Are political connections a curse for banks of the MENA region? The moderating effect of ownership structure

PurposeThis study examines the effect of political connections on the performance of banks in the MENA region separately and then moderated by family, institutional and state ownership.Design/methodology/approachA hierarchical regression method was used for a sample of 111 banks operating in 10 MENA countries observed from 2009 to 2019.FindingsThe results indicate significant negative relationships between political connections and bank performance. Furthermore, institutional and family ownership moderates this relationship; institutional investors and family shareholders attenuate separately the negative impact of political connections on bank performance. Moreover, state ownership positively moderates this relationship; states as shareholders accentuate the negative relationship between political connections and bank performance. Splitting our sample according to bank-specific features (banks in authoritarian regimes versus hybrid regimes, Islamic banks versus conventional banks) confirms our findings. Our results are robust to an alternative measure of bank performance.Research limitations/implicationsBanks operating in the MENA region have to be aware of the consequence of political connections. In addition, they have to take into account the role of ownership structure when they seek to attenuate the harmful effect of political connections.Originality/valueThis paper offers an in-depth understanding of the impact of political connections on bank performance by drawing from two institutional logics: resource dependence logic and agency logic. Some recommendations on the importance of changing the existing ownership structure are highlighted, encouraging some investors to take part in the capital of banks in this region.