Bases teoricas

Multiple Regression Model: the multiple linear regression model can be represented, in its general form, as follows:

Y

β

β

f

(X

)

β

f

(X

)

β

f

(X

)

ε

Y : dependent variable

X1, …………, Xk : independent (explanatory) variables

βo, …………, βk : regression model coefficients (parameters).

f1, …………, fk : functions (transformations) of independent variables, such that the

relationship between Y and each f(X) is assumed to be linear.

ε

The dependent variable for the first three models is the bank performance and for the fourth model is risk management. The independent variables contain continuous variables and dummy variables that contain proxies of five groups. The first is corporate governance characteristics (board characteristics), board leadership, and board composition. The second group is top management turnover. The third group is the existence of main committees. The fourth group is the financial variables related to corporate governance. The fifth group is the control variables: ownership structure, bank size, bank type, and financial crisis.

Four regression models have been developed in this study to examine the association between the three constructs; corporate governance, risk management and bank performance as follows. Furthermore, four models will be run for the cumulative data of the GCC banking sector, which include the data of Islamic and Conventional banks. In addition, the four models will be run separately; one time for Islamic data, and another time for conventional data, to make a comparison between the results.

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BP = β0 + β1Bsize + β2Nexc + β3Gender + β4CEOturn + β5Rdual + β6Audcom + β7credinvscom + β8Capratio + β9LDR+ β10Riskcom + β11Btype + β12Fincris + β13Govown + β14Banksize + ε

This study follow the recent direction in literature of assessing the relationship between corporate governance and bank performance. In addition, the independent variables examined in the current study can be classified into five groups. The first is corporate governance characteristics (board characteristics): board leadership (role duality); Board composition (non-executive directors and gender diversity); and board size. The second group is top management turnover; (CEO-Turnover). The third group is the existence of main committees such as; (audit committee, risk committee, and credit & investment committee). The fourth group is the financial variables related to corporate governance (capital ratio and loan to deposits ratio). The fifth group is the control variables, such as: ownership structure; (government ownership), firm size (bank size), bank type (Islamic and conventional), financial crisis (before and after crisis). A summary of the variables used in this study is presented in the previous section to show the definition and measurement of the abovementioned dependent and independent variables examined in the current study. Model (2); Test the association between risk management and performance:

BP = β0 + β1NPL + β2Caprisk + β3credrisk + β4CAR+ β1Liqrisk + β11Btype + β12Fincris + β13Govown + β14Banksize + ε

Model two of this study assess the relationship between risk management and bank performance. In addition, the independent variables examined in the current study can be classified into two groups. The risk management group consists of these variables (non- performing loans - capital risk – credit risk – capital adequacy ratio – liquidity risk). The second group is the control variables, such as: ownership structure; (government ownership), firm size (bank size), bank type (Islamic and conventional), financial crisis (before and after crisis).

Model (3); Measure the relationship between corporate governance, risk management and bank performance:

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BP = β0 + β1Bsize + β2Nexc + β3Gender + β4CEOturn + β5Rdual + β6Audcom + β7Credinvscom + β8Capratio + β9LDR + β10Riskcom + β11NPL + β12Caprisk + β13credrisk + β14CAR+ β15Liqrisk + β161Btype + β17Fincris + β18Govown + β19Banksize + ε

Model three of this study assess the implications of both corporate governance and risk management on bank performance. In addition, the independent variables examined in the current study can be classified into six groups. The first is corporate governance characteristics (board characteristics): board leadership (role duality); Board composition (non-executive directors and gender diversity); and board size. The second group is top management turnover; (CEO-Turnover). The third group is the existence of main committees such as; (audit committee, risk committee, and credit & investment committee). The fourth group includes the financial variables related to corporate governance (capital ratio and loan to deposits ratio). The fifth group comprises the risk management group that consists of (non- performing loans - capital risk – credit risk – capital adequacy ratio – liquidity risk). The sixth group is the control variables such as: ownership structure; (government ownership), firm size (bank size), bank type (Islamic and conventional), financial crisis (before and after crisis). Model (4) Test the association between corporate governance and risk management:

RM = β0 + β1Bsize + β2Nexc + β3Gender + β4CEOturn + β5Rdual + β6Audcom + β7Credinvscom + β8Capratio + β9LDR + β10Riskcom + β111Btype + β12Fincris + β13Govown + β14Banksize + ε

Model four of this study assess the effect of corporate governance on risk management. In addition, the independent variables examined in the current study can be classified into five groups. The first is corporate governance characteristics (board characteristics): board leadership (role duality); Board composition (non-executive directors and gender diversity); and board size. The second group is top management turnover; (CEO-Turnover). The third group is the existence of main committees such as; (audit committee, risk committee, and credit & investment committee). The fourth group is the financial variables related to corporate governance, which are (capital ratio and loan to deposits ratio). The fifth group is the control variables, such as: ownership structure; (government ownership), firm size (bank size), bank type (Islamic and conventional), financial crisis (before and after crisis).

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