The impact of public legal protection on the internal corporate governance efficiency in banking sector

Abstract

PurposeThe purpose of this research is to reveal the impact of public legal protection on the efficiency of internal corporate governance in banks. In addition, this research proposes a new corporate governance index that could be employed by the banking sector to evaluate the performance of their internal corporate governance mechanisms.Design/methodology/approachOrbis database, annual reports and direct questionnaire are used to collect corporate governance data of 127 banks from 14 countries during 2020. The Mann–Whitney U-test is employed to compare the efficiency of corporate governance mechanisms based on three subsamples of countries having different legal protection levels (weak, middle and strong).FindingsThis research suggests a new corporate governance index for banks based on seven constructs and 62 variables. This new non-parametric index could be used by bankers to improve the monitoring process and enhance the overall performance of banking. The results of this research show that the existence of a strong public legal protection environment within a specific country enhances the efficiency of corporate governance mechanisms in the banking sector and thus, leads to improve the protection of shareholders, depositors and other relevant stakeholders. However, in countries that are characterized by weak legal protection level, the efficiency of corporate governance mechanisms is very low and there are possibilities of entrenchment, expropriation and extraction of private benefits. These findings could be interpreted within the prediction of agency, moral hazard, asymmetric information, political and entrenchment theories.Originality/valueThis research paper provides information that bankers and other relevant stakeholders in the banking sector working in MENA (the Middle East and North Africa) and European countries. A strong public legal protection level could improve the efficiency of internal corporate governance mechanisms within banks.

Does Electronic Payment Services Create Value to Bank Performance? Evidence from Southeast Asia

“…The findings shows that neither of the electronic payment transaction values are significantly related to RevGrowth it . This is opposes to the findings of the previous studies by El-Chaarani and El Abiad (2018) and Aduda and Kingoo (2012), however, those findings are based on non-Asian bank sample. Simpson (2002) justified that electronic payment generate higher revenue for banks in countries with strong information technology framework.…”

“…The diffusion of ICT technologies has fostered the expansion of e-commerce, banking, finance and payment systems. This forced bank to change the way providing financial products and services in this modern era to survive in the highly competitive market (El-Chaarani & El Abiad, 2018). Sujud and Hachem (2017) revealed that bank innovation positively affects bank's profitability and return on assets (ROA).…”

Formulation of a corporate governance index for banking sector: The GIB.X62

“…The role of this index is to provide bankers a tool to monitor the efficiency of their corporate governance designs. This is quite different to other approaches relying on public legal protection for example [ 14 ]. Whereas such indices rely on factors such as transparency, accountability, and risk management, our index focuses on the efficiency of the corporate governance designs.…”

“…In case of banks, Vicente-Ramos et al [ 15 ] and El-Chaarani and El-Abiad [ 14 ], argued that the existence of efficient corporate governance is an important tool to reduce the agency conflicts that could occur between debtholders, managers, and owners. They stated that managers and manager-owners can select risky investments and strategies to raise their private benefits without considering the interests of external owners and debtholders.…”

“…Studies have shown that performance of banks has been correlating with efficient corporate governance processes [ [8] , [9] , [10] , [11] ]. To address the agency problems in the sector several authors have recommended that banks should work towards improving governance structures [ [11] , [12] , [13] , [14] ]. They also encouraged governments to review their financial laws to prevent the manipulation of corporate governance mechanisms.…”