Bank Specifics, Economics Environment, And Agency Theory: Determinants Of Banking Performance In GCC

The financial models used in the literature to investigate the performance of banks show mixed results and a low R2 in many of the studies. Therefore, Agency theory can be used in addition to the financial models to give investors enough information about banking industry performance. The sample used in this study consist of accounting information (bank specifics) and market information (macroeconomic variables) for a group of national and foreign banks located in the GCC countries during the period 2002 to 2013. The final sample consists of 115 banks with completed data collected from Bankscope database for financial data. The macroeconomic data were collected from sources such as the International Monetary Fund, International Financial Statistics, National Statistics, and the World Bank. Regression models have been developed to examine the factors that may determine banks performance in the GCC. The results of the study provide evidence that the models used in this paper are significant, indicating that all models containing the above financial and macroeconomics factors are important and statistically significant in determining and explaining bank performance. Even though our results indicate that the above factors are important in measuring bank performance, we believe that the agency theory could be used to shed some lights and provide insights on factors affecting bank performance in the GCC countries. There appears to be a need for a common understanding, a balancing of risks with financial rewards, and a building of long-term relationships. The findings enhance our theoretical understanding of the importance of these factors in creating an environment of trust that governs the behavior of the owners and managers, and hence reduces the agency problem. As for general management, the results indicate that opportunistic behavior can be lessened by managing the relationship between the two parties through a contract that clearly specify these factors. Therefore, this paper paves the way for further research in this area.