance for both ROA (return on assets) and ROE (return on equity). However, the board size exerts a positive and significant impact only when profitability is measured by ROE. The authors find that regression with GMM in system confirms the RE result exclusively for ROE. Findings also indicate that a financial crisis exerts a negative but not significant effect on bank performance.

Practical implications

These findings are relevant to both policymakers and regulators. Islamic banks in Bahrain should grant more importance to the structure and the quality of the board to improve their performance.

Originality/value

This study aims to extend the existing literature by focusing about the role of the Shariah board in bank performance.

Citation

Hakimi, A., Rachdi, H., Ben Selma Mokni, R. and Hssini, H. (2018), "Do board characteristics affect bank performance? Evidence from the Bahrain Islamic banks", Journal of Islamic Accounting and Business Research, Vol. 9 No. 2, pp. 251-272. https://doi.org/10.1108/JIABR-06-2015-0029