Trustworthiness, good governance and risk taking in MENA countries

Document Type

Article

Publication Date

12-1-2021

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. Copyright (C) 2020, Borsa Istanbul Anonim Sirketi. Production and hosting by Elsevier B.V.

Keywords

Confidence, MENA, Risk-taking, Trustworthiness

Publication Title

Borsa Istanbul Review

DOI

10.1016/j.bir.2020.12.002

Volume

21

Issue

4

First Page

359

Last Page

374

Publisher

Borsa Istanbul Anonim Sirketi

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