**1. Introduction**

According to the financial approach, the board of directors (BOD) is considered the most important mechanism of an integrated governance system to resolve

conflicts of interest and opportunistic decisions between shareholders and executives. Although the internal control system includes the main governance actors, the BOD is responsible for the effectiveness of other governance mechanisms in the banking system. It coordinates three levels of interest: shareholders, leaders, and other stakeholders.

Empirical studies dealing with the relationship between the BOD and the banks' financial performance (FP) have considered this mechanism an internal control system that helps the leaders to solve agency conflicts between managers and shareholders [1, 2], effectively monitor managers and reduce agency costs [3], and protect shareholders' interests [4, 5]. This current research represents another noticeable finding in the literature, as these researchers have interpreted the board determinants as part of agency theory.

Two factors explain the comparison between the impacts of participatory and conventional banks (CBs) on their FP. The first is the scientific factor, which is manifested by the multiplicity of board definitions in the literature and the differences in their main roles in the current and previous scientific approaches. As far as this factor is concerned, some researchers proved that the board is responsible for the periodic evaluation of the bank's performance, the managers' control, and the followup of its plans, the fixation of its remuneration, as well as establishing disclosure systems for all banking information [6]. Others concluded that the board must also ensure compliance with banking standards. None of the shareholders or officers has the right to use their authority to change the decisions made by the board's vote in their interest [7]. Indeed, to allow the BOD to be an effective control mechanism in financial institutions, [2] suggested the following conditions:


Nevertheless, referring to the participatory banks (PBs) literature, the Islamic board concept, in its classic form, does not exist. Rather, it is used as a control mechanism to adapt the classical banking control system to that of Islamic banking so as to facilitate its integration into highly developed financial and stock markets. Because the financial world operates according to a financial policy based on globalization and competition, and because the board's importance differs from one bank model to another, the divergence can implicitly generate different impacts, which can generate the same impact, but at a lower level, or it can automatically give the same impact in another financial model that reduces or improves the board's quality and consequently the PBs' efficiency. Regardless of non-valued movements or decisions taken outside the Islamic rules, the board constitution in the Islamic banking community is filled by not only the sectoral constitutional norms but also by the provisions of the Islamic norms. For this reason, previous studies considered the variation of these

### *Impacts of Board Quality on Financial Performance in Conventional… DOI: http://dx.doi.org/10.5772/intechopen.112089*

effects within a closed governance system whose components are complementary. In this framework, Ulussever [8] compared the effect of board quality on the FP of participatory and conventional banks during the period 2005–2011 in 16 countries. The results revealed that the ROA and the ROE are significantly higher in IBs than in their conventional counterparts. Specifically, the results revealed that the board size and independence of IBs are positively correlated with the ROA, confirming that these variables have very meaningful impacts on the IBs' governance structure and very significant impacts on their FP. However, in their conventional counterparts, board independence negatively affected the ROE. The results of the other variables such as the board size and the CEO duality, revealed that there is no significant relationship between the ROA and the Tobin Q.

The second factor that motivated us to study this topic is the technical factor. This factor deals with the structural differences between the CBs' board importance and quality and that of PBs. Consequently, these differences influence the type and degree of the resulting impacts from the board's determinant of each bank model on their FP. The criticism of previous research revealed that the countries that adopted an Islamic banking system alongside the conventional system did not simultaneously apply the same regulatory laws and international conventional/Islamic accounting and auditing standards. Besides, their provisions are not similarly administered and controlled in all regions as they are not addressed to the same customer categories. In some countries, PBs operate under a traditional system that is inconsistent with the Islamic principles of good governance practices of the PBs' board; this is considered a flagrant override of the Charia principles. In the opposite form, we find that the CBs operate under a financial system based on Charia standards, which is also very common in practice. Moreover, PBs located outside the Islamic countries' areas and the banks belonging to the non-Islamic original countries'subsidiaries do not necessarily apply the same board control standards. Conversely, it is not evident that all CBs located in Islamic countries adopt Islamic governance standards and that all CBs located in non-Islamic areas ignore the application of Charia standards in their subsidiaries. This debate is very complicated; it depends on the banks' individual reasoning in each sample, case by case. Therefore, this factor created typical differences between the board structures of conventional and Islamic banks, which translated into disagreements on their FPs' impacts. Everything depends on the bank's activity and the magnitude of its financial objectives. Whatever the bank type, the more the gap between the board's determinants increases, the more the impacts on their FP differ.

Furthermore, based on the theoretical knowledge, since the results of previous studies separately analyzing the impact of the BOD's effects on the FP of conventional or participatory banks are mixed, comparative studies between these impacts in the agency theory framework are nonexistent. Also, all of the previous studies were carried out before, during, or after the subprime crisis. However, no study has analyzed or compared the trends in these impacts during and after the covid-19 health crisis. The first goal of this study is to determine the type of causality between the BOD and the FP of each bank type in an economically unstable period. The second objective of this study is to solve the comparison ambiguity between the impacts of the boards' quality on the FP of conventional and participatory banks (Islamic banks) in the agency theory framework and overcome previous unclear and inconclusive results *via* the selection of the bank type that has the best board quality that has the best impact on their FP during and after the covid-19 crisis in emerging and developing countries. The third objective is to help stakeholders find out which bank type performs best *via* its board quality in a crisis situation.

The theoretical contribution that was highlighted in this work is to call for a comprehensive and exhaustive revision of the governance theory, which not only interests the banks' board side but also concerns all the governance mechanisms within conventional and participatory banks. Our first practical contribution is the discovery of a new board system applicable in both stable and unstable financial contexts. This board has to be objective, dynamic, strategic, and able to improve the governance quality of Islamic and conventional banks. The second practical contribution is to put into perspective an original, integrated, and multidisciplinary evaluation approach involving different perspectives and knowledge of boards in conventional and participatory banks, starting with maximizing the FP goal.

The remainder of the paper is organized as follows: Section 2 reviews previous research on this topic and the study hypotheses. Section 3 describes the employed methodology, the data sources, the variables, and the models'specifications. Empirical results are presented in Section 4. Finally, Section 5 contains concluding remarks.
