The interplay of financial risk and governance mechanisms in shaping banks’ performance: evidence from major banks in the UAE

Purpose This study aims to investigate the impact of financial internal risk factors and corporate governance characteristics on the performance of banks in the United Arab Emirates, focusing on key metric such as Return on Assets. Design/methodology/approach The analysis includes eight major conventional and Islamic banks in the UAE, from 2009 to 2023. Using data from the DataStream database and annual reports, this study uses Ordinary Least Squares) regression with robust standard errors to examine the effects of liquidity, credit and operational risks, and the board characteristics like size, independence and meeting frequency on financial performance. Findings The findings reveal that operational risk positively influences financial performance, highlighting the importance of effective operational risk management. Liquidity risk negatively impacts financial performance. Board independence positively affects financial performance. The number of board meetings shows an inverse relationship with financial performance. Board size and shareholder seats do not significantly affect performance. In addition to the primary analyses, additional and robustness tests, including alternative metrics like Return on Equity and Earnings per Share, confirm the consistency and reliability of the results. This study also explores the COVID-19 pandemic’s impact, offering insights into banks’ resilience during economic crises. Originality/value The novelty of toihis study lies in its theoretical contributions to understanding the differential impact of corporate governance and financial risk management on bank performance within the UAE’s dual banking system. It provides a foundation for future research and sets a benchmark for strategic decision-making in enhancing bank resilience and performance, particularly during the economic crises caused by COVID-19 pandemic.