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The IUP Journal of Corporate Governance

Does Corporate Governance Lead to Profitability of Financial Institutions? An Empirical Study on Bangladesh

Article Details

Pub. Date	: Oct, 2021
Product Name	: The IUP Journal of Corporate Governance
Product Type	: Article
Product Code	: IJCG11021
Author Name	Md. Abdur Rashed Kabir, Md. Sumon Ali, Abu N M Wahid and Md. Fahad Uddin
Availability	: YES
Subject/Domain	: Management
Download Format	: PDF Format
No. of Pages	: 16

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Abstract

The study explores the effect of corporate governance on the performance of financial institutions in Bangladesh. This empirical analysis focuses on 12 selected financial institutions from the Dhaka Stock Exchange from 2015-2019. To achieve this objective, the authors have considered Return on Asset (ROA), Return on Equity (ROE), and Earnings Per Share (EPS) as the profitability measurements, and corporate governance mechanisms, which include size of the board, independent directors, audit committee members, CEO duality, and female directors. Applying the Fixed Effect Ordinary Least Square method, the study found that board size, independent directors, audit committee members, and percentage of female directors substantially influence at least one measurement criterion of the performance of firms under investigation. Moreover, regarding the control variables-firm age and leverage negatively influence firm performance. The findings suggest that firms that practice good and effective corporate governance procedures may expect better market and financial performance.

Description

Corporate governance has garnered considerable attention because of a series of business failures and scandals that appear to have been caused by various accounting and disclosure practices (Anghel and Man, 2014). However, more emphasis is paid to international corporate governance and research in the recent Global Financial Crises (GFC) 2008 (Boubaker and Nguyen, 2014). The concept of corporate governance is characterized by the fact that mechanisms, procedures, systems, and structures are controlled and managed by companies (Aboagye and Otieku, 2010). This concept makes it easy to grasp Cadbury's report, which discusses how corporate governance oversees and controls its operations.

The importance of corporate governance in relation to the corporate failure of different reputed organizations drew the attention of business professionals worldwide during the early 2000s. The failure of businesses mainly occurs as a consequence of poor corporate governance systems. It is worth mentioning that firms with poor governance frameworks experience greater

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