Regulation, Disclosure, and the Displacement of Internal Governance in Saudi Banks

This study examines whether strengthened prudential supervision reduces the marginal influence of internal governance mechanisms on the performance of Saudi banks during the Vision 2030 reform period. Using a panel of ten listed Saudi banks from 2018 to 2024, governance measures are hand collected to align with Saudi Central Bank definitions, focusing on insider ownership and board independence. To address endogeneity arising from performance persistence and reverse causality, two-step system generalized method of moments with collapsed lagged internal instruments and Windmeijer-corrected standard errors are employed. The results reveal that insider ownership and board independence are statistically and economically insignificant for accounting performance and market valuation, whereas lagged performance remains the dominant predictor. Hansen J and Arellano–Bond AR(2) diagnostics support instrument validity, and robustness checks using alternative estimators and variable specifications produce consistent findings. The results suggest that in contexts where prudential oversight is comprehensive and consistently enforced, internal governance mechanisms may provide limited incremental monitoring value. However, they do not imply that boards or insiders are irrelevant during crises or when enforcement is uneven. Therefore, refining supervisory tools and disclosure practices should be prioritized over imposing additional structural mandates on boards or ownership configurations.