Borsa Istanbul Review

Borsa Istanbul Review

Volume 21, Issue 4, December 2021, Pages 359-374
Borsa Istanbul Review

Full Length Article
Trustworthiness, good governance and risk taking in MENA countries

https://doi.org/10.1016/j.bir.2020.12.002Get rights and content
Under a Creative Commons license
open access

Abstract

This study investigates the role of trustworthiness and governance quality in banks’ risk-taking behavior, along with other bank-specific and country-specific variables commonly studied. By employing a dataset comprising 202 banks in 16 countries in the Middle East and North Africa (MENA) from 2011 to 2017 and a two-step generalized method of moments methodology, trustworthiness was tested directly in relation to risk-taking and indirectly through the quality of the channel of governance. Our results indicate that trustworthiness reduces risk-taking, whereas governance quality exacerbates the risk-taking behavior of MENA banks. However, the effect of trustworthiness on risk-taking changes with good governance, indicating the substitution effect of trust on risk-taking because of the existence of weak formal institutions in MENA countries. The study recommends significant policies that can be implemented to promote public trust and bank stability.

Keywords

Confidence
MENA
Risk-taking
Trustworthiness

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Peer review under responsibility of Borsa İstanbul Anonim Şirketi.