Corporate governance dynamics in financial institution performance: A panel data analysis
-
DOIhttp://dx.doi.org/10.21511/imfi.21(3).2024.24
-
Article InfoVolume 21 2024, Issue #3, pp. 292-303
- 237 Views
-
66 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
The study aims to identify the effect of corporate governance factors on financial institution performance in Bangladesh. This study employs annual data for 20 financial institutions, including banks, NBFIs, and insurance companies, data is collected from 2011 to 2022. Here, three corporate governance indicators are utilized – board size, board independence, and director’s ownership. The performance of the financial institutions is measured using return on assets (ROA), return on equity (ROE), and net asset value (NAV). Apart from the corporate governance variables, three company-specific factors, i.e., firm age, financial leverage, and firm size, are used as the control variables. Panel data analysis is conducted through the dynamic Feasible Generalize Least Square (FGLS) method, and the robustness is performed using the random effect model. The results show that corporate governance parameter such as board size has a significant positive influence on financial institution performance in Bangladesh, where board independence and director ownership do not have a significant influence on the performance of financial institutions. Thus, the performance of financial institutions increases when board size increases. This indicates that board members are actively engaged in strategic decision-making and ensure the rights of all stakeholders, which helps improve financial institutions’ overall performance. Therefore, financial institutions may increase their board size to the maximum level to ensure better corporate governance practices in the organizations, which ultimately increases performance.
- Keywords
-
JEL Classification (Paper profile tab)G30, G38, L25
-
References48
-
Tables5
-
Figures0
-
- Table 1. Variable description
- Table 2. Descriptive statistics
- Table 3. Correlation matrix
- Table 4. Regression results of impact of corporate governance on financial institutions’ performance (feasible generalized least squares (FGLS) regression model)
- Table 5. Regression results of impact of corporate governance on financial institutions’ performance (random effects model regression)
-
- Adams, R. B., & Ferreira, D. (2007). A theory of friendly boards. The Journal of Finance, 62(1), 217-250.
- Ahmed, S. U., Ullah, W., Ahmed, S. P., & Rahman, A. (2016). An Empirical Study on Corporate Governance and Islamic Bank Performance. International Journal of Finance & Banking Studies, 5(4), 01-09.
- Al-Qudah, A. M., & Jaradat, M. A. (2013). The Impact of Macroeconomic Variables and Banks Characteristics on Jordanian Islamic Banks Profitability: Empirical Evidence. International Business Research, 6(10), 153-162.
- Anderson, C. W., & Campbell, T. L. (2004). Corporate governance of Japanese banks. Journal of Corporate Finance, 10(3), 327-354.
- Andreou, P. C., Antoniou, C., Horton, J., & Louca, C. (2016). Corporate Governance and Firm-specific Stock Price Crashes. European Financial Management, 22(5), 916-956.
- Bhagat, S., & Bolton, B. (2019). Corporate governance and firm performance: The sequel. Journal of Corporate Finance, 58, 142-168.
- Boubakri, N., El Ghoul, S., Wang, H., Guedhami, O., & Kwok, C. C. (2016). Cross-listing and corporate social responsibility. Journal of Corporate Finance, 41, 123-138.
- Cadbury, A. (2002). Corporate governance and chairmanship: a personal view (pp. 1-2). Oxford University Press.
- Chang, T. C., & Chiu, Y. H. (2006). Affecting factors on risk-adjusted efficiency in Taiwan’s banking industry. Contemporary Economic Policy, 24(4), 634-648.
- Cheema, K. U. R., & Din, M. S. (2013). Impact of corporate governance on performance of firms: A case study of cement industry in Pakistan. Journal of Business and Management Sciences, 4(1), 44-46.
- Chen, K. H. (2012). Incorporating risk input into the analysis of bank productivity: Application to the Taiwanese banking industry. Journal of Banking & Finance, 36(7), 1911-1927.
- Chiu, Y. H., & Chen, Y. C. (2009). The analysis of Taiwanese bank efficiency: Incorporating both external environment risk and internal risk. Economic Modelling, 26(2), 456-463.
- Dao, B. (2021). Impact of corporate governance on firm performance and earnings management a study on vietnamese non-financial companies. Asian Economic and Financial Review, 10(5), 480-501.
- Deb, B. C., Sarker, A., & Siddique, F. (2017). Relationship between corporate governance and financial performance of banking industry in Bangladesh. Journal of Management (JOM), 4(2), 50-61.
- Demb, A., & Neubauer, F. F. (1992). The corporate board: Confronting the paradoxes. Long Range Planning, 25(3), 9-20.
- Drobetz, W., Schillhofer, A., & Zimmermann, H. (2004). Corporate governance and expected stock returns: Evidence from Germany. European Financial Management, 10(2), 267-293.
- Eisenberg, T., Sundgren, S., & Wells, M. T. (1998). Larger board size and decreasing firm value in small firms. Journal of Financial Economics, 48(1), 35-54.
- Erkens, D. H., Hung, M., & Matos, P. (2012). Corporate governance in the 2007–2008 financial crisis: Evidence from financial institutions worldwide. Journal of Corporate Finance, 18(2), 389-411.
- Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The Journal of Law and Economics, 26(2), 301-325.
- Farooque, O. A., Van Zijl, T., Dunstan, K., & Karim, W. K. (2007). Corporate governance in Bangladesh: Link between ownership and financial performance. Corporate Governance: An International Review, 15(6), 1453-1468.
- Fiador, V. O. (2013). Corporate governance and value relevance of financial information: evidence from the Ghana Stock Exchange. Corporate Governance: The International Journal of Business in Society, 13(2), 208-217.
- Gao, J., Wu, D., Xiao, Q., Randhawa, A., Liu, Q., & Zhang, T. (2023). Green finance, environmental pollution and high-quality economic development – a study based on China’s provincial panel data. Environmental Science and Pollution Research, 30(11), 31954-31976.
- Guluma, T. F. (2021). The impact of corporate governance measures on firm performance: the influences of managerial overconfidence. Future Business Journal, 7(1), 50.
- Hanusz, Z., & Tarasińska, J. (2015). Normalization of the Kolmogorov–Smirnov and Shapiro–Wilk tests of normality. Biometrical Letters, 52(2), 85-93.
- Hasan, S. M., Hossain, S. A., Islam, R., & Hasan, M. M. (2023). Corporate Governance and Firms’performance: Evidence from Dhaka Stock Exchange. Indian Journal of Finance and Banking, 13(1), 28-38.
- Hutton, A. P., Marcus, A. J., & Tehranian, H. (2009). Opaque financial reports, R2, and crash risk. Journal of Financial Economics, 94(1), 67-86.
- Huynh, C. M. (2024). Climate change and agricultural productivity in Asian and Pacific countries: how does research and development matter? Journal of Economic Studies, 51(3), 712-729.
- Jesover, F., & Kirkpatrick, G. (2005). The revised OECD principles of corporate governance and their relevance to non-OECD countries. Corporate Governance: An International Review, 13(2), 127-136.
- Kendall, N., & Kendall, A. (1998). Real-world corporate governance: A programme for profit-enhancing stewardship. Ft Pitman, Cop.
- Khatab, H., Masood, M., Zaman, K., Saleem, S., & Saeed, B. (2011). Corporate governance and firm performance: A case study of Karachi stock market. International Journal of Trade, Economics and Finance, 2(1), 39-43.
- Kumalasari, D., & Pratikto, H. (2018). Good corporate governance effects on corporate value through return on equity and return on asset of manufacture firm. KnE Social Sciences, 3(3), 114- 126.
- Li, Z., & Yao, J. (2019). Testing for heteroscedasticity in high-dimensional regressions. Econometrics and Statistics, 9, 122-139.
- Madura, J. (2015). Financial institutions and markets (11th ed.) (pp. 3-14). Cengage Learning India Private Limited.
- Mehari, D., & Aemiro, T. (2013). Firm Specific Factors That Determine Insurance Companies’ performance in Ethiopia. European Scientific Journal, 9(10), 245-255.
- Mester, L. J. (1996). A study of bank efficiency taking into account risk-preferences. Journal of Banking & Finance, 20(6), 1025-1045.
- Mwambuli, E. L. (2019). Analysis of the role of corporate governance on listed firm’s capital structure: the east African stock markets perspective. International Journal of Accounting and Financial Reporting, 9(3), 143-163.
- Reed, W. R. (2015). On the practice of lagging variables to avoid simultaneity. Oxford Bulletin of Economics and Statistics, 77(6), 897-905.
- Richey, S. (2010). The impact of corruption on social trust. American Politics Research, 38(4), 676-690.
- Rostami, S., Rostami, Z., & Kohansal, S. (2016). The effect of corporate governance components on return on assets and stock return of companies listed in Tehran Stock Exchange. Procedia Economics and Finance, 36, 137-146.
- Rouf, A. (2012). The relationship between corporate governance and value of the firm in developing countries: Evidence from Bangladesh. Journal of Economics and Business Research, 18(1), 73-85.
- Shrestha, N. (2020). Detecting Multicollinearity in Regression Analysis. American Journal of Applied Mathematics and Statistics, 8(2), 39-42.
- Sohag, K., Nabilah, A. B., & Begum, R. A. (2015). Dynamic impact of financial development on economic growth: heterogeneous panel data analysis of island economies. International Journal of Economic Policy in Emerging Economies, 8(1), 77-95.
- Templeton, G. F. (2011). A two-step approach for transforming continuous variables to normal: implications and recommendations for IS research. Communications of the Association for Information Systems, 28(4), 41-58.
- Varshney, P., Kaul, V. K., & Vasal, V. K. (2013). Corporate governance mechanisms and firm performance: a study of select Indian firms. Afro-Asian Journal of Finance and Accounting, 3(4), 341-395.
- Willim, A. P. (2015). Price Book Value & Tobin’s Q: Which One is Better For Measure Corporate Governance? European Journal of Business and Management, 7(27), 74-79.
- Xie, Q., Li, W., & Zhang, Y. (2022). The curvilinear effect of top management team task-related demographic faultlines on over-investment. Management Decision, 60(1), 27-47.
- Yousuf, S., & Islam, M. A. (2015). The concept of corporate governance and its evolution in Asia. Research Journal of Finance and Accounting, 6(5), 19-25.
- Zagorchev, A., & Gao, L. (2015). Corporate governance and performance of financial institutions. Journal of Economics and Business, 82, 17-41.