Board governance and the performance of Islamic and conventional banks in Saudi Arabia

Purpose This study aims to investigate the effects of board of directors’ characteristics and bank performance based on two financial parameters: accounting performance and market performance of Islamic banks (IBs) and conventional banks while controlling for asset quality, liquidity risk, bank age and year in the Saudi banking context. Design/methodology/approach A regression analysis assessed the relationship between the four board characteristics (board size, board independence [BI], board diligence and foreign directors), two bank-specific characteristics (bank age and bank type) and two control variables (asset quality ratio and liquidity risk ratio) regressed against the two dependent performance variables (ROA and Tobin’s Q) for both types Saudi banks from 2014 to 2024. Findings The findings indicate that a larger board size significantly positively affects IBs’ accounting and market performance and conventional banks’ market performance. BI significantly affects IBs’ accounting and market performance. Contrastingly, BI insignificantly negatively affects conventional banks on both measures of performance. Board diligence based on the frequency of meetings has no significant effect on either measure of performance for IBs; however, it significantly positively affects the performance of conventional banks. Finally, board nationality diversity did not positively affect bank accounting or market performance. Research limitations/implications This study considers only the effect of four board characteristics on two performance measures of Saudi-listed banks; thus, future studies can include other characteristics, such as board members’ expertise, educational background, gender and age diversity as well as characteristics of the chair of the BODs. Future studies should consider including other potential drivers of bank performance, such as the board committees’ characteristics and CEO attributes, to better understand the Saudi banking sector. Originality/value This study contributes significantly to the literature on board attributes and banking sector performance for IBs and conventional banks operations in Saudi Arabia.