*4.1.2 Differential analysis between the board impacts on the financial performance of conventional and participatory banks*

To better appreciate the depth of the difference in board effects on the FP of each bank type, we grouped the individual impacts of each board-related variable on the FP for each bank type. Then, we proceeded to the comparative analysis between the combined impacts of the BOD on each FP measure relative to the CBs' group and the combined effects of the BOD on each FP measure of the PBs' group. **Tables 5**–**8** illustrate the reconciliation results specific to CBs with their Islamic competitors.

### *4.1.2.1 Board size*

According to **Table 5**, if the reasonable composition is not balanced based on the criteria of the number and quality of directors, during and after the covid-19 crisis, the board size has a negative influence on the CBs' FP [36, 37, 41, 47, 48, 50]. This is valid if the board members did not satisfy the independence and competence conditions. A large board destroys its effectiveness due to the loss of responsibility and coordination among its members, which encourages directors to pursue their own interests. Besides, boards composed of a large number of directors favor opportunistic behavior and the power of dominance among directors. These acts are transformed into conflicts of interest and coalitions [2, 43]. Large boards encourage members to push managers to maximize board spending as well as their remunerations. Such pressure directly affects the FP of banks because of additional expenses [36]. This type of conduct results in the exclusion of the minority shareholders' interests.

Similarly, the same Table shows that, during and after the covid-19 crisis, the combined impact of board size in the framework of PBs negatively affected their FP [10, 45]. As a result, in PBs, boards made up of a large staff deteriorated their FP. This makes it difficult to supervise members and provide more human capital to advise


### **Table 5.**

*Summary of the board size impacts on the FP of conventional and Islamic banks.*

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

managers. The effect of many directors negatively affected mainly liquidity and solvency, which shows that the board extension within PBs results from decisions that provoke unfavorable financial flaws in FP. This situation may be due to several reasons. First, the lack of sufficient training among some administrators on Fikh Al Mouamalat can generate decisions far from the Charia law. Next, as the number of directors increases, so does the proportion of conflicts between board members. Moreover, consistent scientific knowledge can create ambiguity in the process of financial reporting between a large board and the Charia committee members. This type of relationship ended up developing information asymmetry, limiting transparency, and monopolizing decisions independently of the Charia committee. Indeed, within the PBs, a large board favors the guidance of the right to vote against the policies adopted by the Charia committee related to the liquidity and recovery of the PBs' credits. Finally, given the auxiliary role of the PBs' board as a complementary governance mechanism, there is excessive intervention by board members in the decision-making process, confirmation of investments, and distribution of loans to customers. On the one hand, the excess generates an imbalance in the control procedure; on the other hand, the intervention of the new members causes FP volatility.

### *4.1.2.2 Rooting of the board chairman*

According to **Table 6**, during and after the covid-19 crisis, the effect on the board chairman's reliance on the CBs' FP was negative [17, 45, 55–59]. In the framework of agency theory, such an impact can be interpreted according to the context. All other things being equal, mandate votes are renewed by the general assembly, and if there is no cumulation between the CEO and board chairman positions, this situation is considered beneficial for the bank's continuity, provided that it has good financial indicators justifying the legal progress of the mandate. Conversely, if the CEO also serves as the board chairman, or if he/she finds the opportunity to automatically renew his/her mandate, or if he/she exploits the shortcomings of the governance system for his/her own benefit, the extension is considered unfavorable because it is not justified. Since our CBs'sample is heterogeneous, the intention to renew a mandate for rooting exists in some banks. This impact was confirmed by the collective effect of the duality on the CBs' efficiency and liquidity. Moreover, the warranted prolongation of the mandate also exists in other types of CBs. This was demonstrated by the dominant effect of the variable "BOARDCRc" on the CBs' profitability and solvency, but its impacts are not considerable.

However, during and after the covid-19 crisis, **Table 6** identified a positive cumulative association between the rooting of the board chairman and the PBs' FP [28, 32, 53, 54]. According to the results, liquidity is a central axis for evaluating PBs. Although the creation of liquidity is linked to investments, and the former directors, in the majority of cases, held a proportion of the bank's capital, the establishment and


### **Table 6.**

*Summary of the impacts of the rooting of the board chairman on FP of conventional and Islamic banks.*

maximization of business relations are correlated mainly with the seniority of the board chairman. The more the world of the board chairman is renewed, the more he/she gains experience and the more he/she masters the situation and the reality of the bank. Besides, large PBs are often built by family businesses or widely-owned companies. Also, the choice of profitable investments, the extension of projects, and the opening of several economic sectors require useful experience, good control of the economic environment, a high level of consciousness, and sufficient intelligence to help him/her predict the level of investment risk and avoid challenges and confusions of legal rules and transaction jurisprudence.

### *4.1.2.3 Board independence*

Returning to the conclusions drawn from **Table 7**, during and after the covid-19 crisis, the cumulative effect on the various measures of FP showed that the presence of independent members on the CBs' boards threatens the banks' FP [17, 31, 32, 80– 83]. Independent directors influenced the voting power in making important decisions related to recruitment, compensation, dividend policy, and the appointment and removal of officers. The key factor that determines the ideal board composition is the ability to provide competent individual/collective oversight of risk-taking activities and better stakeholder control. Besides, executive directors typically have valuable information about the banks' activities. However, our CBs'sample consists of a group of large and publicly traded banks. The selection of qualified people who meet both independence and competence criteria is very difficult. Nevertheless, governance issues related to agency relationships are directly correlated to FP or one of its determinants, such as profit, expense, or revenue. Risk-taking is an obligation of the "Control" function; it remains a questionable necessity as CBs market a very complex range of products and encompasses a mosaic of incoherent governance mechanisms.

However, in the case of PBs, during and after the covid-19 crisis, board independence had a positive combined effect on FP [27, 36, 65, 66, 68, 69, 71, 72]. This effect originates from the centralization of power. It reflects the authority to release specific information given by the BOD's executive directors. Also, in PBs, this result is due to work sharing between several committees, the decentralization of decision-making power, and the planning procedure for the FP objectives. In fact, an external director specializing in Islamic banking has a stimulating and positive impact on profitability and efficiency. This can have an insignificant impact on profitability, liquidity, and solvency because he/she has a good skill that provides him/her with the ability to understand and master the true situation of the bank. Moreover, nonexecutive directors are, in most cases, prohibited from holding additional positions and related


#### **Table 7.** *Summary of the board independence impacts on FP of conventional and Islamic banks.*

activities on the boards of several PBs. As a result, they objectively follow the control process to keep their positions.

### *4.1.2.4 Number of board meetings*

As shown in **Table 8**, during and after the covid-19 crisis, the analysis of the impacts corresponding to the number of board meetings on the CBs' FP revealed a fuzzy combinatorial effect [9, 89, 92]. A high number of board meetings has a positive impact on the CBs' liquidity and solvency as their liquidity levels improve through many board meetings. The board is legally authorized to hire, fire, and compensate officers for fraud, manipulation, or results/earnings' management. Also, the BOD is responsible for auditing financial reliability, verifying compliance with regulations, and reducing asymmetric information between shareholders and managers. Besides, the BOD oversees the operational, strategic, and financial decisions of the bank. However, all these responsibilities require an optimal number of meetings to cover all discussions, occupy all complex operations, view all detailed records, and frame all the problems and challenges of departments. To do this, the more the directors meet, the more they ensure that managers pursue strategies that follow the shareholders' interests, and the directors ensure smooth running, evaluation, and correction. This scene is valid for all financial transactions and records of the CBs' availability, even if the directors have decreased the annual number of meetings due to mutual control or because of the strong pressure exerted by all stakeholders on the board members. Nevertheless, in cases of profitability, the decision parameters are reversed insofar as profitability depends on several external, partially controllable factors, such as the deposit rate, the investor credit rate, and the consumption credit rate at the end of the year. Similarly, the decision rule is reversed in the case of an assessment of bank profitability since it depends on the economic environment and the macroeconomic factors that must be well controlled. In general, the decrease in the number of board meetings generates more freedom to make arbitrary decisions and judgments and gives managers the space to plan performance diligence, manage the results, choose investments that are more or less profitable, agree to variable-rate loans, change interest rates, change monetary practices, misapply policies, etc. As a result, these practices open up the space for information asymmetry between board directors and foster conflicts of interest between other governance mechanisms and between stakeholders in general.

Contrary to our prediction, according to **Table 8**, within the PBs, during and after the covid-19 crisis, the association of the different effects relative to the impact of board meetings on the FP generated an overall negative effect [31, 88, 90, 95]. Depending on the case, this impact can be justified by one of three reasons. First, it is caused by the deliberate and intentional weakness at the board level for the benefit of another substitute mechanism, such as the Audit Committee, the Charia Committee,


### **Table 8.**

*Summary of the board meetings impacts on FP of conventional and Islamic banks.*

the Nominating Committee, the Compensation Committee, and the Executive Committee. Second, the undesirable effect is caused by a radical failure in the PBs' policies regarding meetings. This is due to the bad choice of meeting times, inefficient treatment of the problems of earnings management, asset appointments and dismissals, opportunistic behaviors, and personal interests. Third, the administrators made many decisions discordant with the general policy followed by the PBs and contradictory with those taken by the Charia Committee. They did not have the necessary competence to take decisions in conformity with the Charia norms. Whatever the official policy adopted by the bank, the number of meetings affects the PBs' FP in two ways. In quantitative terms, the limited number of meetings reflects a lack of awareness of internal control issues, management control, financial fraud, and accounting falsification. In qualitative terms, a small meeting number does not allow members to discuss the reliability of financial information, verify the degree of compliance with Islamic audit regulations, maintain good governance, and establish necessary mechanisms to reduce the asymmetry of information between shareholders and executives to ensure the investors' interests and the PBs' FP.

### **4.2 Discussion**

The board size had a combined negative and statistically significant impact on the FP of both conventional and participatory banks during and after the covid-19 crisis, thus confirming the first hypothesis. In this comparative study between FPs, the concerning impact limited the comparison's extent. It can add more information to stakeholders, as it can neutralize the comparison between the FPs of two types of banks based solely on this criterion. This impact corroborates the work of [43, 118]. During and after the covid-19 crisis, a large number of directors on the board improved their expertise. However, in an agency framework, it increases potential conflicts and presents a more significant potential for disagreement and lack of coordination in management decisions [47, 119, 120].

In accordance with the literature predictions, the duality has a negative and significant combined impact on the CBs' FP during and after the covid-19 crisis; for this reason, the second hypothesis was accepted [17, 119, 121]. However, in the case of PBs, the duality had a positive and statistically significant combined effect on the PBs' FP during and after the covid-19 crisis. For this reason, the second hypothesis was rejected [53, 122]. In the agency theory framework, this result joins the literature that denounces management duality by causing abuse of the leader's power. Indeed, some authors, such as [2, 5] stipulate that this accumulation of functions decreases agency costs through, for example, the ambiguity of responsibilities, the impartiality of control, the imbalance of power, the conflicts of interest, the asymmetry of information, etc., and weakens the board's effectiveness and thus reduces FP.

As for the percentage of independent directors on the board, during and after the covid-19 crisis, this variable generated a negative and significant combined impact on the CBs' FP that led to the rejection of the third hypothesis [17, 64, 123]. However, in the PBs' framework, the overall impact of the same variable generated a positive and significant impact on their FP during and after the covid-19 crisis, which led us to accept the third hypothesis [124]. In the agency context, independent directors are not able to understand the complexity of the bank's activities, resolve agency conflicts, and fulfill their main role, namely the managers' discipline. This result was proved by several authors, such as [125, 126]. In this case, we can estimate that the control role of the manager in the CBs is attributed to the central banks that represent the regulatory *Impacts of Board Quality on Financial Performance in Conventional… DOI: http://dx.doi.org/10.5772/intechopen.112089*

and supervisory authorities, which enact several prudential rules to be observed by all CBs and ensure their application.

Regarding the differences between the combined impacts of the boards' meetings on FPs, we found that the overall impacts of the CBs' board meetings were ambiguous during and after the covid-19 crisis. This result is due to the unclear trend of all the impacts on their FP [9]. For this reason, I cannot draw a conclusive result either by accepting or rejecting the provided hypothesis in the case of CBs. However, in the PBs' framework, during and after the covid-19 crisis, the compound impact of the PBs' board meetings on their FP is negative [11, 127]. Therefore, the global result is not conclusive and does not allow users of financial information to make a useful comparative decision.

The filtration of the obtained impacts allowed us to only take the impacts resulting from two board determinants on the banks' FP: the CEO/Chairman duality and the boards' independence. The comparative report of these two determinants showed that during and after the covid-19 crisis, duality and independence deteriorated the CBs' FP, while on the other hand, they increased the PBs' FP.
