The Effect Of Corporate Governance, Bank Characteristics And Macroeconomic Factors On Bank Credit Risk: Evidence From The Arabian Peninsula

Abstract

Banks are highly opaque, heavily regulated, intervened by government, and driven by information asymmetry and agency problems, which differentiate them from non• financial firms and underline the need for more distinct analysis. Recently, the banking sector has suffered from credit risk, which is the main cause of financial crisis and bank failure, and it has been proposed that corporate governance may enhance risk management and mitigate credit risk. Thus, this study attempts to examine the relationship between corporate governance, bank characteristics, and the macroeconomic factors, and credit risk by employing panel data regression. The random effects model is performed to examine the data of listed banks in the Arabian Peninsula countries, in which the final sample reaches 306 bank-years. The statistical outcome of this study reveals that effective corporate governance in terms of the segregation of the duties of the role of the chief executive officer (CEO) and the chairman of the board is associated with higher credit risk measured by non• discretionary loan loss provisions.