How corporate governance and ownership affect banks’ risk-taking in the MENA countries?

Abstract

Purpose: The purpose of this paper is to explore the relationship between corporate governance and risk-taking behaviour of banks operating in the Middle East and North African (MENA) countries. Design/methodology/approach: In doing so, the authors use a data set covering 165 banks located in 13 MENA countries over the period 2005–2012 and apply dynamic panel data methodology. Findings: The results show that good governance acting in the interests of shareholders could lead to excessive risk taking; in this sense, a conflict of interest between the stakeholders, interested in the solvency of the financial system, and shareholders, trying to maximise their benefit, may occur. The greater risk can be reinforced by the governance of the country and a strong macro governance framework can incentivise a higher risk exposure in banks, showing the influence of bank regulation and law enforcement on the risks taken by banks. Originality/value: To the best of the authors’ knowledge, this is the first paper showing that corporate governance is relevant for explaining risk taking at the country and bank levels in MENA countries.