Corporate Governance, Emerging Technology, and Banks' Performance In G7 Countries:Three Essays

Al-Bakri, Kamal

Abstract

This thesis consists of three essays on corporate governance (CG) and performance of banks in G7 countries. The first essay
empirically investigates the effect of CG practises on banks’ financial performance using Return-On-Assets, Return-On-Equity, and NetInterest-Margin. The essay concludes that all mechanisms are considered statistically significant to at least one of the aforementioned
performance metrics.
Our findings indicate that reconsidering and reinforcing CEO duality practises, lowering board size, board meetings, and audit
committee meetings, while increasing audit committee size, having more independent and female directors along with enhancing
governance disclosures, improve financial performance. Although maintaining a diverse board is encouraged, banks must consider the
drawbacks of having an excess number of female directors as they negatively impact net interest margin.
The second essay empirically examines the impact of CG mechanisms on market performance measured by Price-to-Earnings,
Price-to-Book Value, Dividend Yield, and Price Risk. The findings suggest that all mechanisms significantly affect at least one of the
market performance measures except for board gender diversity. The findings revealed that lowering board and audit committee meeting
frequencies and separating leadership roles while increasing independent directors and enhancing transparency of governance disclosures
increase stock performance synchronicity by market reactions.
The first two essays include additional empirical investigations that were conducted using a unique Two-Step algorithmic analysis
to classify banks according to their CG behaviors. The results revealed behavioral insights and four banking groups were identified,
whereby two groups were categorised as shareholders oriented and the remaining two were classified as market-oriented, as segregated
by multiple CG mechanisms. Following the cluster analysis, CG practises within each group were examined to determine their impact on
the market and financial performance metrics outlined in each essay. Three additional metrics were examined in essay two (CapitalAdequacy-Ratio, Cost-to-Income, and Asset Quality).
The regression analysis results for each banking cluster reveal statistically significant mixed relationships between financial
performance and stability metrics, which vary based on the corporate governance practises of each banking cluster. The enhancement of
the banking system's performance may necessitate the development of a hybrid model incorporating dynamic CG practises and utilising
machine learning tools. However, in the next decade, the banking industry will increasingly rely on advanced digital technology to carry
out important aspects of governance and risk management. This is due to the Fourth Industrial Revolution (4IR), which involves rapid
technological advancements and increased global integration. It is important to have effective governance in place to address the
complexities and potential risks associated with these developments. Failure to do so could pose threats and uncertainties for investors
and innovators, ultimately jeopardising the global financial system at risk.
The third essay investigates the future of banking corporate governance by employing a combination of thematic analysis of
existing literature and empirical examination of the influence of emerging technology and innovation on the financial performance and
non-financial ESG disclosures quality (indicators of the fundamental basis of corporate governance) of banks in G7 countries from 2010-
2021. This study aims to analyse the effects of technological innovation and growth on the financial sustainability of banks, taking into
account the presence of CEO/chairperson roles and the potential conflicts between agency and stewardship. The findings of our study
demonstrate that the progress in technology within the banking industry of G7 countries improves financial performance, stability, and
transparency. Furthermore, this study provides empirical evidence that technological advancements mitigate agency issues by eliminating
opportunistic behaviour and information asymmetry via enhanced transparency and reporting quality. Therefore, it is advisable for
legislative and regulatory authorities, banks, investors, and other relevant parties to reassess the implementation of stewardship theory
practises in the context of digitalisation and innovation in order to avoid any exacerbation in agency problems.

• Thesis Type: Thesis
• Deposit Date: Dec 21, 2023
• Publicly Available Date: Feb 27, 2024
• Award Date: Jan 26, 2024