Board Structure and Financial Technology in Banks: Gulf Countries

(Abdulateif Abdulrhman Almulhim)

---

Abstract

This study examines the impact of board composition on the financial technology of banks listed on the stock exchanges of the Gulf Cooperation Council (GCC) countries. The study focuses on the size of the board, the independent members, the number of board meetings, and their impact on mobile banking, automated teller machines, point-of-sale terminals, and Mada Atheer, which are used as proxies for financial technology. In addition to the Ordinary Least Squares (OLS) method, the study uses the Generalized Method of Moments (GMM) system to control the endogeneity and heteroscedasticity issues. The sample consists of all banks listed in the GCC over eleven years from 2010 to 2020. The study found that the size of the board, the independent directors, and the number of board meetings are all positively and significantly associated with banks' financial technology. Regarding the financial characteristics of banks, the study found that banks' age and financial performance are positively and significantly associated with financial technology, while financial leverage is negatively related to financial technology. The findings of this study have implications for boards of directors of banks, which should continue to invest in banks' financial technology to improve their profitability and competitiveness.
KEYWORDS
Banking sector, board composition, corporate governance, financial leverage, financial performance, fintech
PDF

References

Adam, R.B. and Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94(2), 291–309. DOI: 10.1016/j.jfineco.2008.10.007  
Al-Matari, E.M., Mgammal, M.H., Alosaimi, M.H., Alruwaili, T.F. and Al-Bogami, S. (2022). Fintech, Board of directors and corporate performance in Saudi Arabia financial sector: Empirical study. Sustainability, 14(17), 10750. DOI: 10.3390/su141710750
Al-Sartawi, A. (2018). Ownership structure and intellectual capital: Evidence from the GCC countries. International Journal of Learning and Intellectual Capital, 15(3), 277–91. DOI: 10.1504/IJLIC.2018.094716
Almulhim, A.A. (2022). Board structure and stock market liquidity: Evidence from Saudi's banking industry. Asian Economic and Financial Review, 12(11), 950–68. DOI: 10.55493/5002.v12i11.4644
Almulhim, A.A. (2023). Effects of board characteristics on information asymmetry: Evidence from the alternative investment market. Heliyon, 9(6), e16510. DOI: 10.1016/j.heliyon.2023.e16510
Almulhim, A.A. and Aljughaiman, A.A. (2023). Corporate sustainability and financial performance: The moderating effect of CEO characteristics. Sustainability, 15(16), 12664. DOI: 10.3390/su151612664
Almulla, D. and Aljughaiman, A.A. (2021). Does financial technology matter? Evidence from an alternative banking system. Cogent Economics and Finance, 9(1), 1934978. DOI: 10.1080/23322039.2021.1934978
Alotaibi, M. and Asutay, M. (2015). The IT infrastructure and e-banking facilities in Saudi banking system environment. International Journal of Economics, Commerce and Management, 3(4), 1–18. 
Alzyood, M. (2017). The Consequence of mobile banking on the performance of commercial banks in Saudi Arabia. International Journal of Research in Finance and Marketing, 7(12), 2231–5985.
Balsmeier, B., Fleming, L. and Manso, G. (2017). Independent boards and innovation. Journal of Financial Economics, 123(3), 536–57. DOI: 10.1016/j.jfineco.2016.12.005
Barney, J.B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120.
Baysinger, B. and Hoskisson. R.E. (1990). The composition of boards of directors and strategic control: Effects on corporate strategy. Academy of Management Review, 15(1), 72–87. DOI:10.2307/258106
BCBS (The Basel Committee on Banking Supervision). (2003). Risk Management Principles for Electronic Banking. Available at: https://www.bis.org/publ/bcbs98.pdf (accessed on 10/12/2022).
Brunnermeier, M.K. (2009). Deciphering the liquidity and credit crunch 2007–2008. The Journal of Economic Perspectives, 23(1), 77–100. DOI: 10.1257/jep.23.1.77 
Chen, C., Lin, B., Lin, Y. and Hsiao, Y. (2016). Ownership structure, independent board members and innovation performance: A contingency perspective. Journal of Business Research, 69(9), 3371–79. DOI: 10.1016/j.jbusres.2016.02.007
Chi, C. (2017). The Effect of Corporate Governance on Financial Innovation-Taiwan’s Financial Industry as an Example. Master’s Dissertation, Southern Taiwan University Science and Technology, Tainan, Taiwan.
Fama, E.F. and Jensen, M.C. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301–25.
Fintech-Saudi. (2020). Fintech Saudi Annual Report 2019/2020. Available at: https://fintechsaudi.com/wp-content/uploads/2020/03/Fintech_Saudi_Annual_Report-Eng.pdf (accessed on 12/12/2022).
Forbes, D.P. and Milliken, F.J. (1999). Cognition and corporate governance: Understanding boards of directors as strategic decision-making groups. Academy of Management Review, 24(3), 489–505. DOI: 10.5465/amr.1999.2202133
Francis, B., Hasan, I. and Wu, Q. (2012). Professors in the boardroom and their impact on corporate governance and firm performance. Financial Management, 44(3), 547–81. DOI: 10.2139/ssrn.2474522
FSB (Financial Stability Board). (2017). FinTech Credit: Market Structure, Business Models and Financial Stability Implications. Available at: https://www.bis.org/publ/cgfs_fsb1.pdf (accessed on 15/12/2022).
Gu, S. (2020). Effects of corporate governance on R&D investment in Marine technology enterprises. Journal of Coastal Research, 110(n/a), 167–70. DOI: 10.2112/JCR-SI110-040.1
Halili, R. (2014). The Impact of Online Banking on Bank Performance. Master’s Dissertation, Charles University, Prague, Czech Republic.
John, K. and Senbet, L.W. (1998). Corporate governance and board effectiveness. Journal of Banking and Finance, 22(4), 371–403. DOI:10.1016/S0378-4266(98)00005-3
Kesner, I. (1987). Directors’ stock ownership and organizational performance: An investigation of fortune 500 companies. Journal of Management, 13(3), 499–508. DOI:10.1177/014920638701300306
KPMG (Klynveld Peat Marwick Goerdeler). (2020). Kingdom of Saudi Arabia Banking Perspectives 2020. Available at: https://assets.kpmg/content/dam/kpmg/sa/pdf/2020/kpmg-ksa-banking-perspectives-2020.pdf (accessed on 20/12/2022).
Ky, S., Rugemintwari, C. and Sauviat, A. (2019). Is Fintech Good for Banks’ Performance? The Case of Mobile Money in the East African Community. Available at: https://ssrn.com/abstract=3401930 (accessed on 22/12/2022).
Lee, C-C., Li, X., Yu, C-H. and Zhao, J. (2021). Does fintech innovation improve bank efficiency? Evidence from China’s banking industry. International Review of Economics and Finance, 74(n/a), 468–83. DOI: 10.1016/j.iref.2021.03.009 
Lipton, M. and Lorsch, J.W. (1992). A modest proposal for improved corporate governance. Business Lawyer, 48(1), 59–77.
Lv, P. and Xiong, H. (2022). Can FinTech improve corporate investment efficiency? Evidence from China. Research in International Business and Finance, 60(n/a), 101571. DOI: 10.1016/j.ribaf.2021.101571 
Merton, R.C. (1992). Financial innovation and economic performance. The Journal of Applied Corporate Finance, 4(4), 12–22. DOI: 10.1111/j.1745-6622.1992.tb00214.x
Mushtaque K., Ahsan, K. and Umer, A. (2015). IT governance issues in banking sector of Pakistan. Research Journal of Recent Sciences, 4(3), 9–15. 
Ntim, C.G. and Osei, K.A. (2011). The impact of corporate board meetings on corporate performance in South Africa. African Review of Economics and Finance, 2(2), 83–103.
Orji, A., Ogbuabor, J.E., Okon, A.N. and Orji, O.I.A. (2018). Electronic banking innovations and selected banks performance in Nigeria. The Economics and Finance Letters, 5(2), 46–57. DOI: 10.18488/journal.29.2018.52.46.57 
Oua, C., Hung, S., Yen, D. and Liu, F. (2009). Impact of ATM intensity on cost