Corporate Governance and Bank Performance: The Case of Bangladesh
37 Pages Posted: 30 Jan 2013
Date Written: January 29, 2013
Though a large body of empirical studies on corporate governance have emerged during the last decade, most of them were related to non-bank firm governance and have narrowly focused on the bank governance issues. As such the objective of this paper is to narrow down this gap and to contribute to the body of knowledge relating to bank governance. Particularly, this paper investigates the impact of governance on bank performance in Bangladesh where institutional, regulatory and legal environment are different than those in force in developed economies. In order to promote good governance, the Bangladesh Bank - the central bank of the country - promulgated codes of corporate governance for banks in 2003. This paper empirically investigates the influence of corporate governance mechanisms on financial performance of 25 listed banking companies in Bangladesh over the period 2003-2011. Estimated results demonstrate that the general public ownership and the frequencies of audit committee meetings are positively and significantly associated with return on assets (ROA), return on equity (ROE) and Tobin’s Q. Directors’ ownership and independent directors have significant positive effects on bank performance measured by Tobin’s Q.
The results indicate that a good number of companies does not comply the mandatory requirements for board size, appointment of independent directors in the board, and holding audit committee meetings set forth by the central bank and the Security and Exchange Commission (SEC) implying remarkable shortfall in corporate governance practice in Bangladeshi banking sector. The board is seen to have been prevalently dominated by the outside non-independent directors having multiple directorships and the companies are actually run by the independent managers having no ownership interest. The significance of this study is that it contributes to the literature as the first paper that explicitly investigates the impact of the latest governance directives on the performance of Bangladeshi banking sector.
Keywords: Corporate Governance, Bank Performance, Bangladesh
JEL Classification: G21, G30, G32, G38, N25
Suggested Citation: Suggested Citation