Impact of Corporate Governance on Bank's Financial Performance (original) (raw)
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Impact of Corporate Governance on Bank’s Financial Performance in Ethiopia
Research Square (Research Square), 2023
The objective of this study is to investigate empirically the impact of corporate governance on banks' nancial performance in Ethiopia using panel data over the period 2005-2021. Since the data is secondary in nature, the quantitative approach to research was used to measure the impact of corporate governance mechanisms on banks' nancial performance which is measured by ROA. As well, the Feasible Generalized Least Square (FGLS) estimation was used. The FGLS is preferred to the pooled OLS, xed effect, and random effect model based on the joint effect of an entity in the pooled, variation across entities has not random and correlated in the random effect model, and heteroscedasticity and serial correlation problem in the xed effect model. The overall FGLS regression result reveals that the model is signi cant at a 1% level. The regression analysis that six explanatory variables have been found signi cant effect on the nancial performance of bank rms in Ethiopia, management e ciency and asset quality had a negative signi cant impact on bank performance, whereas bank size, liquidity ratio, legal reserve, and loan to deposit ratio were positively and signi cantly affect bank performance.
The Effect of Corporate Governance on the Performance of Private Commercial Banks in Ethiopia
2007
The paper looked at the effects of corporate governance on the financial performance of private commercial banks in Ethiopia. This explanatory study sought to analyze the effect of different corporate governance mechanisms, particularly board size, variety number of internal board subcommittee and meeting frequency on the financial performance of 7 privately owned commercial banks of Ethiopia. The financial performance measure was Return on Asset (ROA). In order to achieve this objective, the study used quantitative research approach that is by adopting quantitative method research approach by documentary analysis of secondary data which was collected from the National Bank of Ethiopia (NBE). And capturing and administrating primary data using unstructured questionnaire which were completed by board secretary and delegated staffs as he/she is in a better position to comment on corporate governance affairs. Panel data covering 13year period from 2004-2016 was analyzed and regression result with recommendation are displayed for the selected 7 private commercial banks. The cross section fixed effect technique has been applied to find out the most significant variables from considered corporate governance variables. The findings indicated that Board size and variety, number of internal board subcommittee had statistically significant negative effect on private commercial bank financial performance and board meeting frequency is negatively insignificant on banks performance. When number of board members and variety number of internal board subcommittee increase, ROA will decrease and there should be optimal number of both. Meeting frequency of board members is insignificant to ROA. Future researchers need to focus on these significant variables and additional corporate governance mechanisms.
Corporate Governance and impact on Bank Performance
Journal of Finance and Accounting, 2013
This study aims at examining the corporate governance mechanisms and their impact on performance of commercial banks in the absence of organized stock exchange. The study assessed the relationship between selected internal and external corporate governance mechanisms, and bank performance as measured by ROE and ROA. The study used structured review of documents, and commercial banks financial data were collected covering a period 2005 to 2011. The findings indicated that board size and existence of audit committee in the board had statistically significant negative effect on bank performance; whereas bank size had statistically significant positive effect on bank performance. Similarly, capital adequacy ratio, as a measure of external corporate governance mechanism, had statistically significant positive effect on bank performance. In addition, absence of organized stock exchange; high government intervention; lack of corporate governance awareness, absence of national standards of corporate governance, as well as accounting and auditing; and weak legal framework to protect minority shareholder rights are the major factors with adverse impact on corporate governance and bank performance in Ethiopia.
2019
This study seeks to see the level of impacts that different corporate governance mechanisms has on financial performance of banks in Ethiopia. Explanatory research design was used in establishing the casual effect relationship between corporate governance variables and banks financial performance measures. Secondary data were collected from the banks’ annual reports and the NBE. The study utilized panel data analysis methodology in drawing conclusion about the study covering ten-year period from 2006-2015. The fixed effect model was applied to allow heterogeneity among 7 banks. The regression results show that presence of female directors and industry specific experience of directors has positive and significant effects on financial performance of private banks while number of board committees has significant negative effects on bank performance. The study results implied that stakeholders should give prior considerations to the presence of female directors and industry specific exp...
The International Journal of Management, 2017
The objective of this paper is to explore the impact of corporate governance on continuous business operations and Bank performance indices in the Nigerian Banking Industry. To explore the relationship between Corporate Governance and Bank performance, a Pooled Least Squares Regression analysis was run on Eview Statistical Package based on the (2005 – 2009) financial data/report obtained from BGL 2010 Banking Report and the financial reports and accounts of Nigerian Banks. The results of the analysis showed a negative interrelationship between corporate governance and bank performance. This study finds that there exist a negative interrelationship between corporate governance and bank performance. Hence this portends that the adoption and entrenchment of sound corporate governance and frameworks has significant effect on bank performance. This paper will increase understanding of the relationship of corporate governance and bank performance.
2014
The risk positions of Ethiopian banks have been under tension since 2007 as per the National Bank of Ethiopia report (2009). However, existing theory on the impact of corporate governance mechanisms on bank risk-taking still remains limited and the evidence is conflicting. Most studies concentrate on US and European banks, while empirical evidence has remained scarce for Ethiopian banks. Added to that, to my knowledge, there are almost no papers on this subject for commercial banks in Ethiopia. Thus, the main contribution of this study is to shed some light on the impact of corporate governance mechanisms on bank risk-taking and analyze its relationship with credit and liquidity risks in Ethiopian commercial banks. This paper focuses on commercial banks as they constitute an important segment of the Ethiopian banking sector. I employed a panel multiple regression model in which the relationships between credit &liquidity risk with corporate governance mechanism variables are modeled...
Corporate governance and financial performance of listed banks: evidence form emerging market
International Journal of Economics and Accounting, 2017
One of the important elements in this century's business world that has received attention is corporate governance. The recent economic scandals and financial crisis have made it necessary to investigate the role of corporate governance on firm performance. The survival of firms has thus been associated with the existence and application of good corporate governance practices. This study examines the effect of corporate governance on financial performance of banks listed on the Ghana Stock Exchange. The study employs secondary data collected from 60 firm-year observations, consisting of seven listed banks from 2004 to 2012. The study employs pooled cross-sectional ordinary least squares regression analysis to predict the effect of the corporate governance variables on the financial performance of the listed banks. The findings from the study suggest a negative statistical significant association between board composition and the performance indicators, except for return on equit...
Corporate Governance and Bank Performance in Nigeria: A Study of Selected Banks
The study carried out an empirical analysis of corporate governance and bank performance in Nigeria: with selected 10 most performing commercial banks listed in the Nigeria Stock Exchange using annual data from 2009 to 2016. The study made use of "Hausman specification test" also known as Indirect Least Square (ILS) with panel data. The techniques tested for the appropriateness between fixed and random effects, and the method is consistent and efficient in wiping out the property of un-biasedness. The coefficient of determination R 2 which is approximated to 70% is high and indicates that about 70% of the systematic variation in the financial performance of the Nigeria banks is accounted for by the explanatory variables. The overall test of statistical significance which is F-statistis value as shown in the model passed the test at 5 percent level of significance. The Durbin-Watson statistics of 1.8467 suggest that there is no first order series positive correlation in the model.
The Effect of Corporate Governance on Bank ’ s Financial Performance in Nigeria
2016
In developing economies, the banking sector among other sectors has witnessed several cases of collapses or failure; in Nigeria for instance, weak corporate governance has been at the core of all recent episodes of crisis in the banking system. This research empirically investigates the effect of corporate governance on financial performance of banks in Nigeria. The effects of relative size of non-executive directors and the board size on return on investment (ROA) of a sample of 10 selected banks were investigated. Secondary data were sourced from the Nigeria Stock Exchange fact books issued for the years 2004-2013. The ordinary least square regression technique aided by SPSS 21 was employed in estimating the relationship between the selected variables. The study revealed that the relationship between corporate governance and bank performance in Nigeria is quite significant as a unit change in the board size and the relative size of nonexecutive directors increases the return on as...
The Effects of Corporate Governance on Bank Financial Performance
Whereas banks operate under different management, board of directors, ownership structures, and government regulations, there is no specific optimal corporate governance model that may be applied to all banks. This study investigates the effect of internal corporate governance mechanisms such as board structure, ownership structure, and audit function as well as other variables such as bank size and bank age on bank financial performance. The sample of the study comprises of both conventional and Islamic banks operating in the seven Arabian Peninsula countries, namely Yemen and the Gulf Cooperation Council (GCC) countries, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates. Regression analysis (OLS) is used to test the aforementioned effect. The results of this study reveal that there is a significant relationship between corporate governance and bank profitability. Board meetings and bank age have positive and significant effects on ROE. Meanwhile, board independence and bank size have negative and significant effects on ROA. In addition, while bank age and board committees have positive effects on Profit Margin, ownership concentration has a negative effect on this profitability measure. These results are consistent with previous studies. However, the literature indicate that the correlation between corporate governance and bank performance is still not clearly established and that impact of corporate governance on bank financial performance in developing countries is still relatively limited.