On the non-linear relationship between large shareholders and bank performance: North African banks vs. banks in the Middle East

Abstract

The paper aims to empirically assess the threshold effect in the large shareholders (LS) and bank performance relationship. We used a sample of MENA banks during the period 2004–2017. To get benefit from a comparative regional analysis, the whole sample was divided into two sub-samples, banks in the Middle East and banks in North Africa. We performed the Panel Smooth Transition Regression model (PSTR) as an econometric approach. Empirical results indicate a threshold effect in the large shareholders-bank performance relationship. Additionally, results show that this effect differs across regions. More specifically, we found that, below the threshold, large shareholders significantly decrease bank performance for the whole sample. Surpassing this threshold, the effect becomes positive. The opposite result was found for banks located in the Middle East region. However, no significant effect was found for banks in North African countries in almost regressions.