The Impact of Corporate Governance on Firm Performance in Commercial Banks of Bangladesh
DOI:
https://doi.org/10.18034/abcjar.v6i2.70Keywords:
Corporate Governance, Financial Performance, Discloser & Transparency, Good corporate Governance, Structural Equation Modeling (SEM)Abstract
In the era of globalization and MNCs, the issue of governance has become the central of corporate culture which works as a key influential factor in global capitalism. Corporate governance (CG) is defined as a system of rules, practices and processes by which a company is directed and controlled. The main objective of this study is to explore the impact of corporate governance on firm performance in Bangladesh. Research on CG primarily investigated different CG principles. The study incorporates four CG principles such as rights of shareholders, role of stakeholders in CG, Disclosure and transparency and the responsibilities of board directors based on the Organization of Economic Cooperation and Development (OECD) Principles and Bangladesh Bank (BB) revised principles of Corporate Governance. The firm performance was assessed by measuring financial performance based on return on assets (ROA). Data were obtained from 22 listed banks on the Dhaka Stock Exchange (DSE) to measure corporate governance principles and firm performance. Subjective data was collected from the top management of the respected banks. The companies with 10 years operational background were selected randomly for this study. The data were analyzed using different statistical tools by the help of STATA. The result of the statistical analysis shows the effects of corporate governance concept, CG principles, obstacles that affect CG and enablers that affect CG, on firm performance. This study further supports the argument that when firm implement good corporate governance principles, it experiences improved firm performance, i.e., financial performance. This study, with its emphasis on developing a corporate governance model, makes a significant contribution to the body of knowledge on corporate governance in emerging economies like Bangladesh.
Downloads
References
Adams, R. B., & Mehran, H. (2008). Corporate performance, board structure, and their determinants in the banking industry.
Akter, S., D'Ambra, J., & Ray, P. (2011). An evaluation of PLS based complex models: the roles of power analysis, predictive relevance and GoF index.
Ali Shah, S. Z., Butt, S. A., & Hassan, A. (2009). Corporate governance and earnings management an empirical evidence form Pakistani listed companies.
Bauer, R., Frijns, B., Otten, R., & Tourani-Rad, A. (2008). The impact of corporate governance on corporate performance: Evidence from Japan.Pacific-Basin Finance Journal, 16(3), 236-251.
Bauer, R., Wojcik, D., & Clark, G. L. (2004). Corporate governance and cross-listing: Evidence from European companies.
Baydoun, N., Maguire, W., Ryan, N., & Willett, R. (2012). Corporate governance in five Arabian Gulf countries. Managerial Auditing Journal, 28(1), 7-22.
Bhagat, S., & Black, B. (2001). The non-correlation between board independence and long-term firm performance. J. CorP. l., 27, 231.
Bhuiyan, M. A. H., Suruvi, N. I., Dampare, S. B., Islam, M. A., Quraishi, S. B., Ganyaglo, S., & Suzuki, S. (2011). Investigation of the possible sources of heavy metal contamination in lagoon and canal water in the tannery industrial area in Dhaka, Bangladesh. Environmental monitoring and assessment, 175(1), 633-649.
Brown, L. D., & Caylor, M. L. (2006). Corporate governance and firm valuation. Journal of accounting and public policy, 25(4), 409-434.
Chin, W. W. (2010). How to write up and report PLS analyses. In Handbook of partial least squares (pp. 655-690). Springer Berlin Heidelberg.
Ehikioya, B. I. (2009). Corporate governance structure and firm performance in developing economies: evidence from Nigeria. Corporate Governance: The international journal of business in society, 9(3), 231-243.
Epps, R. W., & Cereola, S. J. (2008). Do institutional shareholder services (ISS) corporate governance ratings reflect a company's operating performance?. Critical Perspectives on Accounting, 19(8), 1135-1148.
Fornell, C., &Larcker, D. F. (1981).Evaluating structural equation models with unobservable variables and measurement error.Journal of Marketing Research, 18(1), 39-50. http://dx.doi.org/10.2307/3151312
Ghabayen, M. A. (2012). Board characteristics and firm performance: Case of Saudi Arabia. International Journal of Accounting and Financial Reporting,2(2), 168.
Gillan, S. L., & Starks, L. T. (2000). Corporate governance proposals and shareholder activism: The role of institutional investors. Journal of financial Economics, 57(2), 275-305.
Gompers, P., Ishii, J., & Metrick, A. (2003). Corporate governance and equity prices. The quarterly journal of economics, 118(1), 107-156.
Grassa, R., Matoussi, H., & Trabelsi, S. (2010). The impact of Shariah supervisory board characteristic’s on Islamic bank performance’. InCorporate Governance & the Global Financial Crisis Conference.
Griffin, J. J., & Prakash, A. (2014). Corporate responsibility: Initiatives and mechanisms. Business & Society, 53(4), 465-482.
Gürbüz, A. O., Aybars, A., & Kutlu, Ö. (2010). Corporate governance and financial performance with a perspective on institutional ownership: empirical evidence from Turkey. Journal of Applied Management Accounting Research, 8(2), 21.
Hair, I. F., Anderson, R. E., Tatham, R. L., & Black, W. C. (1998). Multivariate data analysis (5thed.), Upper Saddle River, NJ: Prentice Hall.
Hair, J. F., Anderson, R. E., Tatham, R. L., & Black, W. C. (1998).Multivariate Data Analysis with Readings, 5th Edition. Macmillan, New York.
Haniffa, R., & Hudaib, M. (2006). Corporate governance structure and performance of Malaysian listed companies. Journal of Business Finance & Accounting, 33(7‐8), 1034-1062.
Henseler, J., Ringle, C. M., &Sinkovics, R. R. (2009). The use of partial least squares path modelling in international marketing. New Challenges to International MarketingAdvances in International Marketing, 20, 227-319.
Hulland, J. (1999). Use of partial least squares (PLS) in strategic management research: A review of four recent studies. Strategic management journal, 195-204.
Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. the Journal of Finance, 48(3), 831-880.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.
Karpoff, J. M., Malatesta, P. H., & Walkling, R. A. (1996). Corporate governance and shareholder initiatives: Empirical evidence. Journal of Financial Economics, 42(3), 365-395.
Klapper, L. F., & Love, I. (2004). Corporate governance, investor protection, and performance in emerging markets. Journal of corporate Finance, 10(5), 703-728.
Klein, A. (1998). Firm performance and board committee structure 1. The Journal of Law and Economics, 41(1), 275-304.
MacKinnon, D. P. (2008).Introduction to Statistical Mediation Analysis. Taylor and Francis group: New York.
Mallin, C., Mullineux, A., & Wihlborg, C. (2005). The financial sector and corporate governance: the UK case. Corporate Governance: An International Review, 13(4), 532-541.
Nunnally, J. C., & Bernstein, I. H. (1994).Psychometric Theory, (3rded.), New York: McGraw-Hill.
OECD (2004), OECD principles of corporate governance, Organization for Economic Cooperation and Development (http://www.oecd.org/)
Onakoya, A. B. O., Fasanya, I. O., & Ofoegbu, D. I. (2014). Corporate Governance as Correlate for Firm Performance: A Pooled OLS Investigation of Selected Nigerian Banks. IUP Journal of Corporate Governance, 13(1), 7.
Ongore, V. O., K’obonyo, P. O., & Ogutu, M. (2011). Implications of firm ownership identity and managerial discretion on financial performance: empirical evidence from Nairobi Stock Exchange. International journal of humanities and social science, 1, 187-195.
Patel, S. A., Balic, A., & Bwakira, L. (2002). Measuring transparency and disclosure at firm-level in emerging markets. Emerging Markets Review,3(4), 325-337.
Ramdani, D., & van Witteloostuijn, A. (2009). Board independence, CEO duality and firm performance: A quantile regression analysis for Indonesia, Malaysia, South Korea and Thailand (No. 2009004).
Reed, D. (2002). Corporate governance reforms in developing countries. Journal of Business Ethics, 37(3), 223-247.
Rezaee, Z. (2009). Corporate governance and ethics. John Wiley & Sons.
Sinclair, M. L. (2011). Developing a model for effective stakeholder engagement management. Asia Pacific Public Relations Journal, 12(1), 1-20.
Solomon, A., Solomon, J., & Suto, M. (2004). Can the UK experience provide lessons for the evolution of SRI in Japan?. Corporate Governance: An International Review, 12(4), 552-566.
Sternberg, E. (2004) Corporate Governance: Accountability in the Market Place, 2nd Edn. London: Institute of Economic Affairs.
Weir, C., & Laing, D. (2001). Governance structures, director independence and corporate performance in the UK. European Business Review, 13(2), 86-95.
Yamane, T. (1967). Elementary sampling theory. Published by Prentice Hall, Englewood Cliffs, N.J. (1967), ISBN 10: 0132595079 ISBN 13: 9780132595070
--0--
Downloads
Published
Issue
Section
License
How to Cite
