The Impact of Ruling Family Board Members on the Performance of Commercial Banks

Abstract

We examine the impact of royal family involvement in the ownership and strategic management of commercial banks within the Gulf Cooperation Council (GCC) region. Existing finance literature has examined the impact of board members with political connections on bank performance to find mixed evidence of whether such connections have a positive or negative impact. However, such empirical studies have not been applied to the commercial banks of the GCC region. Our empirical analysis uses four separate metrics of performance to examine what influence board membership, board chairmanship and bank ownership shares by a royal family member has on bank performance. Our panel data analysis of GCC commercial bank data across six countries from 2013 to 2018 reveals that all three potential royal family roles exert a positive influence over GCC commercial bank performance. We derive these empirical results using relevant control variables at both the firm level and the industry level. Furthermore, we apply a system generalized moments of methods specification to our sample and find that these results are invariant to various specification robustness checks. Our results appear to support the Resource Dependency Theory (RDT), where the commercial banks rely on external resources to enhance financial performance.