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Impact of Corporate Governance Facets on Financial Performance of Indian Banks


Affiliations
1 Faculty, Department of MBA, Institute of Management and Information Technology, Cuttack, Odisha, India
2 Assistant Professor, Department of Commerce, Ravenshaw University, Cuttack, Odisha, India
     

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This research aimed to study the relationship between corporate governance and financial performance of Indian public sector banks. Corporate governance continues to gain momentum in the ever changing business environment and has become sine qua non for corporate sustainability and greater financial performance. The economic environment is increasingly dynamic and uncertain, and this is why banks need to reassess their corporate governance practices. Banks are the main intermediaries in the financial system, and facilitate resource allocation. This requires trust from all the stakeholders, and trust emanates good governance. This makes corporate governance of banks crucial, especially for financial performance and economic advancement. The empirical analysis was conducted using multivariate regression models based on balanced panel data. Our findings show that CEO duality and audit committee size have a positive and significant impact on the return on assets (ROA) and return on equity (ROE). The tenure of the CEO also has a positive effect on the net interest margin (NIM) and market-based performance measure (Tobin’s Q). We have also found that none of the board facets of corporate governance have a positive and significant impact on the performance of public sector banks. Based on the findings, we suggest to increase the number of independent directors on the board of the public sector banks. The study contributes to the corporate governance literature by introducing some new facets relating to various committees formed by a corporate board.

Keywords

Corporate Governance, Board, CEO, Committee, Banks
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  • Impact of Corporate Governance Facets on Financial Performance of Indian Banks

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Authors

Debabrata Sharma
Faculty, Department of MBA, Institute of Management and Information Technology, Cuttack, Odisha, India
Sanjeeb Kumar Dey
Assistant Professor, Department of Commerce, Ravenshaw University, Cuttack, Odisha, India

Abstract


This research aimed to study the relationship between corporate governance and financial performance of Indian public sector banks. Corporate governance continues to gain momentum in the ever changing business environment and has become sine qua non for corporate sustainability and greater financial performance. The economic environment is increasingly dynamic and uncertain, and this is why banks need to reassess their corporate governance practices. Banks are the main intermediaries in the financial system, and facilitate resource allocation. This requires trust from all the stakeholders, and trust emanates good governance. This makes corporate governance of banks crucial, especially for financial performance and economic advancement. The empirical analysis was conducted using multivariate regression models based on balanced panel data. Our findings show that CEO duality and audit committee size have a positive and significant impact on the return on assets (ROA) and return on equity (ROE). The tenure of the CEO also has a positive effect on the net interest margin (NIM) and market-based performance measure (Tobin’s Q). We have also found that none of the board facets of corporate governance have a positive and significant impact on the performance of public sector banks. Based on the findings, we suggest to increase the number of independent directors on the board of the public sector banks. The study contributes to the corporate governance literature by introducing some new facets relating to various committees formed by a corporate board.

Keywords


Corporate Governance, Board, CEO, Committee, Banks

References