The Impact of Board of Directors’ Characteristics on the Financial Performance of the Banking Sector in Gulf Cooperation Council (GCC) Countries: The Moderating Role of Bank Size

Abstract

This study investigates the impact of corporate governance characteristics on bank financial performance in Gulf Cooperation Council countries. The board characteristics include board size, board independence, board gender diversity, and CEO duality (CEO is also Board Chair), with bank size as the moderating variable. Sixty-six commercial banks from six Gulf Cooperation Council countries—Saudi Arabia, United Arab Emirates, Kuwait, Bahrain, Oman, and Qatar—are examined from 2019 to 2023 using two-stage least squares and generalized method of moments econometric methods. Board size, board independence, and board gender diversity significantly increase return on assets and return on equity. The impact of CEO duality is mixed. The empirical findings show that CEO duality increases return on equity, with a non-significant impact on return on assets. Finally, results show that bank size moderates the impacts of board size, board independence, and gender diversity in boards on the financial performance of banks. Large banks significantly increase return on assets and return on equity due to the board characteristics examined, to a greater extent than small banks. Bank leaders should expand board membership, and add independent directors and women, to improve financial performance.

1. Introduction

Corporate governance exercised by corporate boards is critical for businesses in the current economic landscape. Intuitively, the corporate governance practices of avoidance of CEO duality, board independence, and board gender diversity result in objective evaluation of management by the board of directors. Avoiding CEO duality is the separation of the roles of the CEO as a management leader and the Board Chair as the board leader. If these roles are held by a single individual, the person could prevent an objective assessment of management by the Board due to his or her reluctance to being evaluated as a member of management. Board independence is achieved by having non-employees serve on the board, thereby contributing to impartial evaluation of management. Gender diversity adds the knowledge, skills, and judgements of women to boards, which may increase objectivity of assessment of management, while providing different perspectives is setting a strategic direction for the firm. Additionally, Jensen and Meckling (1976) have stated that the goals of board of directors’ supervisory responsibilities are to balance related party interests and reduce conflicts between managers (agents) and owners (shareholders). Agency theory maintains that managers as agents of shareholders may support actions yielding private benefits to themselves to the detriment of shareholder wealth maximization.

Previous research (Brahma et al., 2020; Nguyen et al., 2015; Mansour et al., 2024) searched for the impact of board attributes on business performance across different countries and sectors. The authors revealed inconsistent impacts of board characteristics on business performance unless moderators were considered. We posit that bank size may moderate the relationship between board characteristics and financial performance. For instance, large banks may benefit from the existence of international experts, advanced connections with decision-makers, and greater financial resources, which could improve the process of strategic decision-making, along with the implementation of professional risk management practices. On the other hand, small banks could have dynamic and agile boards of directors who can rapidly capitalize on market opportunities. Empirically, Zona et al. (2013) and Nodeh et al. (2016) identified bank size as influencing boards of directors in the banking sector. Large banks have immense cash resources, professional talent, lower spreads, and fewer non-performing loans than small banks. It is possible that there is less CEO duality in large banks due to their ability to attract professionals to fulfil the role of CEO separately from the Board Chair. Restrictions on talent may cause small banks to give both roles to a single individual. Large banks have reputational benefits that attract prominent non-employees and women to serve on their boards, ensuring board independence and gender diversity. Conversely, Bhagat et al. (2015) were unable to detect a significant moderating impact of bank size on the relationship between boards of directors’ characteristics and bank performance.

A research gap emerges in that the moderation by bank size of the board characteristics–financial performance relationship has not been thoroughly empirically examined in the Gulf Cooperation Council (henceforth, GCC) countries, which leads to the following research questions:

Research Question 1: How do the characteristics of boards of directors influence the performance of banks in the GCC region?

Research Question 2: Does the size of the bank have a moderating impact on the relationship between board characteristics and bank performance?

This study contributes to the advancement of knowledge in three ways. First, the findings will provide banks and governments with essential guidance when examining their financial performance from a holistic perspective that considers factors such as ownership type, board independence, board gender diversity, and CEO duality. It avoids the linear cause and effect position of seeing financial performance as the unfiltered outcome of board characteristics. For example, instead of concluding that gender diversity increases or decreases financial performance, this study specifies the conditions under which gender diversity affects performance, i.e., whether the banks under consideration are large or small. In other words, a nuanced approach supersedes a hard-and-fast increased financial performance/diminished financial performance approach. Second, it is anticipated that this research will contribute to understanding how board attributes affect bank performance, using bank size as a moderating variable, in selected countries from the GCC region, namely, Saudi Arabia, Kuwait, the United Arab Emirates, Bahrain, Oman, and Qatar. Even though numerous studies have examined the impact of board composition on bank performance in developing nations, none of them thoroughly investigated the role and impact of bank size as a moderating factor in the relationship between bank profitability and the board characteristics in the GCC region. Thus, assessing the effects of board composition on the financial performance of banks in GCC countries, with a particular importance on the moderating influence of bank size, is essential for addressing the ongoing debates in the current literature. Third, the results of this study are also relevant to other emerging markets, as the countries examined share similar developmental characteristics.

The remainder of this paper is organized as follows: Section 2 is a review of the literature, Section 3 presents hypothesis development, Section 3 covers methods and materials, Section 4 describes the results, while Section 5 elucidates the conclusions.

2. Review of Literature

2.1. Governance in the Banking Systems in Gulf Cooperation Council Countries

Banks play an important role in GCC countries, serving as financial intermediaries and facilitators (Al-Saidi & Al-Shammari, 2013). Given the large volume of capital generated by the oil industry, there is a need to invest oil wealth in entrepreneurial initiatives designed to boost economic growth. Alternatively, there is a need to attract foreign investment for nascent industries, such as tourism and manufacturing. The repository of both oil wealth and foreign monetary transfers is the banking system, due to limited capacity of the financial markets. These cash reserves give banks solid liquidity ratios, as they transfer capital for entrepreneurship initiatives, attract foreign investment, and foster economic growth. Additionally, KPMG (2020) reported a significant digital shift in the banking sector in this region. The implementation of FinTech (Financial Technology) enhanced financial inclusion and banking services by making banking available to a large number of people in certain GCC countries, like UAE and Bahrain.

GCC countries have implemented financial openness and liberalization initiatives aimed to reduce state intervention and to establish a framework of institutions and laws to encourage foreign investment (Dalwai et al., 2015). The openness strategy has resulted in significant shifts in bank ownership, from public to private and domestic to foreign control. Major international banks, via subsidiaries, have established a significant presence in the GCC region, competing with local banks, namely, in Bahrain (Hawkmanah-IIF, 2012) and the United Arab Emirates (Foster, 2007). Hawkmanah-IIF (2012) observed that Bahrain had rigorous procedures for the appointment and evaluation of board members. Foster (2007) reported on the opposition to CEO duality, and increased reporting to shareholders in the United Arab Emirates. The introduction of international banks in the region led domestic banks to implement structural and governance reforms to compete on equal terms with their international counterparts.

GCC governments and central banks have implemented a variety of policies and guidelines to support the adoption of good corporate governance practices. These regulations include, but are not limited to, broader board composition, increased transparency, and risk management procedures, such as reducing non-performing loans and avoidance of transactions involving related parties, in addition to the previously established prudential regulations in Saudi Arabia (Hussainey & Al-Nodel, 2008). In Oman, the nomination of directors through an impartial process and the installation of audit committees increased openness in financial reporting (Oyelere & Al-Jifri, 2011). Many of these updated modifications are enforced as legal obligations and are based on international benchmarks, such as Basel I, II, and III, which were set by the Basel Committee on Banking Regulations and Supervision. Boards of directors in these five countries must publish policies that comply with the specified laws and regulations. This aligns with both the BIS’s Principle 12, which emphasizes the importance of disclosure and transparency in a bank’s governance for shareholders, depositors, other stakeholders, and market participants (Bank for International Settlements, 2015), and the fourth OECD principle focusing on disclosure and transparency (OECD, 2019).

Despite recent improvements to the corporate governance frameworks in GCC countries, there are still major barriers, like family ownership and political connectedness, that limit the effective implementation and enforcement of these reforms. For example, family members on the board may favor relatives for loans and limit restrictions on non-performing loans made to family members. It is possible that corporate governance impediments, such as non-performing loans due to the agency cost of granting loans based on family pressure, may prevail in the GCC countries. Gharios et al. (2024) observed that increasing board gender diversity in European banks increased the independence of board members. This finding suggests that preferential granting of loans may be curbed by independent directors who do not have special relationships with borrowers.

2.2. Bank Board Size in GCC Countries

Each of the five countries’ laws adhere to BIS (Bank for International Settlements, 2015) Principal 3 on appropriate board composition, and they are consistent with the OECD’s V.E.1 Principle, which stresses the importance of having enough independent board members (OECD, 2019). Saudi Arabian regulations regarding board size stipulate that the composition of the board should range from three to eleven members, with the requirement that at least two of the members should be independent (Capital Market Authority, 2017). The United Arab Emirates mandates a minimum of seven and a maximum of eleven board members, with at least one-third required to be independent (Securities Commodities Authority, 2020). In contrast, Kuwait does not impose a maximum limit for the number of members, as defined by law, but mandates a minimum of eleven members, including at least two independents (Kuwait Capital Markets Authority, 2019). Bahrain requires boards to have seven to fifteen members in addition to three independent members (Central Bank of Bahrain, 2018). Qatar may have the largest boards, with a minimum requirement of twelve and a maximum of fifteen members (Qatar Financial Markets Authority, 2021).

Empirical research relating bank board size to financial performance has yielded mixed results. Al-Saidi and Al-Shammari (2013) evaluated the impact of bank board size on the financial performance of Kuwaiti banks from 1996 to 2010, finding that board size had a negative impact on bank financial performance. Awad et al. (2024) examined 65 banks across 10 MENA countries, finding that a reduced board size reduced the frequency of board meetings, positively influencing bank stock performance. Trad (2023) found a similar negative impact of board size on bank performance in MENA countries. In contrast, Haniffa and Hudaib (2007) found a positive relationship, with boards displaying stronger monitoring due to the presence of a range of experts and shareholders with a broad array of viewpoints. Basar et al. (2021) found no relationship between board size and bank financial performance in MENA countries.

2.3. Boards of Directors’ Characteristics and Bank Performance: A Review of Theory

In this section, we will explain the proposed effect of board characteristics of board size, board independence, and board gender diversity on bank performance from the perspectives of agency theory, resource dependency theory, and stakeholder theory.

Agency theory (Jensen & Meckling, 1976) sets forth that firms separate ownership and control, as shareholders as owners wish to achieve wealth maximization, while managers as agents may be more concerned with preserving their jobs, obtaining bonuses, and achieving promotions than achieving shareholder wealth maximization. These conflicting interests, by dividing ownership and management within the company, serve as the foundation for the relation between board composition and bank performance. Eisenhardt (1989) highlighted the importance of controlling managers who do not always act in the best interests of the owners. He stated that boards of directors could act as an efficient tool to monitor mangers and ensure that shareholders’ interests are aligned with managers’ actions.

Increased board size may be expected to reduce agency costs. Large boards typically consist of members with a broad array of skills and expertise. A variety of skills may result in different aspects of bank operations being monitored even if the managers of these departments are reticent about performance. Board independence reduces agency costs in that it reduces the involvement of the CEO in monitoring managers. External board members may be expected to deliver objective assessments of agents (CEO and managers), with no CEO involvement in the assessment process. Finally, board gender diversity permits the representation of women. By providing different perspectives in monitoring and decision-making, the power of agents is further limited, as new criteria for assessment are introduced into the assessment of managers.

In accordance with stewardship theory (Davis et al., 1997), managers are entrusted with the responsibility of managing the company’s assets to achieve long-term value creation for stakeholders. Unlike agency theory, managers are seen as stewards who are looking to enhance the performance of the company and shareholders. Stakeholders are the various entities, such as vendors, customers, regulators, and community organizations, that have a stake in the success of the bank. Vendors provide supplies. Customers provide revenue through loan purchases and deposits, which act as sources of loans. Regulators evaluate banks as being compliant with regulatory requirements. Community organizations, such as environmental groups and unions, expect firms to be equitable in their interactions with them. Managers’ ability to assist owners in developing and implementing plans to balance the needs of all stakeholders is assessed and monitored by the board of directors (Donaldson, 1990).

Increased board size brings expertise into the monitoring of managers. Certain board members may have expertise in credit analysis, others with mortgages, yet others with investments. Credit analysis is of importance to businesses, mortgages are important to individual customers, and investments are important to regulators. By querying managers on their performance in each of these areas, board members assist different stakeholder groups in achieving their goals. Board independence permits external managers to evaluate the relative importance of customers, regulators, community organizations, and other stakeholder groups. Independence suggests that the evaluation of stakeholder groups will be conducted with impartiality so that the bank will perceive the true value of these groups. Gender diversity brings women onto the board. Women may be eager to contribute, as it is a novelty in these countries to have women on bank boards. Women may view their role as that of stewards, working for the overall benefit of shareholders who have invested in the bank.

For resource dependency theory (Pfeffer & Salancik, 1978), firm performance depends on internal and external resources, which generates a deep need for collaboration with external entities. In this perspective, the board of directors is considered as critical to the acquisition of resources that combine different types of skills, knowledge, financial literacy, technical know-how, and networks, enabling the firm to achieve its goals. For example, an automobile firm needs steel, upholstery, and engines to build cars. These raw materials are sourced from different vendors. Employees with varying skills, such as engineers and shop floor workers, produce the product, while marketers sell the vehicles. There is a need to invest appropriately in production, design, and marketing in order that all areas are funded, and no single area receives excessive amounts of resources.

Increased board size may add members to the board who have access to critical resources. Board independence may encourage board members to pursue alternative sources of supply with which CEOs and management are unfamiliar. Perhaps external board members have access to derivatives, cryptocurrencies, and loan commitments, which can add to the bank’s revenue stream. Gender diversity on the board with the inclusion of women may result in new collaborations between the bank and investors, credit analysts, and regulators. Each of these entities can provide resources that benefit the bank. Investors can provide capital, credit analysts can impose rigorous standards for credit assessment, and regulators can provide insight into the impact of future regulations.

3. Hypotheses Development

3.1. Gender Diversity and Bank Financial Performance

Intuitively, gender diversity is achieved by placing more women on the boards of directors of banks. Specifically, gender diversity among all board members is measured by the percentage of female members. According to the Bank of International Settlements’ Principle 2, the composition of the board should consider gender diversity to enhance accountability and firm performance (Bank for International Settlements, 2015). Women may have different viewpoints and broader perspectives on risk management and assessment, leading to the encouragement of discussions and governance practices. Women may reduce agency conflicts by noticing the excessive wastage of resources by managers who spend on perks, bonuses, and favors to friends. Women may encourage banks to be better stewards by balancing the needs of all stakeholders, such as vendors, customers, unions, and regulators. They may have risen through the ranks to senior positions by achieving such balance, thereby bringing a valuable skill in achieving compromise between disparate entities. Women may be able to manage resources appropriately, by noticing excessive funding in certain areas, and insufficient funding in other areas.

A number of studies have assessed the impact of gender diversity on bank performance and nonbank business performance. García-Meca et al. (2015) examined the impact of nationality and gender diversity among the board members on bank performance. The results demonstrated that within the sample of 159 banks across 9 countries from 2004 to 2010, national diversity among board members lowered bank performance, whereas gender diversity increased bank performance. According to Setiyono and Tarazi (2018), the board of directors is essential to maximizing benefits to shareholders and related parties, lowering risks, and enhancing bank performance. They stated that gender diversity improves the overall performance of boards of directors, leading to enhanced firm performance. Tariah (2019) investigated the relationship between firm performance, measured by ROA, and gender diversity in boards of directors. The empirical findings showed a positive correlation between CEO diversity, gender diversity of boards, and firm performance. Brahma et al. (2020) investigated the relationship between gender diversity in boards and firm performance in the United Kingdom using ROA and Tobin’s Q. The results showed that having three or more women on a company’s board had a significant and positive impact on its performance.

Several other empirical studies have discovered positive and significant relationships between female members and performance (Low et al., 2015; García-Meca et al., 2015; Li & Chen, 2018; Mertzanis et al., 2019). In this regard, Smith and Amoaku-Adu (1999) found that nepotism and favoritism affect succession planning in family businesses. Possibly, female directors could remove these barriers to succession planning. Gharios et al. (2024) observed that for European firms, the inclusion of women on the board resulted in greater independence of board members and board size. These predictors improved financial performance by increasing control over decisions and contributing to long-term investment strategies.

Hypothesis 1:

Board gender diversity improves bank financial performance among GCC banks, as measured by increases in return on assets and return on equity from 2019 to 2023.

3.2. Board Size and Bank Financial Performance

The total number of members on an organization’s board is known as its board size (Kalsie & Shrivastav, 2016). Resource dependency theory views board members as facilitating the appropriate allocation of resources among different departments, divisions, and business functions. Board members must have the judgement and expertise to evaluate competing needs rationally to achieve appropriate resource allocation. In oil-exporting countries, such judgement could be maintaining a balance between loans given to large corporate customers and loans given to small entrepreneurial ventures. Alternatively, a balance needs to be maintained between funds obtained from foreign direct investment and funds obtained from local sources. It follows that a larger board size could include different types of skills and knowledge, which can make these judgements and decisions effectively. A larger board of directors could include international and national experts in varied fields, which can enrich discussions, leading to better decisions. Larger boards include many professionals with strong networks, enabling the bank to leverage connections with external entities who may seek loans as customers, or supply talent as employees.

Several studies have examined the connection between firm performance and board size. Setia-Atmaja (2008) discovered a positive correlation between board size and the performance (Tobin’s Q) of companies listed in the Australian stock exchange (ASX). According to Sahu and Manna (2013), a larger board size enables effective decision-making and efficient controls, thereby enhancing business performance. Khalaf (2022) found that larger boards composed of international and diverse members are better in managing banks during financial crises. Buallay and Hamdan (2019) confirmed that large boards tend to manage banks effectively during financial crises, as the diversity of skills and expertise among board members leads to novel solutions that permit adaptation to complex conditions.

Hypothesis 2:

Board size improves bank financial performance among GCC banks, as measured by increases in return on assets and return on equity from 2019 to 2023.

3.3. CEO Duality and Bank Financial Performance

In many banks, CEOs perform as presidents of boards. Intuitively, we may have some reservations about CEOs who could reduce bank accountability by rejecting board recommendations to improve managerial performance if they serve in the role of Board Chairs. However, with GCC banks, CEO duality could result in positive effects on financial performance due to the financial crises that may affect this region, and the region’s status as an emerging market. CEO duality could be beneficial for banks during crises, allowing efficient communication between management and shareholders since the CEO has a direct involvement in the daily operational system. This could result in better alignment between shareholders and managers. In emerging markets, CEO duality could be seen as a positive, especially if the CEO has a good reputation in the banking sector. A well-known CEO might be seen by depositors and investors as a sign of stability, which can lead to the management of banks without the need for additional control.

A series of empirical studies support the beneficial impact of CEO duality on firm performance and bank performance (Bathula & Gaur, 2011; Gill & Mathur, 2011; Nguyen et al., 2015; Vo & Phan, 2013). Phan et al. (2017) and Hoang and Nguyen (2019) revealed that duality enhances the decision-making process by reducing conflicts between the management body and board members, leading to improved overall firm performance. Buallay and Hamdan (2019) revealed that CEO duality enhances leadership clarity and efficiency in the banking sector, as CEOs and boards are able to focus on a common set of goals, working together to achieve them. Fang et al. (2020) confirmed the positive impact of CEO duality on the financial performance of Chinese banks during crises. They stated that CEO duality allows a quicker decision-making process and cohesive leadership during turbulent periods.

Hypothesis 3:

CEO duality improves bank financial performance among GCC banks, as measured by increases in return on assets and return on equity from 2019 to 2023.

3.4. Independent Board Members and Bank Financial Performance

The Basel agreements attempt to create a framework of regulations for banks worldwide. According to the Basel regulations (I, II, and III) that defined the corporate governance principles of the banking sector, boards must include independent members. The core value that independent members bring to the board is objectivity in the assessment of management, due to their status as non-employees of the bank. The existence of members that do not have any direct or indirect material interests in the banks was supported by the OECD’s V.E.1 Principle. Their existence could enhance risk management, as they can be honest in identifying the excessive risk of certain loans given to associates of management. Such action would lead to improved overall financial performance. As independent professional members have the freedom to express their own strategic financial vision, which could improve the credibility of banks among regulators, depositors, and investors, their presence may enhance the reputation of the bank.

The ratio of non-executive directors to the total number of board members serves as a proxy for independent directors (Shukla et al., 2020). The relationship between independent directors and firm performance has been supported by certain empirical studies. Haniffa and Hudaib (2007) found that independent directors on boards enhanced the effectiveness of governance and the operational performance of banks in MENA countries. Awad et al. (2024) found that board independence significantly increased bank financial performance among MENA banks. This finding was supported in the Al-Sagr et al. (2018) study of Saudi banks. Fewer board members and greater board independence improved bank stock performance for MENA banks. Coles et al.’s (2008) examination of a sample of banks found reduction of the dominance by CEOs due to the presence of independent board members. García-Meca et al. (2015) found that the performance of 158 international banks was linked positively to the existence of independent members on their boards.

Hypothesis 4:

The presence of independent members on boards improves bank financial performance among GCC banks, as measured by increases in return on assets and return on equity from 2019 to 2023.

3.5. Educational Level of Board Members and Bank Financial Performance

Higher education broadens an individual’s outlook through exposure to novel ideas, novel experiences, and alternative conceptual frameworks. The educated individual is capable of considering a range of options in order to make decisions and make cogent arguments to support the final choice. In addition, the educated person has access to professors, mentors, and alumni networks, who can provide access to valuable professional contacts. These educational attributes are of value to GCC banks. The breadth of options assists in risk management in a region with high non-performing loans. The access to multiple external entities assists in obtaining advice in complex loan approval situations. For example, a large loan request may be made. The bank may not have the resources to fund the loan. However, educated board members may know members of other bank boards or bank CEOs of other banks who may be able to provide additional funds. These contacts may lead to a consortium of banks approving the loan, resulting in revenue that the bank would have foregone if it had to rely on its own funds.

Based on BIS Principle 2, boards of directors’ members in the banking sector must be qualified to control the strategies implemented by the bank (Bank for International Settlements, 2015). Board members must be aware of financial regulations and ensure that banks adhere to them. High educational levels of board members lead them to identify market opportunities, design new strategy, suggest innovative financial engineering, and make new decisions that align with bank objectives. High educational levels of board members could be considered by investors and depositors as a sign of credibility and competence, particularly during crises.

Several empirical studies found a positive association between the educational levels of board members and bank financial performance. Barroso et al. (2011) concluded that board members at high academic levels were able to make decisions enabling Spanish firms to adapt to financial challenges. Sidki et al. (2024) found the same results in German firms. They observed that a higher educational level of board members was associated with better financial performance and risk-adjusted returns. García-Meca et al. (2015) confirmed the findings of Sidki et al. (2024) in European banks, revealing that the financial performance of banks is linked positively to the educational levels of board members.

Hypothesis 5:

Higher educational levels of board members improve bank financial performance among GCC banks, as measured by increases in return on assets and return on equity from 2019 to 2023.

3.6. The Moderating Influence of Bank Size

Larger banks have more financial resources to recruit international board members with high standards of experience and knowledge, which can enhance decision-making and set a strategic vision. Conversely, in small banks, the chance to recruit international and experienced people is much lower, which might decrease overall performance. In the same perspective, small banks have, in general, smaller board sizes, which can limit the innovation and risk management capacity due to the generation of fewer creative ideas and less expertise in managing risk in turbulent environments. This thesis is particularly true in the GCC region. Large banks have large cash reserves from oil wealth, which permits them to access professional networks from which they can select board members. These banking professionals have a wealth of expertise that results in creative approaches to managing risk and reducing the volume of non-performing loans. Small banks do not have such access, having to rely on limited local talent. Their mitigation of risk and reduction of non-performing loans may then consist of dated and ineffective solutions that are unsuitable for modern banking environments.

The international exposure and local expertise of large banks motivates them to focus on board independence as a key success element for their overall performance, as board members must be sufficiently impartial to evaluate managers on the basis of the dual criteria of international expertise and local knowledge. Small banks might have fewer independent members due to the concentrated ownership structure, which can limit the control of agents. Serrasqueiro and Nunes (2008) found that bank size is a moderator factor that could affect the overall performance. Buallay and Hamdan (2019) confirmed the moderator impact of firm size in listed firms. Nodeh et al. (2016) examined the size of banks as a moderator variable in the relationship between board characteristics and bank performance. They found that bank size had significant moderating impacts on the relationship between board characteristics and performance.

Hypothesis 6:

Bank size moderates the relationship between board characteristics and bank financial performance among GCC banks, as measured by increases in return on assets and return on equity from 2019 to 2023.

4. Data and Methodology

4.1. Data Collection

The data were extracted from commercial banks that operate in the six GCC countries, namely, Saudi Arabia (KSA), United Arab Emirates (UAE), Kuwait (KUW), Bahrain (BAH), Oman (OMA), and Qatar (QAT). The total number of commercial banks considered was 66. In total, the sample of this research included 248 bank-year observations from 2019 to 2023. The quantitative data were collected from the Brussels-based Bureau van Dijk and International Bank Credit Analysis Ltd. (IBCA) database Bankscope. Corporate governance information, like board independence, educational levels of board members, and board size, were extracted manually from different sources, such as published annual reports of banks, Bloomberg, DataStream, and LinkedIn.

Specifically, the basic number of banks observed was 121. We eliminated banks that did not have complete data on corporate governance and financial variables. Moreover, Islamic banks were excluded from this study to minimize any bias, since the Islamic banks have a specific governance system related to Islamic Sharia principles.

Sample size concerns were addressed as follows. Data on banks were not extracted from regular Gulf databases. They were ordered separately, as bank data are scarce. The first author was able to obtain bank data for the Gulf countries in a separate special-order. By nature, banks display opacity, as demonstrated by their reluctance to divulge details of corporate governance mechanisms. Therefore, there was incomplete data on corporate governance, necessitating the removal of those banks from the sample. A large number of Islamic banks are found in the Gulf countries. As the practices of these banks differ considerably from other banks, they had to be excluded as well. Thus, the removal of banks with incomplete data and Islamic banks reduced the number of banks under consideration.

4.2. Data Analysis

The 2SLS regression analysis was used in this paper to test the direct impact of board characteristics on bank performance and reveal the moderator impact of bank size in GCC countries from 2019 to 2023. The outputs were retested through a generalized method of moments (GMM) model to resolve any heteroscedasticity of residuals or endogeneity of the independent variables. Two categories of variables were considered in this paper. The first category included financial and economic data related to the dependent variables of ROA (return on assets) and ROE (return on equity), control variables measured by GDP (gross domestic product) and LRR (liquidity risk ratio), and the moderator variable measured by bank size (BAZ). The second category of variables included the corporate governance data, such as board size (BSI), board independence (BIN), duality (BDU), educational levels of board members (BED), and the gender diversity level in boards (BGE). ROA and ROE are standard profitability measures in accounting and finance (Brigham & Earnhardt, 2024). Board size, board independence, and bank size were measured as in Al-Saidi and Al-Shammari’s (2013) study of Kuwaiti banks. GDP was measured as the per capita GDP for the GCC countries. This measure was used by Bawazir et al. (2020) in their examination of the impact of stock market development on economic growth in the GCC region. Liquidity risk was measured by the loan-to-deposit ratio, with higher ratios indicating more loans in relation to deposits, or a higher liquidity risk (Saunders & Cornett, 2022). All variables are presented in

Table 1. Definition of variables.

Category	Variables	Symbol	Details	References
Dependent variables	Return on assets	ROA	Total net income/total assets	Brigham and Earnhardt (2024)
	Return on equity	ROE	Total net income/total equity	Brigham and Earnhardt (2024)
Independent variables	Board size	BSI	Number of board members	Al-Saidi and Al-Shammari (2013)
	Board independence	BIN	Percentage of independent members in board	Al-Saidi and Al-Shammari (2013)
	Duality	BDU	Dummy variable equals to 1 in case of CEO duality and 0 otherwise
	Educational level of board	BED	Percentage of board members holding master or PhD degree
	Gender diversity in board	BGE	Percentage of women in board
Control variables	Gross domestic product	GDP	Gross domestic product rate	Bawazir et al. (2020)
	Liquidity risk ratio	LRR	Total loans/Total deposits	Saunders and Cornett (2022)
Moderator variable	Bank size	BAZ	Ln of total assets	Al-Saidi and Al-Shammari (2013)

.

The following 2SLS and GMM expressions are specified:

ROA𝒊𝒕 = 𝜷_𝟎 + 𝜷_𝟏BSI𝒊𝒕 + 𝜷_𝟐BIN𝒊𝒕 + 𝜷_𝟑BDU𝒊𝒕 + 𝜷_𝟒BED𝒊𝒕 + 𝜷_𝟓BGE𝒊𝒕 + 𝜷_𝟔GDPa𝒕 + 𝜷_𝟕LRR 𝒊𝒕 + 𝜷_𝟖 BAZ 𝒊𝒕 +𝜺_𝒊𝒕

(1)

ROE𝒊𝒕 = 𝜷_𝟎 + 𝜷_𝟏BSI𝒊𝒕 + 𝜷_𝟐BIN𝒊𝒕 + 𝜷_𝟑BDU𝒊𝒕 + 𝜷_𝟒BED𝒊𝒕 + 𝜷_𝟓BGE𝒊𝒕 + 𝜷_𝟔GDPa𝒕 + 𝜷_𝟕LRR 𝒊𝒕 + 𝜷_𝟖 BAZ 𝒊𝒕 +𝜺_𝒊𝒕

(2)

To measure the moderating impact of bank size, the following extended equations are presented:

ROA𝒊𝒕 = 𝜷_𝟎 + 𝜷_𝟏BSI𝒊𝒕 + 𝜷_𝟐BIN𝒊𝒕 + 𝜷_𝟑BDU𝒊𝒕 + 𝜷_𝟒BED𝒊𝒕 + 𝜷_𝟓BGE𝒊𝒕 + 𝜷_𝟔GDP a𝒕 + 𝜷_𝟕LRR 𝒊𝒕 + 𝜷₈BSI * BAZ𝒊𝒕 + 𝜷₉BIN * BAZ𝒊𝒕 + 𝜷₁₀BDU * BAZ𝒊𝒕 + 𝜷₁₁BED * BAZ𝒊𝒕 + 𝜷₁₂BGE * BAZ𝒊𝒕 + 𝜷₁₃BAZ𝒊𝒕 +𝜺_𝒊𝒕

(3)

ROE𝒊𝒕 = 𝜷_𝟎 + 𝜷_𝟏BSI𝒊𝒕 + 𝜷_𝟐BIN𝒊𝒕 + 𝜷_𝟑BDU𝒊𝒕 + 𝜷_𝟒BED𝒊𝒕 + 𝜷_𝟓BGE𝒊𝒕 + 𝜷_𝟔GDP a𝒕 + 𝜷_𝟕LRR 𝒊𝒕 + 𝜷₈BSI * BAZ𝒊𝒕 + 𝜷₉BIN * BAZ𝒊𝒕 + 𝜷₁₀BDU * BAZ𝒊𝒕 + 𝜷₁₁BED * BAZ𝒊𝒕 + 𝜷₁₂BGE * BAZ𝒊𝒕 + 𝜷₁₃BAZ𝒊𝒕 +𝜺_𝒊𝒕

(4)

5. Results and Discussion of Results

5.1. Descriptive Statistics

Table 2. Country-level descriptive statistics.

Country	ROA Mean (STD) Min Max	ROE Mean (STD) Min Max	BSI Mean (STD) Min Max	BIN Mean (STD) Min Max	BDU Mean (STD) Min Max	BED Mean (STD) Min Max	BGE Mean (STD) Min Max	GDP Mean (STD) Min Max	LRR Mean (STD) Min Max	BAZ Mean (STD) Min Max
KSA	2.1292 (0.0737) −3.5459 +14.3931	10.9471 (2.5310) −2.7982 +21.1934	11.2432 (2.3201) 5 12	0.2394 (0.1032) 0.1500 0.4600	0.4101 (0.0951) 0.0000 1.0000	0.6731 (0.1951) 0.8000 0.1000	0.0000 (0.0000) 0.0000 0.0000	2.2385 (4.1381) −4.1000 8.7300	81.2993 (5.2449) 56.4922 88.4842	7.7931 (0.3991) 6.0382 8.2392
UAE	1.7285 (0.0304) −5.4946 +18.7931	9.6736 (2.2301) −5.6867 +18.4847	8.5423 (2.1134) 6 12	0.3892 (0.0847) 0.2200 0.4600	0.2391 (0.0292) 0.0000 1.0000	0.5838 (0.2021) 0.8000 0.2000	0.1983 (0.0811) 0.0000 0.2000	2.1837 (4.6123) −6.1200 7.6000	74.3022 (4.332) 45.5951 84.8499	7.2191 (0.4421) 6.8482 8.0211
Oman	1.1584 (0.0201) −11.5341 +15.4746	6.1732 (1.7603) −7.8575 +16.1101	9.3735 (3.4911) 6 14	0.2437 (0.1002) 0.1200 0.3400	0.3623 (0.1011) 0.0000 1.0000	0.4281 (0.0988) 0.7000 0.0500	0.0000 (0.0000) 0.0000 0.0000	1.1493 (2.6211) −2.8000 5.5000	88.4371 (5.0011) 55.9834 84.8474	7.0021 (0.2040) 6.0112 7.4842
Qatar	1.3268 (0.0251) −4.7151 +16.2631	9.4947 (2.3321) −6.4394 +22.5901	9.4846 (2.2381) 7 13	0.3845 (0.0953) 0.1600 0.4400	0.3827 (0.0352) 0.0000 1.0000	0.5001 (0.2024) 0.6500 0.0500	0.1852 (0.0294) 0.0000 0.3000	1.0848 (2.8352) −3.6000 4.1000	85.9903 (6.2214) 55.9058 88.0482	7.4928 (0.3444) 6.0393 7.1814
Kuwait	1.1737 (0.0193) −2.4956 +9.5857	8.0043 (1.8275) −3.5951 +18.4941	12.4941 (3.3592) 6 15	0.3725 (0.0831) 0.1500 0.5200	0.4283 (0.0882) 0.0000 1.0000	0.3848 (0.1031) 0.6000 0.1000	0.0938 (0.0394) 0.0000 0.2000	0.4837 (3.8621) −8.1000 8.1100	75.2221 (5.6662) 56.494 83.5821	7.3002 (0.4451) 6.1404 7.8040

shows the descriptive statistics of all research variables in GCC countries. The results revealed that the financial performances of Saudi Arabian and United Arab Emirates banks were the highest in terms of return on assets and return on equity in the region. Omani banks showed the lowest financial performance in GCC countries. The larger board sizes existed in Kuwait (12.4) and Bahrain (13.3), while Qatari (0.384) and UAE (0.389) banks had the highest level of board independence. The highest levels of CEO duality existed in Saudi Arabia (0.41) and Kuwait (0.42). The average educational level was very high in Saudi Arabia (0.67) and United Arab Emirates (0.58), indicating that the majority of board members had graduate and post-graduate degrees. As for gender diversity, the results indicated that the presence of women in boards is very low in GCC countries, particularly in Saudi Arabia and Oman, wherein there was a total absence of women on bank boards. In contrast, the highest level of gender diversity existed in the United Arab Emirates (0.194) and Bahrain (0.198).

Saudi Arabia and Qatar had the largest banks, with an average bank size of 7.793 and 7.492, respectively. Saudi Arabia and the United Arab Emirates exhibited the highest average of GDP from 2019 to 2023. The average value of GDP in Saudi Arabia and UAE was 2.2385 and 2.1837, respectively. The highest level of the liquidity risk ratio existed in Omani banks (88.43), followed by Qatari banks (85.99).

5.2. Results of Hypothesis Testing

5.2.1. Summary of Results

Based on the results of the two-stage least squares regression model in

Table 3. Two-stage least squares regression results.

	Dependent Variable: ROA				Dependent Variable: ROE
	Model 1 (Baseline Model)		Model 3 (Interaction Model)		Model 2 (Baseline Model)		Model 4 (Interaction Model)
	Coefficient	p-Value	Coefficient	p-Value	Coefficient	p-Value	Coefficient	p-Value
BSI	0.0374	0.0000	0.0329	0.0000	0.0594	0.0000	0.0602	0.0000
BIN	0.0410	0.0007	0.0427	0.0000	0.0352	0.0000	0.0540	0.0002
BDU	0.0125	0.1593	0.0194	0.0948	0.0331	0.0002	0.0429	0.0006
BED	0.0292	0.0525	0.0284	0.0692	0.0134	0.0837	0.0152	0.0719
BGE	0.0394	0.0002	0.0403	0.0000	0.0221	0.0000	0.0301	0.0001
BSI*BAZ			0.0442	0.0000			0.0671	0.0000
BIN*BAZ			0.0481	0.0000			0.0566	0.0000
BDU*BAZ			0.0284	0.1352			0.0194	0.1252
BED*BAZ			0.0324	0.0622			0.0415	0.0711
BGE*BAZ			0.0462	0.0000			0.0428	0.0000
GDP per capita	0.0115	0.0012	0.0100	0.0000	0.0093	0.0000	0.0103	0.0010
LRR	0.0383	0.0833	0.0236	0.0684	0.0299	0.1222	0.0194	0.0951
BAZ	0.03221	0.0000	0.0285	0.0000	0.0422	0.0000	0.0395	0.0000
R2	0.5594		0.6603		0.5823		0.6701
F-Statistics	5.6426		6.1221		5.9582		6.4491

, the hypotheses and their support or rejection are stated below.

Hypothesis 1:

Board gender diversity improves bank financial performance among GCC banks, as measured by increases in return on assets and return on equity from 2019 to 2023. Fully supported.

Hypothesis 2:

Board size improves bank financial performance among GCC banks, as measured by increases in return on assets and return on equity from 2019 to 2023. Fully supported.

Hypothesis 3:

CEO duality improves bank financial performance among GCC banks, as measured by increases in return on assets and return on equity from 2019 to 2023. Partly supported.

Hypothesis 4:

The presence of independent members on boards improves bank financial performance among GCC banks, as measured by increases in return on assets and return on equity from 2019 to 2023. Fully supported.

Hypothesis 5:

Higher educational levels of board members improve bank financial performance among GCC banks, as measured by increases in return on assets and return on equity from 2019 to 2023. Rejected.

Hypothesis 6:

Bank size moderates the relationship between board characteristics and bank financial performance among GCC banks, as measured by increases in return on assets and return on equity from 2019 to 2023. Partly supported.

5.2.2. Discussion of Results

Board gender diversity (BGE) improved the financial performance of banks in GCC countries. The impact of BGE was positive and significant in models 1, 2, 3, and 4. This result confirmed the first hypothesis (H1) and indicates that women on the board enhance the problem solving and bring different perspectives, which can lead to improved financial performance of banks. These results are in accordance with Brahma et al. (2020), who showed that having three or more women on a board had a significant and positive impact on the financial performance.

Board size (BSI) had a positive and significant impact on ROA and ROE. These findings confirmed the second hypothesis (H2), indicating that a larger board size could bring broader skills and expertise, thereby enhancing the decision-making process and financial performance of banks. These results corroborate findings of Buallay and Hamdan (2019), who found that a larger board size improves the financial performance of banks.

The impact of board duality (BDU) on the financial performance of banks in GCC countries was mixed. On the one hand, there was a positive and significant impact of CEO duality on ROE, and a non-significant impact of CEO duality on ROA. Return on equity is the return to shareholders, while return on assets is a measure of profitability. This result suggests that when the CEO acts as board chair, he or she may strive to increase the equity return of shareholders, who wield influence over CEO retention and pay, as owners of the firm. In contrast, CEOs may show little interest in increasing profits or improving the efficiency of asset management. This result is in line with the findings of Fang et al. (2020) and led to partly confirming Hypothesis 3 (H3).

The positive impact of board independence (BIN) on ROA and ROE implies that higher board independence is associated with a high level of financial performance. This result confirmed Hypothesis 4 (H4), in which the existence of independent members increased the objectivity of the decision-making process, encouraged constructive debates, and improved accountability and transparency.

The educational level of the board did not show any significant impact on ROA and ROE of GCC banks. This result did not support Hypothesis 5 (H5), suggesting the marginal role of advanced degrees. In the banking sector, professional experience in risk management and knowledge of regulations are of greater value than academic knowledge. This result contrasts with the findings of García-Meca et al. (2015), who concluded that board members with advanced degrees are able to make rational decisions, which enable banks to enhance their performance.

Hypothesis 6 was partly supported in that bank size significantly moderated the gender diversity–financial performance relationship, the board size–financial performance relationship, and the board independence–financial performance relationship. Bank size had no moderator effect on the CEO duality–financial performance relationship, or the board member educational level–financial performance relationship.

The positive and significant impact of the interaction between board size and bank size (BSI*BAZ) and between board independence and bank size (BIN*BAZ) on the financial performance suggested that the advantages of having a larger size and more independent board are amplified in larger banks. Larger banks have the capacity to hire diverse and independent board members, which can enhance the management efficiency and financial performance of banks in GCC countries. In large banks, board size and board independence are more visible due to their market size. Thus, having more skilled and independent board members could be observed as a positive signal and lead to improved managerial accountability and trust with stakeholders.

The positive impact of the interaction between gender diversity of the board and bank size (BGE*BAZ) on the financial performance of banks indicated that larger banks value the presence of professional women on boards of directors. The existence of gender diversity in larger banks that operate in competitive markets increases the bank’s capacity to address a variety of customers, depositors, and shareholder needs. In large banks, the presence of women is more visible, thereby encouraging constructive discussion and the development of innovative solutions that benefit financial performance. The results did not show significant impacts of the interaction between duality and bank size (BDU*BAZ) and between board educational level and bank size (BED*BAZ) on financial performance. These findings suggest that the effects of CEO duality and educational levels of board members are impervious to increases in bank size.

As for the control variables, the results indicated that GDP and bank size had positive and significant effects on ROA and ROE. Banks in GCC countries are affected by the economic cycle of the region, and larger bank sizes could benefit from the economies of scale.

5.2.3. Additional Tests

Generalized method of moments is an econometric technique that supplements OLS regression. Generalized method of moments (GMM) regressions were used to test the consistency and validity of the observed results. The GMM model detected the presence of errors in regressions due to heteroskedasticity, autocorrelation, and complex endogeneity. It also eliminated the problems of unobserved variables.

Table 4. GMM results.

	Dependent Variable: ROA				Dependent Variable: ROE
	Model 1 (Baseline Model)		Model 3 (Interaction Model)		Model 2 (Baseline Model)		Model 4 (Interaction Model)
	Coefficient	p-Value	Coefficient	p-Value	Coefficient	p-Value	Coefficient	p-Value
BSI	0.0364	0.0000	0.0382	0.0000	0.0603	0.0000	0.0521	0.0000
BIN	0.0433	0.0000	0.0503	0.0000	0.0402	0.0000	0.0600	0.0000
BDU	0.0162	0.0757	0.0204	0.0550	0.0201	0.0006	0.0395	0.0003
BED	0.0257	0.0632	0.0302	0.0494	0.0201	0.0562	0.0178	0.0514
BGE	0.0388	0.0000	0.0523	0.0000	0.0137	0.0000	0.0256	0.0000
BSI*BAZ			0.0497	0.0000			0.0606	0.0000
BIN*BAZ			0.0536	0.0000			0.0638	0.0000
BDU*BAZ			0.0273	0.0631			0.0301	0.0863
BED*BAZ			0.0262	0.0749			0.0455	0.0505
BGE*BAZ			0.0606	0.0000			0.0390	0.0000
GDP per capita	0.0115	0.0000	0.0131	0.0010	0.0134	0.0012	0.0132	0.0000
LRR	0.0362	0.0622	0.0155	0.0547	0.0301	0.0955	0.0166	0.0552
BAZ	0.0369	0.0000	0.0270	0.0000	0.0393	0.0001	0.0302	0.0000
AR(1)-P	−2.1227	0.03232	−2.2142	0.0284	−2.5021	0.02048	−2.1461	0.0302
AR(2)-P	0.06937	0.3827	0.05937	0.29575	0.5891	0.2658	0.6004	0.2869
Hansen’s j-Test	12.3052	0.3757	11.2722	0.2947	10.4831	0.2845	11.7732	0.3001

reports the results of GMM regressions.

The results of Table 4 reinforce the observed findings in Table 3. Board size, board independence, and gender diversity in boards had positive impacts on ROA and ROE. Furthermore, bank size moderated the positive impacts of board size, board independence, and gender diversity on boards on the financial performance of banks in GCC countries, suggesting the absence of heteroskedasticity and unobserved variables. The Hansen’s j-tests were greater than 0.05, indicating that the instruments used were valid and not correlated with error terms. The Arellano–Bond test for AR(1) and AR(2) confirmed the absence of second-order autocorrelation, which validated the GMM model.

6. Conclusions and Implications

6.1. Theoretical Implications

This paper advanced theoretical knowledge by revealing the impact of corporate governance mechanisms in the GCC region—a novel research area. It also contributed to the theoretical literature on the influence of corporate governance mechanisms on financial performance. In the GCC region, banks benefit from gender diversity, large size, and independent members. All of these attributes broaden the knowledge of bank decision-making, leading to creativity and innovation in decision-making. As there is no prior research on these corporate governance mechanisms in this region, the findings add to nascent knowledge of corporate governance in the Middle East.

The findings largely support theoretical papers on corporate governance in general, i.e., outside the region, which found positive associations between gender diversity and financial performance (Brahma et al., 2020; García-Meca et al., 2015), board independence and financial performance (Haniffa & Hudaib, 2007), and board size and financial performance (Kalsie & Shrivastav, 2016; Sahu & Manna, 2013). We proposed theoretical explanations using agency theory, resource dependence, and stewardship theory. All of these corporate governance mechanisms foster diversity of opinions, openness, and transparency, which reduce agency conflicts between management and shareholders, as both parties resolve differences by working together to achieve shareholder wealth maximization. Openness and transparency make boards responsible stewards of the firm. Likewise, relationships with vendors, customers, unions, and community organizations benefit from trust and transparency, as resources are shared and disputes among parties are resolved.

The study also tempered the perspective on CEO duality, which has often been associated with negative governance outcomes. For example, Naseem et al. (2020) observed the use of excessive debt in Pakistani firms with CEO duality. Fang et al. (2020) observed that CEO duality exacerbated the negative influence of CEO overconfidence on stock price volatility in Chinese firms.

Where duality positively affected ROE, as in this study, the unity between management and the board could drive more coherent and shareholder-focused strategies at times, even if unity does not enhance the efficiency of the assets. In this respect, it would appear that not all the assumptions of agency theory grounded upon a separation of powers are appropriate in every instance, but rather in specific cultural and institutional contexts, such as that of the GCC countries. The GCC countries may value the stability and clarity of leadership provided by CEOs who hold Board Chair positions of banks. This may be a cultural characteristic of bank employees in the Middle East, which warrants further investigation.

Moreover, the non-significance of educational qualifications lends credence to the notion that practical experience is valued over mere educational qualifications in the banking industry, hence contributing to the literature on the role of board member expertise. This further means that, theoretically speaking, as much as formal education may be emphasized in the selection of board members, this may mean little in industries where the demand for hands-on experience in financial matters and risk management is key to success.

The moderating role of bank size suggests that large banks value new ideas, new perspectives, and innovative decisions by placing women directors on the board, placing non-employees on the board, and increasing the board size. This result is to be expected given the location of large banks in cities, with an international clientele and employees from diverse backgrounds with a range of skills and experiences. The complexity of selling a variety of different products and services by large banks requires boards that are creative, flexible, and accommodating of diverse viewpoints. Conversely, small banks have a few simple product lines that do not require a breadth of skills to market, thereby diminishing the need for openness and professionalism. In such institutions, board gender diversity, board independence, and board size will not influence financial performance favorably. This finding extends resource dependence theory by illustrating how such an exogenous factor as bank size can impact internal structures of governance and, subsequently, performance outcomes.

6.2. Policy Implications

The findings from this paper have major implications for policymakers, regulators, and bank executives in the GCC region. First, due to the positive influence of larger board size, board independence, and gender diversity on financial performance, banks are encouraged to enhance the diversity and independence of their boards. Bank leaders should give thought to board membership expansion, considering additions of independent directors and women, as this might have beneficial impacts on monitoring, decision-making, and good financial performance.

The second finding on CEO duality is equally practically relevant. While duality may align the responsibilities of chief executives with shareholders by focusing on shareholder returns, doing so may be at the expense of the operational efficiencies. This would imply that even though duality is tolerable in enhancing ROE, banks must be cautious of its weakness in the optimality of asset management. One of the policy directions could be the introduction of regulations or best practices that ensure the separation of the CEO and chairman in those instances where asset efficiency is a major concern. Third, in terms of the level of qualifications for board membership, the findings imply that experience is valued more highly than formal education in the banking industry. This infers that, banks, while recruiting board members, give more importance to the practical experience of the candidate in managing assets, controlling risks, and dealing with financial operations than to their academic qualifications. Lastly, the finding that bank size is a moderator of the relationship between board characteristics and performance suggests that regulators and banking institutions should consider the size of the bank when developing governance policies. Larger banks have a greater ability to attract diverse and independent directors, which implies that smaller banks may face greater challenges in implementing similar governance practices. More specific policies may be required to distinguish between banks by their size in order for the benefits of good governance practices to trickle down to smaller banks.

6.3. Research Limitations and Future Perspectives

Despite the aforementioned contributions, there were a number of limitations within this study, which can suggest avenues for future research. First, the study investigated banks operating only in the GCC countries, and the generalizability of the results to other regions or industries is not certain. The future studies might investigate whether the similar linkages between board characteristics and financial performance hold across different cultural or institutional contexts, such as in emerging markets or developed economies, to compare governance models across regions.

While informative for insights into the role of board characteristics, this study did not develop the mechanisms underlying how such characteristics drive performance. Further research might investigate whether independent boards or gender-diverse boards contribute to superior financial performance through more detailed, underlying processes, such as more sophisticated strategic decisions or more complete risk oversight. Third, this study could not capture governance as a dynamic process. Sometimes, due to market fluctuations and even changes in leadership, boards themselves change over time, and such dynamics can influence the association between board composition and performance. Longitudinal analyses of how changes in board composition influence changes over time in performance would be enlightening. Fourth, the study paid more attention to quantitative measures of financial performance, such as ROA and ROE, which cannot represent other dimensions of performance, including long-term growth, customer satisfaction, social and environmental responsibility, among others. Future research could enjoy an in-depth understanding of the broader impact governance practices could contribute toward perceived bank success by incorporating more holistic metrics of performance. Last, but not least, reliance on cross-sectional data limited the possibility to establish causality from this study. Longitudinal or experimental designs might trace the causal pathways between the characteristics of the board and financial performance. Moreover, future research could investigate how the interaction of the board’s characteristics with other contingency factors, such as the corporate culture or regulatory environment, further affects performance outcomes. Family ownership and ownership concentration are two such moderators. Family owners may restrict gender diversity, restrict independent directors, and reduce board size by placing family members on the board. Likewise, ownership concentration with large, politically connected shareholders may exert an independent effect on financial performance. Therefore, the influence of both family ownership and ownership concentration must be examined.

In sum, the study thus provided valuable insights into the governance–performance relationship in GCC banks. However, ample avenues are left for further research to refine these findings and to make extensions that are likely to create considerable added value from cross-regional comparisons, longitudinal analyses, and further investigation of mechanisms.