Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)

Abstract

The Impact of Board of Directors Characteristics on Banks Performance: Evidence from Jordan

Author(s): Alaa Mohammad AlQudah, Mohammad Jamal Azzam, Mahmoud Mohammad Aleqab, Mohammad Ziad Shakhatreh

The awareness of board of directors’ role in enhancing firms’ financial performance has increased noticeably over the last years. Previous studies, however, have covered a traditional set of characteristics (i.e. board independence, board size and board meetings), but few studies are conducted to explore the impact of a new set of characteristics (i.e. political connections, number of foreign members and busy directors) on banks’ performance within the context of emerging markets. This study was motivated to combine the new set of characteristics with the traditional ones to gauge the impact of them on financial performance. Employing an Ordinary Least Square (OLS) regression technique on a sample of 14 Jordanian banks listed at the Amman Stock Exchange between 2013 and 2017 revealed that the only variable that has a significant positive impact on financial performance is board size. Busy directors have not obtained the sufficient knowledge and experience or at least they lacked the required time to enhance performance. Politically connected directors as well as foreign members were a stumbling block in the way to positively improve performance. Board meetings and independence were found to be insignificantly associated with return on assets. In a nutshell, the Jordanian regulators need to devote more efforts to revise the suggested characteristics related to boards of directors; since the current composition of boards has been presented as a weak monitoring tool to fulfil principals’ goals through enhancing banks’ performance.