Impact of Corporate Governance Mechanisms on Firm’s Performance: A Study on Listed Conventional Banks
DOI:
https://doi.org/10.18034/abr.v7i1.6Keywords:
Board of Directors, Corporate governance, Firm performance, Tobin’s Q, Return on AssetAbstract
This study examines the impact of corporate governance mechanisms on firm’s performance on listed conventional banking companies at Dhaka Stock Exchange (DSE). Based on existing empirical studies, five key attributes of corporate governance (board size, the proportion of independent directors on board, the proportion of female directors on board, institutional ownership and size of audit committee) have been selected to identify their influence on firm’s financial performance. Tobin’s Q (a market-based performance measure) and Return on Asset- ROA (an accounting based performance measure) consider as financial performance measures. Using OLS as a method of estimation, the results provide evidence of a significant negative relationship between the performance of the firm and the proportion of independent directors on board as well as size of the audit committee. The result also provides evidence of a significant negative relationship between Tobin’s Q and institutional ownership but a positive and insignificant between ROA and institutional ownership. Furthermore, there is a negative relationship between the proportion of female directors in board and the performance of the firm but is not significant. Board size as predictor variable is negative and insignificant with Tobin’s Q.
JEL Classifications: G 21, G 34
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References
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Saha, A. K., & Akter, S. (2013), “Corporate governance and voluntary disclosure practices of financial and non-financial sector companies in Bangladesh”. Journal of Applied Management Accounting Research, V-11(2), pp. 45-62.
Sami H., Wang J. & Zhou H. (2011), “Corporate governance and operating performance of Chinese listed firms”. Journal of International Accounting, Auditing and Taxation V-20(2), pp. 106-114.
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Shleifer, A. & R. Vishny (1997), “A survey of corporate governance”. Journal of Finance, V-52(2), pp. 737-783.
Suranta and Machfoedz (2003), Analysis of the structure of ownership, value enterprise, investment and the size of the board of directors. National Conference on Accounting. Surabaya.
Swastika D.L (2013), “Corporate Governance, Firm Size, and Earning Management: Evidence in Indonesia Stock Exchange”. Journal of Business and Management, V-10(4) pp. 77-82.
Thi D.T. (2011), “CORPORATE GOVERNANCE – Empirical Research on Board Size, Board Composition, Board Activity, Ownership Concentration and Their Effects on Performance of Vietnamese Listed Companies”. Master Thesis in Business Administration University of Boras, 2-49.
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Aggarwal R. & Williamson R. (2006), “Did new regulations target the relevant corporate governance attributes?”. Working Paper, Georgetown University. February 12.
Agrawal, A. & Knoeber, C.R (1996),”Firm performance and mechanisms to control agency problems between managers and shareholders”. Journal of Financial and Quantitative Analysis, V-31(3) pp. 377-397.
Beasley, M. (1996), “An empirical analysis between the board of director composition and financial statement fraud”. The Accounting Review, V-71 (4), pp. 443-466.
Berle A.& Means G. (1934), The Modern Corporation And Private Property, Transaction Publishers, New Brunswick, U.S.A.
Bhagat S. & Jefferis R. (2002), The Econometrics of Corporate Governance Studies. MIT Press, Cambridge.
Black B.S., Love I. & Rachinsky A. (2005), Corporate Governance Indices and Firms' Market Values: Time Series Evidence from Russia, European Corporate Governance Institute, University of Texas School of Law, November.
Black, B. (2001) “Does corporate governance matter? A crude test using Russian data” University of Pennsylvania Law Review, V- 149(2), pp. 2131-2150.
Brainard, William C.; James, Tobin. (1968). "Pitfalls in Financial Model Building.” American Economic Review. V-58(2) pp.99–122.
Brennan N. (2006), “Boards of Directors and Firm Performance: Is there an expectations gap?” Corporate Governance: An International Review, V-14(6) pp. 577–593
Brown L. D. & Claylor M. L. (2004), "Corporate Governance and Firm Performance." Working Paper, Georgia State University, USA. December 7.
Cadbury, S. A. (1992), “Committee on the Financial Aspects of Corporate Governance” United Kingdom, London Stock Exchange.
Chhaochharia V. & Laeven L. (2009), “Corporate governance norms and practices”. Journal of Financial Intermediation V-18(3), pp.405–431.
Chowdhury D. K (2004), “Corporate Governance”. Incentives, Control and Development: Governance in Private and Public Sector with Special Reference to Bangladesh, Dhaka University Publishing Society, Dhaka, Bangladesh, pp. 109-158.
Goodstein J., Gautum K., & Boeker, W. (1994) “The effect of Board size and Diversity on Strategic Change”. Strategic Management Journal, V-15(3), pp. 241-250.
Huq B. I. & Bhuiyan M. Z. (2012), “Corporate Governance-It’s Problems & Prospects in Banking Industry in Bangladesh”. World Review of Business Research, V-2 (2), pp.16-31.
Jensen M. C. & Meckling H. (1976), “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure”. Journal of Financial Economics, V. 3, (4), pp.305-360.
Khan K., Nemati A.R. & Ifthikar M. (2011) “Impact of Corporate Governance on Firm’s value of Tobacco Industry of Pakistan”. International Research Journal of Finance and Economics, Issue 61.
Loderer C. & Martin K. (1997), “Executive stock ownership and performance tracking faint traces”. Journal of Financial Economics, V- 45(2), pp. 223-255.
Mak, Y. T., & Kusnadi, Y. (2005), “Size really matters: Further evidence on the negative relationship between board size and firm value”. Pacific-Basin Finance Journal, V-13, pp. 301-318.
Mukhtaruddin, Abukosim, Nurcahaya C. & Ferina I. (2014) “Ownership Structure and Firm Values: Empirical Study on Indonesia Manufacturing Listed Companies”. Journal of Arts, Science & Commerce, V-5(4), pp. 1-14.
Organization for Economic Co-operation and Development (OECD), 1999, “OECD Principles of Corporate Governance”.
Ozkan, N. (2007) “Do corporate governance mechanisms influence CEO compensation? An empirical investigation of Uk companies”. Journal of Multinational Financial Management, V-17, pp. 349-364.
Pearce H. & Zahra S. A. (1992), “Board Composition from a Strategic Contingency Perspective”. Journal of Management Studies, V-29, pp.411-438.
Pfeffer, J. (1983), “Organizational demography” In L. L. Cummings & B. M. Staw (Eds.), Research in organizational behavior, Vol. 5, pp. 299-357. Greenwich, CT: JAI Press.
Rahman M. M (2016), “Determinants of CEO Compensation: Empirical Evidence from Listed Banks of Bangladesh”. Dhaka University Journal of Business Studies, V-1(1), pp. (127-161).
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, V- XVIII, No. 1, pp. 73-85.
Saha, A. K., & Akter, S. (2013), “Corporate governance and voluntary disclosure practices of financial and non-financial sector companies in Bangladesh”. Journal of Applied Management Accounting Research, V-11(2), pp. 45-62.
Sami H., Wang J. & Zhou H. (2011), “Corporate governance and operating performance of Chinese listed firms”. Journal of International Accounting, Auditing and Taxation V-20(2), pp. 106-114.
Sanda, A., Mikailu, A. S., Garba, T (2005), “Corporate governance mechanisms and firm financial performance in Nigeria. AERC Research Paper 149, Nairobi.
Shleifer, A. & R. Vishny (1997), “A survey of corporate governance”. Journal of Finance, V-52(2), pp. 737-783.
Suranta and Machfoedz (2003), Analysis of the structure of ownership, value enterprise, investment and the size of the board of directors. National Conference on Accounting. Surabaya.
Swastika D.L (2013), “Corporate Governance, Firm Size, and Earning Management: Evidence in Indonesia Stock Exchange”. Journal of Business and Management, V-10(4) pp. 77-82.
Thi D.T. (2011), “CORPORATE GOVERNANCE – Empirical Research on Board Size, Board Composition, Board Activity, Ownership Concentration and Their Effects on Performance of Vietnamese Listed Companies”. Master Thesis in Business Administration University of Boras, 2-49.
Uadiale, O. M. (2010), “The Impact of Board Structure on Corporate Financial Performance in Nigeria”. International Journal of Business and Management, V-5(10), pp. 155-166.
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Published
2017-04-25
How to Cite
Das, S. K. (2017). Impact of Corporate Governance Mechanisms on Firm’s Performance: A Study on Listed Conventional Banks. Asian Business Review, 7(1), Art. #2, pp. 15–24. https://doi.org/10.18034/abr.v7i1.6
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