Bank efficiency in Middle East and North African countries: Does political connection type matter?

Abstract

AbstractThis study examines the effects of the political connections of chief executive officers (CEOs) or directors on technical, allocative, and cost bank efficiencies examining a panel of 144 banks operating in 12 Middle Eastern and North African (MENA) countries observed over the 2008–2021 period. Using random effect tobit regressions, we find that the three types of political connections explored (aggregate, CEO, and board of directors) have negative effects on banks’ technical and cost efficiencies. In addition, CEO political connections exhibit superior explanatory power. These findings remain robust when we consider the sample in terms of monarchist and republican countries. Further evidence reveals that the effect of political connections is observed more strongly during the pandemic period (2020–2021) than during the 2008–2009 financial crisis period. Our results indicate that banks in MENA countries must strategically regulate bank political connections during crises and consistently thereafter. Our findings have implications for regulators investors and authorities in MENA countries.