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The IUP Journal of Corporate Governance
The Impact of Corporate Governance on the Technical Efficiency of Banks in Pakistan
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This study examines the relationship between corporate governance and technical efficiency of listed commercial banks of Pakistan over the period 2008-2015. The study employs a two-stage methodology. In the first stage, Data Envelopment Analysis (DEA) has been used to compute the technical efficiency of banks. In the second stage, random-effect Tobit regression is used to examine the impact of corporate governance (measured through board size, board independence, board diligence, ownership concentration and ownership type) on the technical efficiency of banks. It is observed that there is a mixed trend in the technical efficiency of commercial banks of Pakistan during the period 2008-2015. During 2008-2010, a decrease in average technical efficiency of banks was observed, and this may be due to the global financial crisis. Then an increase in average technical efficiency was observed, which means that the banks were recovering steadily. In the second stage, the results of random-effects Tobit regression show that ownership concentration has a positive and significant impact on technical efficiency. The firms with presence of foreign ownership are more efficient than local firms. No statistically significant relationship was observed between board meeting, board size, executive directors and technical efficiency. Among the control variables, bankís age was found to be positively and significantly, and bankís size was found to be negatively and significantly related to technical efficiency.

 
 
 

Corporate governance is the systematic means of governing an organization in a well-directed and well-controlled manner. To run such a setup, some set of rules and regulations are laid down that not only paves the path for managers to run the organizational setup, but also acts as a face of the organization for public in general and the potential stakeholders in specific (Ur Rehmans and Mangla, 2010). Such governance structure of an organization is influenced by many factors, like the existing corporate environment of the society and country and legal and regulatory structure that governs the responsibilities and rights of different stakeholders (Tariq and Abbas, 2013). The pivotal points of corporate governance are some key aspects like the role of board of directors, the basic structure of the board itself as to how the board is constituted and run, ownership of the director, the roles and responsibilities of the institutional directors, the structure of financial reporting, the institutionalization of audit, and linkage with the other shareholders.

The purpose of corporate governance is to increase the firmís efficiency, strengthen its growth, improve the confidence of investors, give the mechanism for setting the objective that will be in the best interests of the stakeholders and the society, and determine the resources that can be used to achieve the objectives and carefully oversee their completion (OECD, 2004). MacMillan and Downing (1999), as cited in Gunay (2008, p. 1), defined corporate governance as a system by which companies are directed and controlled to produce high financial performance, whilst Letza et al. (2004), as cited in Gunay (2008, p. 2), emphasized that corporate governance is about institutional arrangements for relationship among various economic actors who may have direct or indirect interests in corporation.

 
 
 

Corporate Governance Journal,Corporate governance, Technical efficiency ,Commercial banks of Pakistan, Data Envelopment Analysis (DEA)