The impact of administrative practices on financial performance: Evidence from Saudi Arabian banks

Abstract

The quality of administrative practice among those charged with governance has become a necessary requirement for its impact on financial performance in the banking sector. Despite growing attention to corporate governance reforms in emerging economies, empirical evidence on how administrative governance traits affect financial institutions in Saudi Arabia remains limited. This study addresses this gap by examining the impact of governance-related administrative practices on the financial performance of Saudi banks. Using a balanced panel dataset covering all Saudi banks listed in the financial market from 2010 to 2021, the study employs ordinary least squares (OLS) and feasible generalized least squares (FGLS) to ensure robust results and address heteroskedasticity and serial correlation. Financial performance is measured using return on assets (ROA) and return on equity (ROE). Results from both techniques are consistent: board size positively affects ROE but negatively affects ROA, while board independence shows a negative impact on both. Board meetings improve ROA, and leverage and firm size significantly enhance performance. The study contributes to theory and practice by highlighting how governance structures strengthen financial performance and offers insights for regulators seeking to improve governance quality and promote sustainability in the Saudi banking sector.