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Abstract
Purpose
This paper aims to empirically assess the impact of gender diversity
and board of directors’ size on Islamic banks’ performance.
Design/methodology/approach
Hand-collected data set including 27 banks from 2005 to 2013 is
used to investigate the eect of the above mechanisms on banks’
performance as measured by return on equities and return on
assets. The study uses pooling regression, which requires
estimating a single equation on dierent cross-sectional data.
Specically, ordinary least squares is used to estimate the model.
Findings
Obtained results suggest that the presence of women on the board
of directors does not have a signicant inuence on banks’
performance. However, gender diversity in the management
department is found to have a negative and signicant impact.
Besides, the ndings prove that the board of directors’ size
adversely aects banks’ performance.
Research limitations/implications
Findings of this study will enhance a better understanding of the
interrelationships between performance measures and
determinants, which can improve estimations of key inputs in the
decision-making process. Such deeper understanding should
provide policy and decision makers with an important part of the
framework needed to provide quality outcomes. In addition, the
results of this study provide some benecial insights on
performance determinants to the policymakers, industry leaders
and bank managers. Accordingly, those parties could enhance the
protability of Sudanese Islamic banks by improving capitalisation
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Gender diversity, board of director’s size and Islamic
banks performance
Entissar Elgadi, Wafa Ghardallou
International Journal of Islamic and Middle
Eastern Finance and Management
: 1753-8394
Article publication date: 15 October 2021
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10/28/21, 11:36 AM
Gender diversity, board of director’s size and Islamic banks performance | Emerald Insight
https://www.emerald.com/insight/content/doi/10.1108/IMEFM-09-2019-0397/full/html
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and assets utilisation and by improving banks operation eciency,
leverage and by reducing the size of the board of directors. Industry
leaders and bank managers could also benet from the ndings on
bank age, which suggest that they can learn from the experience of
newly established banks, as the latter are shown to be able to use
their resources to generate more prots.
Practical implications
Results suggest that in the future, Islamic banks should focus on
how to weaken the negative performance eect of female
executives’ participation. Besides, banks should work to decrease
labour market discrimination and increase long-term career
commitment amongst women.
Originality/value
After reviewing the literature, the research objective was not
accounted for by the existing empirical works. Indeed, the role of
gender diversity and board of directors’ size on a bank’s
performance was not examined in the case of Sudanese Islamic
banks.
Keywords
Bank performance Sudanese Islamic banks Corporate governance
Gender diversity Board size
Acknowledgements
This research was funded by the Deanship of Scientic Research at
Princess Nourah bint Abdulrahman University through the Fast-
track Research Funding Program.
Citation
Elgadi, E. and Ghardallou, W. (2021), "Gender diversity, board of
director’s size and Islamic banks performance",
International Journal
of Islamic and Middle Eastern Finance and Management
, Vol. ahead-
of-print No. ahead-of-print.
https://doi.org/10.1108/IMEFM-09-
2019-0397
Publisher
: Emerald Publishing Limited
Copyright © 2021, Emerald Publishing Limited
Download as .RIS
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Gender diversity, board of
director’s size and Islamic
banks performance
Entissar Elgadi
Lecturer, Royal Docks School of Business and Law, University of East London,
London, UK, and
Wafa Ghardallou
Department of Accounting, College of Business Administration,
Princess Nourah Bint Abdulrahman University, Riyadh, Saudi Arabia and
Orleans Economics Laboratory (LEO), University of Orleans, Orleans, France
Abstract
Purpose –This paper aims to empirically assess the impact of gender diversity and board of directors’size
on Islamic banks’performance.
Design/methodology/approach –Hand-collected data set including 27 banks from 2005 to 2013 is used
to investigate the effect of the above mechanisms on banks’performance as measured by return on equities
and return on assets. The study uses pooling regression, which requires estimating a single equation on
different cross-sectional data. Specifically, ordinary least squares is used to estimate the model.
Findings –Obtained results suggest that the presence of women on the board of directors does not have a
significant influence on banks’performance. However, gender diversity in the management department is
found to have a negative and significant impact. Besides, the findings prove that the board of directors’size
adversely affects banks’performance.
Research limitations/implications –Findings of this study will enhance a better understanding of the
interrelationships between performance measures and determinants, which can improve estimations of key
inputs in the decision-making process. Such deeper understanding should provide policy and decision makers
with an important part of the framework needed to provide quality outcomes. In addition, the results of this
study provide some beneficial insights on performance determinants to the policymakers, industry leaders
and bank managers. Accordingly, those parties could enhance the profitability of Sudanese Islamic banks by
improving capitalisation and assets utilisation and by improving banks operation efficiency, leverage and by
reducing the size of the board of directors. Industry leaders and bank managers could also benefitfromthe
findings on bank age, which suggest that they can learn from the experience of newly established banks, as
the latter are shown to be able to use their resources to generate more profits.
Practical implications –Results suggest that in the future, Islamic banks should focus on how to
weaken the negative performance effect of female executives’participation. Besides, banks should work to
decrease labour market discrimination and increase long-term career commitment amongst women.
Originality/value –After reviewing the literature, the research objective was not accounted for by the
existing empirical works. Indeed, the role of gender diversity and board of directors’size on a bank’s
performance was not examined in the case of Sudanese Islamic banks.
Keywords Bank performance, Sudanese Islamic banks, Corporate governance, Gender diversity,
Board size
Paper type Research paper
This research was funded by the Deanship of Scientific Research at Princess Nourah bint
Abdulrahman University through the Fast-track Research Funding Program.
Islamic banks
performance
Received 15 September2019
Revised 23 March 2020
9August2020
24 November 2020
14 May 2021
Accepted 23 September2021
International Journal of Islamic
and Middle Eastern Finance and
Management
© Emerald Publishing Limited
1753-8394
DOI 10.1108/IMEFM-09-2019-0397
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1753-8394.htm
1. Introduction
Previous research on corporate governance underlines its prominent role in providing
investors with the necessary information required for advising, monitoring, supporting and
progressing the decision-making process. In this regard, firms’performance is reputed to be
highly correlated to the corporate governance structure (Gillan, 2006;Bøhren and Strøm,
2007). Specifically, achieving high levels of performance is seen to be linked to an unformed,
effective and decisive corporate governance structure. Nevertheless, reaching such a
structure requires a complex and wide-ranging set of board mechanisms. For example,
regulators may introduce various management mechanisms, such as fixing the number of
top managers, their level of independence or their degree of diversity, without having an
idea on their effects on corporate performance (Bøhren and Strøm, 2007). Empirical evidence
is also reported to be limited regarding the soundness of these regulatory policies.
The literature on corporate governance has identified various factors as potential
determinants of banks’financial performance (Raheja, 2005;Coles et al., 2008;Harris and
Raviv, 2008;Grassa and Matoussi, 2014;Bertrand et al.,2019). These latter are mainly board
compensation, board size and diversity and board composition concerning inside and
outside directors. However, the empirical literature is characterised by mixed results
regarding the relationship between corporate governance mechanisms and bank performance.
Regarding the Sudanese context, Sudan is characterised by a complete Islamic banking
system. It constitutes a unique context to study Islamic bank’s performance. Indeed, Sudan
is amongst the first countries in the world to fully Islamise their financial system. In
addition to Islamic banks, a circular from the Bank of Sudan of 10
th
December 1984 called on
all banks to conduct their operations exclusively on the basis of Islamic contracts. Because
of the ambiguity of its legislation, however, this country has experienced a very significant
slippage (problem of compliance with credit ceilings), particularly in terms of commercial
financing through murabâba contracts. However, starting from July 2011, South Sudan
became independent after retirement from the rest of the country and the Sudan banking
system turned again to a fully Islamic system. In light of these facts, this paper aims to
examine the impact of the other corporate governance variables and particularly gender
diversity and board size on the Sudanese Islamic banks’performance. After reviewing the
literature, this research objective is not accounted for by the existing empirical works.
Indeed, the role of gender diversity and board of directors’size on a bank’s performance was
not examined in the case of Sudanese Islamic banks. In addition, Sudan presents a unique
context to examine Islamic bank’s performance because the country is characterised by
complete Islamic banking. Sudan is one of the few countries in the world that has initiated a
total Islamic banking system.
By studying, whether the size of the board of directors, the presence of women on board
and departmental management, affect bank’sfinancial performance; our research
contributes to the related literature in several ways. Firstly, it extends previous studies by
considering the specific case of Sudanese Islamic banks. Indeed, within the Islamic banking
industry, the impact of these corporate governance characteristics on bank’sfinancial
performance has not been examined. To our humble knowledge, it is the first paper that
considers the effects of these variables on the profitability of Sudanese Islamic banks.
Secondly, this would help to understand the contradicting empirical results on the role of
the different corporate governance variables. This research demonstrates that the presence
of women in the management department lowers bank’s performance whereas their
presence on the board of directors does not influence the performance of these banks.
Additionally, it documents that the board of directors’size adversely affects banks’
performance.
IMEFM
The remainder of this paper is structured as follows. Section 2 reviews theoretical and
empirical literature on the impact of board of directors’size and gender diversity on bank
performance. Section 3 describes the methodology, the data and the selected variables.
Results are presented and discussed in Section 4. Section 5 presents robustness tests and
Section 6 concludes the paper.
2. Literature review
2.1 Gender diversity and bank performance
Management diversity refers to the percentage of minorities and women on the board of
directors (Carter et al.,2003). Many arguments on the influence of gender diversity on the
performance of banks have been put forward by prior theoretical and empirical studies. Part
of these studies underlines that bank performance gets enhanced when there is gender
heterogeneity on the board of directors and the chief executive officers’levels (Duppati et al.,
2019;Geeta et al.,2020). These studies provide the growing numbers of women in these
positions, as conformation (Carter et al., 2003;Adams and Ferreira, 2009;Pathan and Faff,
2013;Chang et al., 2016;Philip et al.,2019). In contrast, another stand of the literature
highlights the negative effects of gender diversity on banks’performance (Shrader et al.,
1997;Bodla and Verma, 2007).
The viewpoint that there is a positive relationship between gender diversity and bank
performance has been supported by many authors. For instance, it is argued that by
eliminating women from top management positions, the firm will structurally disregard
distinctive qualities and skills that are naturally found only in women (Brammer et al.,2007).
In the same line, Rovers (2011) claims that the non-presence of women in senior management
positions will hamper the decision-making process and consequently the firm profitability.
The author also reports that, in various situations, women perform better than men. Rovers
(2011) argues that the participation of women in the process of decision-making increases
team performance, as it results in the exchange of ideas and a wider range of perspectives.
Therefore, this will lead to improved decisions and consequently better business performance.
A further argument in this aspect is given by the earlier work of Rosabeth (1977) in his
critical mass theory, where the author stipulates that the impact of a minor group becomes
more efficient only when a certain threshold of representation is attained. In this regard, the
presence of at least three women on the directors’board is reported to significantly increase
good governance compared with a board composed from a lower number of women (Kramer
et al.,2008).
In the same context, various authors report that features, skills and qualities are not
scattered evenly between women and men (Brammer et al.,2007;Vieito, 2012). This will lead
to different behaviours depending on gender. For instance, Vieito (2012) gives an example of
behavioural differences between men and women by providing evidence that men are less
risk-averse than women. Similarly, Prete and Stefani (2013) stipulate that policies of
according credits are strict when the board of directors includes women, as women have a
higher risk aversion attitude than men.
Similarly, many authors report that there is a growing view that women are better able to
resolve problems and create innovations, as they are hard workers and hold distinctive
communication skills (Carter et al.,2003;Pathan and Faff, 2013;Gadjah, 2017).
Therefore, the representation of women at top levels of management is becoming more
favourable. Indeed, female directors are claimed to be more proficient and diligent than male
directors. Women can better anticipate their job responsibilities and are better prepared for
board meetings. This opinion was supported by the earlier work of Shrader et al. (1997), who
Islamic banks
performance
stipulated that women are more concerned with maintaining strong relationships; they also
reported the superiority of female directors in generating and innovating ideas.
On the other hand, other authors emphasise the drawbacks of gender variety in senior
managerial positions. These authors claim that a broader range of perceptions and
viewpoints may impede the decision-making process by creating divisions within the
directors’board, which increases problems and conflicts. Likewise, several authors argue
that given that gender diversity on senior managerial positions causes a broader range of
perspectives, the process of decision-making will be less efficient and more lasting, which
will generate more conflicts compared with a less diversified board (Bodla and Verma, 2007;
Rovers, 2011).
Campbell and Vera (2007) argue that, even if these problems may finish with superior
quality of decisions, this may not offset the harmful consequences of a less effective decision
process, particularly when a rapid response is required by the market to cope with potential
fluctuations issues. Moreover, Rovers (2011) argue that higher cost and organisation
problems after gender heterogeneity can offset any improvement in the firm’s performance.
Adams and Ferreira (2009) suggest an additional justification for the negative link
between gender heterogeneity and financial performance. The authors report that women on
board result in tougher monitoring that can be viewed as a handicap, as it usually decreases
productivity. As an example, gender diversity may influence social cohesion, and therefore,
workers’fulfilment.
Based on the above literature review, the following hypotheses can be formulated:
H1. Gender diversity in the management department will have a negative effect on bank
performance.
H2. Gender diversity in the board of directors will have a negative effect on bank
performance.
2.2 Board size and bank performance
Several studies have been carried out to examine the effect of the board of directors’size on
the firm and bank performance (Lipton and Lorsch, 1992;Jensen, 1993;AlAbbad et al.,2019;
Nguyen and Vo, 2020). The theoretical literature outlines various contradicting arguments
on the association between these two variables. The first school of thought argues that a
larger board size is beneficial for firm performance whereas the second viewpoint claims the
risk of larger boards.
The point of view, which advocates the use of reduced board members is subject to
extensive literature (Haniffa and Hudaib, 2006;Harris and Raviv, 2008;Qaiser et al.,2017).
Firstly, it is reported that compared to boards of a smaller size, boards of a larger size are
more likely to suffer from decision-making process problems, such as coordination and
communication (Eisenberg et al.,1998). Undeniably, small boards of directors are better
monitors of management than larger ones. Therefore, they should be more efficient when
compared to that of larger ones. In this regard, Bøhren and Strøm (2007) provide evidence
that the presence of many members in the board is likely to make the discussions during
board meetings more complicated and time-consuming. This is because members will need
more time to reach a conclusion or to make a decision. Besides, decisions tend to be more
conventional. Therefore, a larger number of directors may reduce the board’s certainty and
creativity.
Similarly, many authors argue that within a smaller board size, all directors can discuss
and can make decisions in a much more comfortable way, consequently, smaller boards will
IMEFM
profit from a more efficient discussion given that they are more likely to be cohesive (Lipton
and Lorsch, 1992;Harris and Raviv, 2008;Bernile et al.,2018). The further rationale behind
supporting the small structure of boards is supplied by Eisenberg et al. (1998), who suggest
that a larger board of directors is much more seen as symbolic rather than efficient in doing
its job. This is because the enlargement is more likely to enhance chief executive officer
control by decreasing the capability of the board to counterbalance the CEO’s decisions.
In the same context, Robb and Watson (2012) support the argument of the negative
relationship between board size and the effectiveness of management decisions. They claim
that larger boards are associated with increasing costs including directors’compensation,
and therefore, are more likely to undermine cost minimisation, which makes them less
efficient.
On the other hand, a second branch of the literature stipulates that larger boards are
more likely to offer better recommendations to the chief executive officer (CEO), and thus are
more beneficial to the firm performance (Lipton and Lorsch, 1992;Eisenberg et al., 1998;
Coles et al.,2008). Lipton and Lorsch (1992) stipulate that the board members should range
from eight to nine members to reduce costs. They particularly argue that the incurred cost
will be higher than the managerial benefits if the number of directors’board exceeds the
above-mentioned average. In this context, Eisenberg et al. (1998) underline that small
companies tend to use family relationships when selecting directors in the board. This
happens even though such employment may not enhance the value of the board.
In the same vein, Al-Musalli and Ismail (2012) stress that it would be more likely to see a
greater number of experts in large boards, compared to small ones. They argue that the
presence of a wide range of board experts with various educational backgrounds, diverse
experience and different competencies and skills improves strategic decisions made by the
board. Besides, Abeysekera (2010) suggests that businesses are more presumably able to
acquire and keep critical resources when they have a large board. The author argues that
members of larger boards are more likely to build good relationships with the company’s
stakeholders, which is reflected in a better image in the society. Moreover, some authors
report that larger boards are associated with higher productivity (Haniffa and Hudaib,
2006). Indeed, members of larger boards are characterised by diverse expertise and
competencies, which reduces risk and uncertainty and improves firm performance. Yawson
(2006) confirms this point of view. The author stipulates that larger boards are more
probable to enhance the board’s ability to make more rational decisions and advice. This is
because larger boards provide the firm with a variety of knowledge backgrounds and help
to take optimal decisions.
Based on the above literature review, the following hypothesis can be formulated:
H3. Board of directors’size has a negative effect on bank performance.
2.3 Empirical studies on gender diversity, board size and banks’performance
Although the literature is rich with studies on the relationship between board size, gender
diversity and firm performance, empirical results are inconclusive (Pathan and Faff, 2013).
Adams and Mehran (2008) used a sample of 35 US-listed banks over the period (1959–1995).
Results provide evidence that board size has a positive and significant effect on banks’
performance measured by the market value of the bank divided by its assets’replacement
cost (Tobin’s Q). Besides, the authors found that reducing board size will negatively affect
American bank performance.
Turning to the effect of gender diversity, Gulamhussen and Santa (2010) examined the
effect of female presence in bank boardrooms on financial performance using a sample of
Islamic banks
performance
461 banks in Sweden, Norway, Spain and France. Their findings suggest that the presence
of women on board enhances bank performance. The performance was measured,
respectively, by return on assets (ROA), return on equities (ROE) and operating income of
these banks. Nevertheless, findings demonstrate an adverse relationship between gender
diversity on boards and bank risks measured by loan loss provisions and loan loss reserves.
A similar study conducted by Alexandrina (2011) aims to investigate the effects of the
presence of women in management positions and board of directors, as well as board size on
Romanian banking system measured by (ROA) and (ROE). Findings indicate that board size
does not explain bank performance. Nevertheless, results prove that females’presence in
board and managerial positions, positively affect bank performance only when performance
is measure by (ROA). Indeed, the effect becomes insignificant when performance is
measured by (ROE).
Prete and Stefani (2013) supply evidence that gender diversity in board and the executive
committee has no impact on the performance of Italian banks. However, when testing the
effect of females’presence in senior managerial positions, the authors provide evidence on
the existence of a “second glass ceiling”. They also find that the number of women in top
management positions is higher in the major banking groups and that more cost-efficient
banks have a greater percentage of female representation.
Likewise, using a sample of 212 large US banks over the period 1997–2004, Pathan and
Faff (2013) investigated the effect of gender diversity in boards and board size on the
performance of banks. The author used various measures of performance, such as (ROA),
(ROE), (Tobin’s Q), stock return and pre-tax operating income. In their study, they controlled
for potential endogeneity issues. Findings indicate a positive relationship between gender
diversity in boards and bank performance whereas; the effect becomes negative when using
the board size as an explanatory variable.
Finally, focussing on Luxembourg banks’performance over the period 1999–2013,
Reinert et al. (2016) looked at the impact of the percentage of females’senior executive
managers and members of the board of directors on financial performance. Findings
indicate a positive relationship between the two variables. The authors claimed that the
positive association between female existence and performance was stronger during the
worldwide financial crisis.
3. The methodology
3.1 Data
To achieve the goal of this study, we use secondary data of the main Sudanese banks that
have made their financial statements available during the period of study. We particularly
use 27 Sudanese Islamic banks for which data were accessible. Indeed, the Islamic banking
industry comprises 36 banks but not all of them have published their data over the period
2005–2013. Data before 2005 were not available. We exclude data after 2013 because of the
structural changes in the financial policy conducted by the central bank. These changes are
related to the division of the state of Sudan, which will automatically disrupt the influence of
the explanatory variables on the dependent variable.
The data were collected either as hard copies from the banks’headquarters or the bank
websites when statements are available. Data are obtained from the banks’databases, if
available and banks’financial reports, including banks’financial statements. Specifically,
we use balance sheets, as well as the profit and loss statements to collect data related to the
internal determinants. In this connection, items in balance sheets reflect banks’management
strategies, such as decisions and policies that concern the origins, structure and employment
of banks’funds. Besides, the profit and loss statement is viewed as naturally reflecting the
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effectiveness of bank managers in generating revenues and reducing costs. We provide a
full set of variables and their measures in Table (A1) in the appendices.
3.2 The dependent variable
Corporate governance literature underlines the use of two main types of corporate
performance measures (Adams and Ferreira, 2009;Rovers, 2011;Kabir Hassan et al.,2013;
Hazman et al.,2018;Ibrahim, 2020;Mustafa, 2020;Khan and Zahid, 2020). These latter are
the accounting measures, such as ROA, ROE and return on investment; and market-based
measures including Tobin’s Q and portfolio returns. Many authors claim that the accounting
performance measures may be affected by changes in accounting rules and in that case, they
may be less consistent than market-based measures (Ahern and Dittmar, 2011). However,
accounting measures continue to be used in many studies, as they reliably reveal financial
performance. In the case of the Sudanese banks, market-based performance measures are
not almost all available; that is why this study relies on accounting measures. We
particularly follow the empirical literature and use ROA and ROE as dependant variables.
3.3 The independent variables
3.3.1 Gender diversity on boards of directors. Following Campbell and Vera (2007),Rose
(2007) and Pathan and Faff (2013), gender diversity in directors’boards is measured by the
percentage of women in board of each Islamic Sudanese bank (Fbsize).
3.3.2 Gender diversity in the management department. There are two empirical
measures of gender diversity in management positions. The first one uses the number of
women appointed as CEOs in the company, whereas the second one includes both women as
top managers (CEO) and women as vice-directors (Vieito, 2012;Prete and Stefani, 2013;
Reinert et al.,2016). Given that Sudanese Islamic banks are characterised by a reduced
number of women in boards or the managerial departments, we followthe broader definition
and measure gender diversity by women in senior managerial positions to the total number
of managers in the department of the bank (Fecos). Data are obtained from banks’annual
reports. Gender of the top managers and board members is identified by checking the photo
of the person from the bank’s annual report and if the photo is not available, we look at the
person’sfirst name.
3.3.3 Board of directors’size. Based on prior empirical studies, we use the number of
directors within the bank board to measure board size (Brd size) (Coles et al., 2008). Studies
on the effect of corporate governance structure on financial performance reported that there
is an endogeneity issue with the board of directors’size variable (Pathan and Faff, 2013).
This is because some firm characteristics may influence the size of the board. Nevertheless,
it is argued that this endogeneity problem is less problematic within the banking industry,
as the size of the board is not influenced by bank’s past performance.
3.3.4 Other control variables. We follow Pathan and Faff (2013) and Hidayat and Sakti
(2020) and include the following control variables, namely, bank type (Type), bank age (Age),
leverage (Leverage), management efficiency (Mgt. Efficiency), assets utilisation (Assets
utilisation), specialisation (Specialised) and profit and loss modes of finance (PLS). Measures
of these variables are provided in Table 1 in the appendices.
3.4 The empirical specification
The study uses pooling regression, which, according to Brooks (2008), requires estimating a
single equation on different cross-sectional data. Besides, ordinary least squares will be used
to estimate our models.
Islamic banks
performance
More specifically, we consider the following models:
ROAit ¼
a
iþ
b
0Fbsizeit þ
b
1Fecosit þ
b
2Brd sizeit þ
b
3Zit þeit (1)
ROEit ¼
a
iþ
b
0Fbsizeit þ
b
1Fecosit þ
b
2Brd sizeit þ
b
3Zit þeit (2)
where the subscript iindexes countries and the subscript tindexes time periods. Zit is the
vector of control variables and eit is the error term.
Different specifications will be tested, respectively. Firstly, the basic equation will
include only control variables. Then, the size of the board of directors, the percentage of
women in the board of directors and the percentage of female managers will be included,
respectively, in the first three specifications. Specification (4) will use board size and the
percentage of women on board. Specification (5) will use board size and the percentage of
women in the management department. Model (6) will include the percentage of women in
the board of directors and the percentage of women managers. Finally, all the three
variables will be used in Specification (7).
4. Results
4.1 Descriptive statistics
Table 1 shows that nine Islamic banks are state banks whereas 18 are private banks.
Besides, 42% of the total sample (11 banks) have females’managers and 34% (9 banks) have
women on their board of directors. Likewise, Table 1 illustrates that the percentage of
women in the management department and on the board of directors varies from a
minimum of 0 to a maximum of 88%.
Likewise, Table 1 displays that the mean values of the variables percentage of women in
the board of directors and in top managerial positions are approximatively the same. This
would indicate that, on average, female representation on both positions is roughly the same
in Sudanese banks.
Furthermore, results in Table 1 indicate that the maximum proportion of women in senior
managerial positions (0.66) is lower than that in the board of directors (0.88). In contrast, the
minimum value for the two variables is zero, showing that some Islamic banks do not
hire women in these positions. Finally, descriptive statistics in Table 1 demonstrate that the
average board size is 11 members, with a maximum of 16 and a minimum of 5 members.
Table 1.
Descriptive statistics
Variable Mean SD Max Min
ROA 0.026 0.034 0.314 0.089
ROE 0.108 0.317 0.566 3.863
Age 0.696 0.064 1 0
Type 0.679 0.046 1 0
Specialised 0.003 0.307 1 0
Leverage 0.572 0.190 0.979 0
Mgt. Efficiency 0.689 0.293 2.784 0.098
ssets utilisation 0.081 0.035 0.361 0.025
PLS 0.363 0.323 1 0
Board size 10.69 1.433 16 5
Women in board (%) 0.064 0.163 0.888 0
Women in management department (%) 0.078 0.146 0.666 0
IMEFM
4.2 Correlation matrix
The correlations between the explanatory variables and the endogenous variable are
displayed in Table 2. We note that the majority of the considered explanatory variables is
correlated with the dependent variable (ROA) and has the expected sign. Besides, the
analysis of the correlation between the different explanatory variables reveals that these
variables are weakly correlated, which justifies their inclusion in the same model.
4.3 Estimation results
Estimation results are reported in Tables 3 and 4.Tables 3 and 4show that the coefficient
associated with the variable (Brdsize) is negative and significant through the majority of the
specifications. Hence, larger boards will negatively affect banks’performance. This result
corroborates the previous studies (Robb and Watson, 2012) and may be explained by the
fact that larger boards are associated with higher costs because of the directors’
compensations load. In addition, larger boards are more likely to face communication and
coordination problems, which hampers the decision-making process and ultimately leads to
poor performance. In the case of Islamic Sudanese banks, the negative association between
board size and bank performance may be due to the corrupted environment in Sudan.
Indeed, Sudan is classified as a highly corrupted country based on the International
Corruption Index. Therefore, directors on board may search their own interest at the
expense of the bank’s performance.
Turning to the role of gender diversity, results show that the coefficient associated with
the variable percentage of women at senior management positions is negative and highly
significant, especially with the (ROE) variable. These findings indicate that gender diversity
at the departmental level will have a counterproductive effect on Sudanese banks
performance. Results corroborate those of Shrader et al. (1997), who found an inverse
relationship between gender diversity in the management department and performance. Our
findings can be justified by the absence of career commitment amongst women and
secondly, by labour market discrimination. Indeed, Metcalfe (2006) argued that women
suffer from career development barriers due to solid gender roles in the Islamic business
culture, which is characterised by a lack of training prospects, a conventional view of female
managers and almost by considered family engagements.
Moreover, the findings in Tables 3 and 4show that the coefficient associated with the
variable females’representation on the board of directors is not significant regardless of the
performance measure used. This result corroborates the view of Rovers (2011), who argues
that the presence of women on boards has only a symbolic value, as it will not enhance the
Table 2.
Correlation matrix
Variables ROA Age Type Spec. Lev. Mgt. Assets PLS Brdsize Fbsize Fecos
ROA 1
Age 0.233 1
Type 0.456 0.030 1
Spec. 0.239 0.123 0.233 1
Lev. 0.176 0.322 0.311 0.235 1
Mgt. 0.645 0.019 0.021 0.411 0.387 1
Assets 0.746 0.322 0.100 0.188 0.345 0.400 1
PLS 0.112 0.044 0.055 0.165 0.033 0.032 0.200 1
Brdsize 0.544 0.298 0.200 0.034 0.010 0.099 0.123 0.117 1
Fbsize 0.234 0.100 0.411 0.222 0.165 0.176 0.286 0.120 0.233 1
Fecos 0.700 0.200 0.298 0.123 0.211 0.187 0.199 0.234 0.245 0.255 1
Islamic banks
performance
Variables Basic Equation Equation 1 Equation 2 Equation 3 Equation 4 Equation 5 Equation 6 Equation 7
Constant 0.1037***
(0.0186)
0.1282***
(0.0244)
0.0738***
(0.0144)
0.0759***
(0.0134)
0.1274***
(0.0245)
0.0885***
(0.0183)
0.0744***
(0.0151)
0.1196***
(0.0257)
Age 0.0071***
(0.0022)
0.0087***
(0.0024)
0.0037**
(0.0015)
0.0040***
(0.0015)
0.0090***
(0.0025)
0.0043***
(0.0015)
0.0038**
(0.0016)
0.0077***
(0.0028)
Type 0.0373***
(0.0063)
0.0358***
(0.0067)
0.0180*
(0.0108)
0.0182*
(0.0105)
0.0358***
(0.0067)
0.0201*
(0.0110)
0.0183*
(0.0111)
0.0375***
(0.0069)
Specialised 0.0142***
(0.0022)
0.0144***
(0.0024)
0.0072*
(0.0040)
0.0072*
(0.0039)
0.0143***
(0.0024)
0.0080*
(0.0041)
0.0073*
(0.0041)
0.0154***
(0.0026)
Leverage 0.0440***
(0.0082)
0.0494***
(0.0095)
0.0340***
(0.0090)
0.0346***
(0.0092)
0.0490***
(0.0095)
0.0368***
(0.0096)
0.0344***
(0.0093)
0.0462***
(0.0100)
Mgt Efficiency 0.0358***
(0.0056)
0.0203**
(0.0091)
0.0495***
(0.0076)
0.0491***
(0.0074)
0.0203**
(0.0091)
0.0457***
(0.0085)
0.0491***
(0.0078)
0.0206**
(0.0091)
Assets utilisation 0.6224***
(0.0439)
0.6615***
(0.0506)
0.5780***
(0.0920)
0.5746***
(0.0923)
0.6627***
(0.0507)
0.5741***
(0.0935)
0.5808***
(0.0931)
0.6633***
(0.0507)
PLS 0.0126***
(0.0043)
0.0108**
(0.0053)
0.0070***
(0.0024)
0.0071***
(0.0023)
0.0116**
(0.0054)
0.0069***
(0.0022)
0.0069***
(0.0025)
0.0133**
(0.0056)
Brd Size 0.0021*
(0.0011)
0.0019**
(0.0011)
0.0009
(0.0006)
0.0020*
(0.0011)
FbSize 0.0025
(0.0044)
0.0082
(0.0108)
0.0021
(0.0046)
0.0063
(0.0110)
FEcos 0.0018**
(0.0048)
0.0005
(0.0050)
0.0008
(0.0050)
0.0157**
(0.0159)
R
2
0.777 0.759 0.866 0.864 0.758 0.864 0.864 0.758
Obs. 168 168 168 168 168 168 168 168
Notes: Coefficients are displayed without brackets whereas standard deviations are shown between brackets. *, **and *** indicate, respectively, significance
levels of 10, 5 and 1%
Table 3.
Estimated results for
the whole sample
(ROA)
IMEFM
Variables Basic equation Equation 1 Equation 2 Equation 3 Equation 4 Equation 5 Equation 6 Equation 7
Constant 1.2017***
(0.2516)
0.7395***
(0.1122)
0.6750***
(0.1310)
0.8779***
(0.0932)
0.7403***
(0.1127)
0.9169***
(0.1075)
0.8893***
(0.0941)
0.9181***
(0.1077)
Age 0.0574*
(0.0303)
0.0573***
(0.0114)
0.056***
(0.0158)
0.0846***
(0.0115)
0.0570***
(0.0116)
0.0850***
(0.0116)
0.0874***
(0.0119)
0.0872***
(0.0119)
Type 0.0281
(0.0860)
0.0544*
(0.0310)
0.0558
(0.0380)
0.0189
(0.0290)
0.0544*
(0.0311)
0.0184
(0.0291)
0.0177
(0.0290)
0.0175
(0.0291)
Specialised 0.0138
(0.0308)
0.0171
(0.0111)
0.0174
(0.0143)
0.0054
(0.0109)
0.0171
(0.0111)
0.0053
(0.0110)
0.0064
(0.0110)
0.0062
(0.0110)
Leverage 0.1828*
(0.1112)
0.0163
(0.0438)
0.0124
(0.0479)
0.0791*
(0.0415)
0.0167
(0.0440)
0.0809**
(0.0417)
0.0796*
(0.0416)
0.0809*
(0.0417)
Mgt Efficiency 0.9823***
(0.0762)
0.2108***
(0.0417)
0.224***
(0.0483)
0.2147***
(0.0362)
0.2107***
(0.0419)
0.2063***
(0.0380)
0.2128***
(0.0363)
0.2065***
(0.0381)
Assets utilisation 1.6664***
(0.5929)
0.4429*
(0.2321)
0.4654**
(0.2302)
0.4371**
(0.2103)
0.4417*
(0.2331)
0.4232**
(0.2115)
0.4389**
(0.2105)
0.4278**
(0.2120)
PLS 0.1119*
(0.058)
0.0204
(0.0243)
0.0267
(0.0247)
0.0168
(0.0229)
0.0196
(0.0249)
0.0203
(0.0234)
0.0150
(0.0230)
0.0180
(0.0237)
Brd Size 0.0056**
(0.0053)
0.0058*
(0.0054)
0.0036**
(0.0048)
0.0028
(0.0049)
FbSize 0.0016
(0.0337)
0.0085
(0.049790)
0.0404
(0.0448)
0.0351
(0.0460)
FEcos 0.3521***
(0.0652)
0.3483***
(0.0655)
0.3615***
(0.0661)
0.3573***
(0.0667)
R
2
0.546 0.654 0.401 0.509 0.402 0.5073 0.508 0.505
Obs. 168 168 168 168 168 168 168 168
Notes: Coefficients are displayed without brackets whereas standard deviations are shown between brackets. *, **and *** indicate, respectively, significance
levels of 10, 5 and 1%
Table 4.
Estimated results for
the whole sample
(ROE)
Islamic banks
performance
firm performance. Besides, it confirms the findings of many previous studies (Dutta and
Bose, 2006;Rose, 2007;Prete and Stefani, 2013). The result according to which gender
diversity does not influence the performance of Sudanese banks may be explained by the
critical mass theory. This theory stipulates that the impact of a minor group becomes more
efficient only when a certain threshold of representation is reached. Given that the number
of women on the Sudanese banks’boards is limited; then their presence becomes more
symbolic and will not affect the performance (Joecks et al.,2013).
5. Robustness checks
In this section, we provide additional evidence of the robustness of the above findings.
Results of the different robustness checks are reported in Tables (A2) and (A3) in the
appendices. As robustness tests, conditional effects of board size and gender diversity on
boards and in top managerial positions are reviewed using alternative measures of control
variables. We particularly use the ratio of long-term liability to total equity instead of total
debt to total assets as a measure of bank leverage. The variable management efficiency is
replaced, respectively, by two measures, namely, the ratio of the total cost to total assets and
the ratio of the total cost to net income. Finally, asset utilisation is measured by reporting
investment to total deposit as an alternative of operating income to total assets.
Given the obtained results, it seems that the dependence of the relationship between
gender diversity, board size and bank performance is not sensitive to the various control
variables, which corroborate our main results.
6. Conclusion
This paper attempts to assessthe effect of selected corporate governance mechanisms on the
performance of Sudanese Islamic banks. It particularly focusses on the role of gender
diversity on boards, female presence on top managerial positions and board size as
outstanding features in the context of Sudan.
Estimation results demonstrate that the pooling estimation method is the appropriate
method that allows testing the effect of the described variables on the performance,
respectively, measured by ROA and ROE. Findings provide evidence that the presence of
women at senior managerial positions adversely affects bank’s performance. This has been
explained by the limited role of women in the Islamic business culture, which implements
constraints on women’s development carriers. It has been also justified by females’family
commitments and the absence of female role models. Besides, findings prove that board size
has a counterproductive impact on financial performance. Hence, larger boards will reduce
the performance of Sudanese Islamic banks. This result was justified by the fact that larger
boards are associated with increasing costs including directors’compensations, and
therefore, are more likely to undermine cost minimisation, which makes them less efficient.
Finally, empirical results reveal that the presence of women on directors’boards does not
explain bank performance. The fact that gender diversity on boards does not influence the
performance of Sudanese banks was justified by the critical mass theory, which stipulates
that the impact of a minor group becomes more efficient only when a certain threshold of
representation is reached. Given that, the number of women on Sudanese banks’boards is
limited, then their presence will become more symbolic and will not affect the performance.
Overall, the findings of this study will contribute to improve our understanding of the impact
of corporate governance characteristics on the bank performance and ultimately to enhance the
estimations of the main inputs in the decision process. Such a deeper understanding will supply
policymakers with important tools needed to produce outstanding outcomes.
IMEFM
In addition, the results of this study provide policymakers, business leaders and bank
directors with some beneficial insights on performance determinants. Consequently, these
latter could improve bank’s capitalisation and assets utilisation to enhance Islamic banks
profitability. They may also increase banks operations efficiency and reduce the size of the
directors’boards. Industry leaders and bank managers could also benefit from the findings
on bank age, which suggest that they can learn from the experience of newly established
banks, as the latter is shown to be able to use their resources to generate more profits.
Furthermore, results suggest that in the future, Sudanese banks should focus on how to
weaken the negative performance effect of female executives’participation. For instance,
they should consider some features when hiring executive women within the management
department. Banks should select woman candidates prudently and should assess them
according to well-defined criteria. In addition, they should work to decrease labour market
discrimination and increase long-term career commitment amongst women.
Ultimately, regardless of the effect of gender diversity on banks’performance, women
career development on senior management positions and directors’boards should be
considered as an important objective and a substantial policy, even though gender
heterogeneity does not necessarily lead to higher performance. More specifically, banks may
take into consideration some important social issues including flexible worktime
arrangements and family life, to encourage and motivate females’involvement in top
managerial positions and as board’s members.
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Islamic banks
performance
Appendix
Table A1.
Variables’definition
Variables Measures Index
Return on assets Net profit divided by total assets ROA
Return on equity Net profit divided by total equity ROE
Bank type Binary variable Type
Bank age Binary variable Age
Specialisation Binary variable Specialised
Leverage Total liabilities to total assets Leverage
Operational efficiency Total cost divided by total income Mgt
efficiency
Assets utilisation Operating income to total assets Assets
utilisation
Profit and loss sharing Musharakah and Modarabah to total modes of finance PLS
Board size Number of directors within each board of directors Brd size
Percentage of women on the
board of directors
proportion of women on the directors’board Fbsize
Percentage of women in the
management department
Number of women senior managers to the total number of
managers in the department of the bank
Fecos
Table A2.
Robustness tests
using ROA
Variables Basic equation Equation 1 Equation 2 Equation 3 Equation 4
Constant 0.1196***
(0.0257)
0.1736***
(0.0294)
0.1166***
(0.0260)
0.0936***
(0.0225)
0.1983***
(0.0387)
Age 0.0077***
(0.0028)
0.0103***
(0.0029)
0.0080***
(0.0028)
0.0060**
(0.0024)
0.0062
(0.0044)
Type 0.0375***
(0.0069)
0.0386***
(0.0067)
0.0356***
(0.0070)
0.0376***
(0.0060)
0.0418***
(0.0105)
Specialised 0.0154***
(0.0026)
0.0148***
(0.0025)
0.0144***
(0.0026)
0.0153***
(0.0022)
0.0163***
(0.0039)
Leverage 0.0569***
(0.0102)
Mgt Efficiency 9.65E-05*
(5.44E-05)
0.6221***
(0.0860)
Assets utilisation 0.0028
(0.0020)
PLS 0.0133**
(0.0056)
0.0103*
(0.050109
0.0055)
0.0106*
(0.0055)
0.0146***
(0.0047)
0.0294***
(0.0083)
Brd Size 0.0020*
(0.0011)
0.0017
(0.0011)
0.0026**
(0.0011)
0.0011
(0.0010)
0.0040**
(0.0018)
FbSize 0.0063
(0.0110)
0.0091*
(0.0107)
0.0047
(0.0111)
0.0102
(0.0095)
0.0042
(0.0166)
FEcos 0.0157**
(0.01598)
0.0019
(0.0161)
0.01618**
(0.0161)
0.0125*
(0.0137)
0.0142**
(0.0240)
R
2
0.758 0.772 0.755 0.820 0.452
Obs. 142 142 142 142 142
Notes: The basic equation excludes Leverage, Mgt efficiency and assets utilisation variables. The variable
Leverage is measured by Long-term liability to total equity, the variable Mgt efficiency is, respectively,
measured by total cost to net income and total cost to total assets and the variable asset utilisation is measured
by investment to total deposit. Coefficients are displayed without brackets whereas standard deviations are
shown between brackets. *, **and *** indicate, respectively, significance levels of 10, 5 and 1%
IMEFM
Corresponding author
Wafa Ghardallou can be contacted at: wafa.ghardallou@gmail.com
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Table A3.
Robustness tests
using ROE
Variables Basic equation Equation 1 Equation 2 Equation 3 Equation 4
Constant 0.9181***
(0.1077)
0.7896***
(0.1285)
0.9308***
(0.1297)
0.8213***
(0.1081)
0.9427***
(0.1085)
Age 0.0872***
(0.0119)
0.0731***
(0.0128)
0.1004***
(0.0149)
0.0853***
(0.0119)
0.0827***
(0.0123)
Type 0.0175
(0.0291)
0.031
(0.0292)
0.0171
(0.0273)
0.0171
(0.0289)
0.0180
(0.0295)
Specialised 0.0062
(0.0110)
0.0008
(0.0112)
0.0095
(0.0113)
0.0086
(0.0109)
0.0061
(0.0112)
Leverage 0.0225
(0.0448)
Mgt Efficiency 0.0005**
(0.0002)
2.3473***
(0.4134)
Assets utilisation 0.0057
(0.0057)
PLS 0.0180
(0.0237)
0.0138
(0.0242)
0.0414
(0.0262)
0.0332
(0.0229)
0.0085
(0.0234)
Brd Size 0.0028**
(0.0049)
0.0022
(0.0050)
0.0041**
(0.0078)
0.0044*
(0.0048)
0.0026*
(0.0051)
FbSize 0.0351
(0.0460)
0.0339
(0.0466)
0.0249
(0.0382)
0.0493
(0.04567)
0.0283
(0.0466)
FEcos 0.3573***
(0.0667)
0.3063***
(0.0703)
0.3647***
(0.0668)
0.3737***
(0.0661)
0.3611***
(0.0675)
R
2
0.505 0.492 0.462 0.514 0.494
Obs. 142 142 142 142 142
Notes: The basic equation excludes Leverage, Mgt efficiency and assets utilisation variables. The variable
Leverage is measured by Long-term liability to total equity, the variable Mgt efficiency is, respectively,
measured by total cost to net income and total cost to total assets and the variable asset utilisation is measured
by investment to the total deposit. Coefficients are displayed without brackets whereas standard deviations are
shown between brackets. *, **and *** indicate, respectively, significance levels of 10, 5 and 1%
Islamic banks
performance
