of this paper is to examine the impact of corporate governance characteristics
on financial performance of banks in Bangladesh. The sample includes selected
state owned and private commercial banks in Bangladesh in period of 2011-2016. Based on the findings of this paper it appears that
for selected state owned banks, most
influencing variable is board meeting frequency and most uninfluential variable
is audit meeting frequency for both the case of ROA and ROE. In case of
selected private commercial banks, most influencing variable for ROA is board
meeting frequency and most uninfluential variable is audit committee meeting
frequency. On the other hand most influencing variable for ROE is board size
and most uninfluential variable is audit committee meeting frequency.
Correlation of coefficient for state owned banks are at expected level for both
ROA and ROE but for private commercial banks it is at moderate level.
Key words: Corporate governance, financial performance, Banks in
Bangladesh, Hypothesis test,
governance has evolved and grown significantly in the last decade in Bangladesh
(Claessens and Yortuglo, 2012). Following
the Enron Collapse there has been an increased emphasis on various aspects of
corporate governance, including its disclosure aspect. Ever since the global
financial crisis the world had seen that numerous banks went bankrupt due to
asymmetric information which of course linking to corporate governance (Gillan
and Martin, 2003). Management has the incentive to pursue their own objective
at the expense of shareholders. There is
conflict of interest between owners and managers (De and Nandwani, 2015). This
paper deals with the various corporate government arrangements which are vital
part for any bank set up.
corporate governance can ensure maximization of shareholders value, utilization
of banks resources, enabling to access to capital, improving investors’
confidence. Good governance is ensured through strong internal structure which
that accountability ultimately transparency and results in ability to response
in adverse market condition. The ability to response in adverse market
condition is related to manager’s efficiency too.
the context of Bangladesh, bank is the most dominant form of intermediary
between borrowers and lenders. In the event of vulnerable capital market, the
growth of our economy remains a lot dependent on banks. But recent scams in the
banking industry has pointed out finger to the corporate governance practice in
the banks. The scenario is more vivid for the state owned banks (Shah, 2016). This paper tries
to focus on corporate governance from a different dimension that if it has any
influence on banks financial performance. Accordingly the paper describes the present
condition of corporate governance in the banks in Bangladesh. Particularly if
there exist any relationship between corporate governance and banks financial
Objectives of the study
main objective of this research paper is to identify the impact of corporate
governance on selected state owned and private commercial banks’ financial
performance in Bangladesh. Specifically the research looks for
a. Whether there is any relationship between corporate
governance components and financial performance of selected banks in Bangladesh.
b. Compares the financial performance of selected state owned
and private commercial banks based on their corporate governance compliances.
1.2 Hypothesis of the study
the null hypothesis of the study as developed below
There is no impact of corporate governance on banks’ financial performance.
H0a: There is no impact of corporate
governance on ROA.
H0b: There is no impact of corporate
governance on ROE.
There is impact of corporate governance on banks’ financial performance.
H1a: There is impact of corporate
governance on ROA.
H2b: There is impact of corporate governance
1.3 Limitation of the study
is flawless in the world. This paper suffers from some limitations which are
a) The sample size was relatively small as compared to the
b) For secondary data (Annual Report) would be manipulated by
the terms window dressing. Using the ratios ROA and ROE to calculate financial performance
has many shortcomings.
c) Getting access at sensitive information is restricted which
makes the information more valuable.
2.0 Literature review
recent years a lot of emphasis has been given in corporate governance.
Especially after the global crisis in the year 2008 the magnitude of emphasis
has increased. The reflection of this has been observed in Bangladesh too. When
looked at the banking industry, it is found that particularly in private sector
the issue of corporate governance has taken special care of. On the contrary in
public sector, the corporate governance is yet to be established in a proper
manner. Mahmood & Islam (2015) identifies issues that top management influence as well as political
pressure exists in banking sector which affect the lending decisions. Corrupted
bankers and dishonest officials were found associated with several scams.
Proper documentation is mandatory but sometimes banks show flexibility in this
regards and provide extra benefits to the clients. Selection of wrong borrower,
unhealthy competition among the banks, fund diversion, inefficient auditing and
insufficient collateral cause major harm to the banks. Sometimes banks do not
follow the rules and guidelines related with corporate governance provided by
Bangladesh Bank properly which were actually designed to protect themselves and
operate business smoothly. Their findings are closely on insufficient execution of creditor’s rights
has raised the numbers of classified as well as non-performing loans and
Inadequate enforcement of bankruptcy law has made it nearly impossible for a
company to close or declare bankrupt which need to be revised for winding up or
bankruptcy process specifically for overdue indebtedness reasons. Now a days it
is clear that without proper corporate governance issues any institution cannot
get the ultimate success. Because to
survive in the market goodwill is a major issue for companies.
Rana Al Mosharraf (2015) published his work under the name of “Relative
consequences due to absence of corporate governance in nationalized banks and
private commercial banks in Bangladesh. In
this study 3 state owned banks and 3 three private commercial banks had