Corporate governance mechanisms in the banking industry: is there any interplay between ownership concentration and market competition?

This paper examines the corporate governance mechanisms in the banking industry, and more specifically, the interplay between ownership concentration and market competition, and their collective impact on bank risk and performance. Unlike previous studies, we addressed the question of whether the ownership structure and market competition are substitutes or complements in the developing context of the Middle East and North Africa (MENA) region. We utilize a panel dataset and adopt panel data econometric techniques such as fixed/random effects and the Generalized Method of Moments (GMM) estimator. The results of our analysis indicate that both ownership concentration and market power of banks are associated with enhanced profitability and risk. Furthermore, the complementarity effect of ownership concentration and market competition suggests that market competition seems to reinforce the impact of ownership concentration on bank profitability and risk. This effect is consistent across banks with varying levels of concentrated ownership and is more pronounced for Islamic banking institutions. The insights derived from our study offer valuable guidance to regulatory institutions and policymakers in the MENA region helping them to formulate competition policies specifically designed to increase the financial stability of banks with controlling shareholders.