The effect of political risk and corporate governance on bank stability in the MENA region: Did the Arab Spring uprisings matter?

Figures & data

Table 1. Sample distribution by countries

N	Country	Number of banks	Observations	Relative %
1.	Bahrain	11	99	10.38%
2.	Egypt	22	198	20.75%
3.	Israel	8	72	7.55 %
4.	Jordan	8	72	7.55%
5.	Kuwait	6	54	5.66%
6.	Lebanon	6	54	5.66 %
7.	Oman	6	54	5.66%
8.	Palestine	2	18	1.89 %
9.	Qatar	6	54	5.66%
10.	Saudi Arabia	8	72	7.55%
11.	Syria	6	54	5.66 %
12.	Tunisia	4	36	3.77 %
13.	United Arab Emirates	12	108	11.32%
14.	Yemen	1	9	0.94%
Total		106	954	100%

Table 2. Variables definitions

Variables	Measures	Definitions
Financial stability indicators
Liquidity risk	NPL	The ratio of non-performing loans to total loans
Credit risk	LLR/GR	The ratio of loan loss reserves to gross loans
Insolvency risk	Z-score	The sum of ROA plus capital assets ratio (CAR) scaled by the standard deviation of ROA (We proxy for insolvency risk by using the natural logarithm of Z-score)
Explanatory variables
Political stability	PStability	The perceptions of political instability and politically motivated violence, including terrorism
Board size	BSIZE	The natural logarithm of the total number of board of directors’ members (Arnaboldi et al., 2018)
Board meeting	BMEET	The number of board of directors’ meetings within the year (Dong et al., 2017)
Board independence	%INDEP	Percentage of independent non-executive directors on the board of directors (Faleye & Krishnan, 2017)
CEO duality	DUAL	A dummy variable that equals 1 if the CEO is also the Chairman of the board of directors; 0 otherwise (Faleye & Krishnan, 2017)
Gender diversity	GDiversity	A dummy variable that equals 1 if there is one woman at least on the board, and 0 otherwise
Audit committee size	ACSIZE	The number of audit committee members (Sun & Liu, 2014)
Audit committee meetings	ACMEET	The number of audit committee meetings within the year
Institutional ownership	INSTITOWNER	The total number of shares owned by institutions divided by the total number of shares of the bank
Managerial ownership	MANAGEOWNER	The total number of shares owned by managers divided by the total number of shares of the bank
Controls (bank-level)
Bank size	LogTA	Natural logarithm of total assets of a bank at the end of the year
Impaired loans/gross loans	IL_GL	This is a measure of the amount of total loans that are doubtful. The lower this figure is, the better the quality of the asset
Listed bank	LISTED	Dummy variable: 1 if the bank is listed in a stock market, 0 otherwise.
Bank age	LogAge	Natural logarithm of the difference between the sample year and the year of a bank’s first appearance
Return on average assets	ROAA	Performance for each bank year is calculated based on (ROA, which is net income divided by total assets
Cost inefficiency	COST/INCOME	Cost to income ratio
Controls (country level)
GDP growth rate	GDP	Annual gross domestic products (GDP) growth rate.
Inflation rate	INFLA	Inflation rate within countries

Table 3. Descriptive statistics for variables in the main tests

Full sample
Variables/ ratios	N	Mean	Median	Std.	Min	0.25	0.75	Max
NPL	954	0.033	0.029	0.043	0.002	0.019	0.044	0.083
LLR/GR		6.528	8.286	4.296	0.211	2.395	7.116	10.000
Z-score		4.113	4.195	1.342	0 .445	3.130	5.084	7.918
PStability		−.720	−.898	0.986	−2.974	−1.437	−0.040	1.224
BSIZE		9	9	0.096	5	8	11	15
%INDEP		0.610	0.625	0 .212	0 .083	0.444	0 .778	1
BMEET		7	6	0.147	3	5	8	16
BGender		0 .336	0.327	0.473	0	0	1	1
DUAL		0.153	0.151	0.359	0	0	1	1
INSTITOWNER		0.806	0.862	0.197	0.252	0.640	0.9874	1
MANAGEOWNER		0.314	0.307	0.464	0	0	1	1
ACSIZE		4	3	0.091	2	3	4	6
ACMeet		5	4	0.133	2	4	6	11
LogTA		5.485	5.478	.281	5.001	5.238	5.708	6.375
ROAA		0.014	0.0137	0.006	0.002	0.010	0.018	0.0306
CostIncome		1.609	1.601	0.174	0.965	1.513	1.710	2.668
LogAge		22	35	0.416	4	7	47	92
IL_GL		0.714	0 .771	.396	−0.474	0.436	1.016	1.632
LISTED		0.610	0.658	.488	0	1	0	1
GDP		0.034	0.030	0.016	−0.002	0.022	0.044	0.076
INFLA		0.029	0.033	0.075	−0.134	−0.015	0.077	0.213

Table 4. Pearson correlation matrix

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	(11)
(1) NPL	1.000
(2) LLRGR	0.151*	1.000
(3) Z-score	−0.089*	−0.161*	1.000
(4) PStability	−0.107*	−0.351*	0.077*	1.000
(5) BSIZE	0.005	−0.219*	0.212*	−0.079*	1.000
(6) %INDEP	−0.094 *	−0.001	−0.142*	0.134*	−0.147*	1.000
(7) BMEET	−0.141*	−0.095*	0.108*	0.029	0.248*	0.083*	1.000
(8) BGender	0.011	−0.179*	0.082*	−0.122*	0.378*	−0.141*	0.250*	1.000
(9) DUAL	0.064*	−0.086*	−0.031	−0.255*	0.052	−0.031	−0.023	0.125*	1.000
(10) INSTITOWNER	0.021	−0.105*	−0.074*	−0.049	−0.118*	−0.145*	−0.237*	0.060*	0.029	1.000
(11) MANAGEOWNER	0.161*	0.160*	0.097*	−0.053	0.165*	−0.083*	−0.146*	−0.102*	−0.106*	−0.326*	1.000
(12) ACSIZE	−0.093*	−0.198*	0.149*	0.082*	0.315*	−0.046	0.264*	0.111*	0.106*	0.067	−0.058
(13) ACMeet	−0.225*	−0.197*	0.164*	0.208*	0.217*	−0.014	0.495*	0.263*	−0.200*	−0.079*	−0.156*
(14) LogTA	−0.008	−0.010	−0.192*	0.021	0.116*	−0.069*	0.039	0.003	0.024	−0.016	−0.039
(15) ROAA	0.046	0.003	−0.147*	0.208*	−0.160*	0.075*	−0.206*	−0.134*	0.046	0.092*	−0.006
(16) LISTED	−0.058	−0.054	−0.066*	0.219*	−0.103*	0.157*	0.093*	−0.057	−0.094*	−0.059	−0.078*
(17) CostIncome	0.109*	0.138*	−0.268*	−0.308*	−0.024	0.020	−0.017	0.013	0.093*	−0.016	0.044
(18) LogAge	0.069*	−0.045	0.090*	0.213*	0.265*	−0.041	0.011	−0.085*	−0.091*	−0.216*	0.279*
(19) IL_GL	0.061*	0.016	0.013	−0.157*	0.000	−0.084*	0.025	0.173*	0.002	0.123*	−0.045
(20) GDP	−0.206*	−0.345*	0.408*	0.400*	0.143*	−0.015	0.165*	0.043	−0.067*	−0.086*	−0.026
(21) INFLA	0.171*	0.442*	−0.283*	−0.491*	−0.152*	−0.018	−0.085*	−0.042	0.041	−0.017	0.085*
	(12)	(13)	(14)	(15)	(16)	(17)	(18)	(19)	(20)	(21)
(12) ACSIZE	1.000
(13) ACMeet	0.190*	1.000
(14) LogTA	0.153*	0.023*	1.000
(15) ROAA	0.010	0.021	0.244	1.000
(16) LISTED	0.022	0.027	0.107*	0.183*	1.000
(17) CostIncome	−0.075*	0.008	0.003	0.192*	0.043	1.000
(18) LogAge	0.187*	0.058	−0.046	−0.080*	0.175	0.042*	1.000
(19) IL_GL	0.039	0.023	−0.111*	−0.008	−0.087*	0.153	0.425	1.000
(20) GDP	0.203*	−0.028	−0.146*	−0.432*	0.122*	−0.051	0.195*	0.274*	1.000
(21) INFLA	−0.255*	0.003	0.035	0.410*	−0.114*	−0.019	−0.787*	0.052*	0.362*	1.000

Note: The table presents descriptive statistics of all variables used in the regression models of the study. The sample period is between 2010 and 2018. Std. is the standard deviation. Min and Max are each variable’s minimum and maximum values, respectively. N is the number of bank-year observations. We also report on the paired sample mean test (T-test). The ***, **, * represent p-values of 0.01, 0.05, and 0.10. See, Table 2 for variable definitions.

Table 5. Multivariate analysis: 3SLS models for the associations between corporate governance and political stability on bank stability

	Financial stability
	NPL	LLRGR	Zscore
PStability	−0.024**	−0.383***	1.163***
	(−2.15)	(−8.96)	(3.52)
BSIZE	0.003**	−2.277***	1.298***
	(0.56)	(−0.98)	(2.81)
%INDEP	−0.003	0.063	0.005***
	(−1.16)	(0.07)	(0.03)
BMEET	0.008*	−0.051	−0.108**
	(1.67)	(−0.03)	(−0.32)
BGender	0.003**	−0.375	−0.158*
	(2.15)	(−0.84)	(−1.79)
DUAL	0.003**	0.645	−0.039***
	(2.18)	(1.08)	(−0.33)
INSTITOWNER	0.001	0.662***	−0.017**
	(0.32)	(0.60)	(−0.08)
MANAGEOWNER	0.001	0.244	0.197**
	(0.68)	(0.53)	(2.16)
ACSIZE	−0.016***	−6.384***	0.280***
	(−2.63)	(−2.83)	(0.62)
ACMeet	−0.016***	−0.292	−0.252
	(−3.26)	(−0.16)	(−0.70)
LogTA	−0.001	0.408	−0.859***
	(−0.76)	(0.66)	(−6.99)
ROAA	−0.018	−3.547**	0.399***
	(−0.21)	(−1.40)	(0.06)
LISTED	0.002**	−0.488	0.052
	(2.01)	(−1.12)	(0.60)
CostIncome	−0.001	−1.727	0.567**
	(−0.08)	(−1.52)	(2.51)
LogAge	0.004	−0.661	0.151***
	(0.00)	(−0.62)	(0.71)
IL_GL	0.001	1.236**	0.159**
	(0.67)	(2.07)	(1.33)
GDP	0.060*	2.579**	−2.705**
	(1.68)	(2.00)	(−1.02)
INFLA	0.002**	−3.982	0.132***
	(0.19)	(−1.10)	(0.18)
Constant	0.040***	3.346	6.707***
	(2.93)	(0.66)	(6.64)
Observations	1060	1060	1060
Year Effects	Yes	Yes	Yes
Country Effects	Yes	Yes	Yes
R^2	0.23	0.35	0.32
Wald Chi2	443***	495***	522***
LM Statistics (p-value)	000	000	000
Sargan test (p-value)	752	619	536

Table 6. Robustness check: 3SLS models for the associations between corporate governance and political stability on bank stability

	Arab Spring countries			Non-Arab Spring countries
	Panel A			Panel B
	(1)	(2)	(3)	(4)	(5)	(6)
	NPL	LLRGR	Zscore	NPL	LLRGR	Zscore
PStability	−0.017**	−0.254***	1.231**	−0.380	3. 318***	−0. 032***
	(−0.50)	(−8.12)	(2.17)	(−0.58)	(2.82)	(−0.59)
BSIZE	−0.013	−0.662**	−0.621***	0.008	−2.291**	1.494***
	(−0.88)	(−2.12)	(−0.71)	(1.14)	(−0.68)	(3.07)
%INDEP	−0.018**	3.706	0.054***	−0.002	0.214***	−0.057
	(−2.04)	(1.35)	(0.10)	(−0.76)	(0.17)	(−0.33)
BMEET	−0.001	12.347*	−2.009**	0.009**	−4.184**	0.120
	(−0.07)	(1.93)	(−1.64)	(2.07)	(−2.05)	(0.41)
BGender	0.005*	0.986**	−0.252***	0.001*	−1.467**	−0.069**
	(1.84)	(1.15)	(−1.53)	(0.19)	(−2.25)	(−0.74)
DUAL	0.004	0.799**	0.127***	−0.001**	−0.070	0.089
	(1.49)	(0.89)	(0.73)	(−0.23)	(−0.07)	(0.61)
INSTITOWNER	−0.007	0.495***	−1.182**	0.004**	−0.632	0.138
	(−0.83)	(0.19)	(−2.33)	(1.12)	(−0.44)	(0.67)
MANAGEOWNER	0.003	1.483*	−0.114**	0.003**	−0.486	0.102
	(0.77)	(1.40)	(−0.56)	(2.03)	(−0.79)	(1.16)
ACSIZE	−0.019	−2.194***	−0.846**	−0.007	3.136**	−0.189
	(−0.94)	(−4.25)	(−0.71)	(−0.96)	(1.00)	(−0.42)
ACMeet	−0.058***	4.352	−0.887	−0.001	1.547	−0.296**
	(−4.01)	(0.99)	(−1.05)	(−0.28)	(0.64)	(−0.86)
LogTA	0.003	1.359	−0.915***	−0.003	−0.099	−0.566***
	(0.74)	(1.14)	(−3.98)	(−1.51)	(−0.12)	(−4.55)
ROAA	0.206	2.560	1.851***	−0.195**	−5.642	−7.034
	(1.11)	(0.47)	(1.54)	(−2.00)	(−1.31)	(−1.11)
LISTED	0.003	0.144	0.192**	−0.002	−1.171*	0.012
	(1.08)	(0.16)	(1.08)	(−1.64)	(−1.91)	(0.14)
CostIncome	0.011**	0.456	0.027**	−0.003	1.351	−0.097
	(2.07)	(0.28)	(0.08)	(−0.68)	(0.76)	(−0.38)
LogAge	−0.007	1.202	0.724**	−0.002	−2.076	0.163
	(−1.22)	(0.65)	(2.05)	(−0.74)	(−1.57)	(0.87)
IL_GL	0.005**	0.637	0.071*	0.001	0.984	0.157
	(2.06)	(0.83)	(0.48)	(0.39)	(1.45)	(1.62)
GDP	0.103	1.453***	−1.011***	0.014	−47.038**	2.514
	(0.80)	(2.87)	(−2.62)	(0.28)	(−2.07)	(0.73)
INFLA	−0.007	22.905**	−1.496	−0.002	−1.030***	0.424
	(−0.21)	(2.33)	(−0.80)	(−0.15)	(−2.68)	(0.51)
Constant	0.077*	−3.604***	1.275***	0.031	3.368***	5.168***
	(1.75)	(−2.58)	(5.63)	(1.37)	(3.54)	(3.31)
Observations	341	341	341	719	719	719
Year Effects	Yes	Yes	Yes	Yes	Yes	Yes
Country Effects	Yes	Yes	Yes	Yes	Yes	Yes
R2	0.14	0.49	0.35	0.30	0.19	0.15
Wald Chi2	430***	563***	444 ***	383***	564***	434***
LM Statistics (p-value)	000	000	000	000	000	000
Sargan test (p-value)	583	734	410	458	437	676

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