Assessing the Impact of Corporate Governance Index on Financial Performance in the Romanian and Italian Banking Systems

Abstract

Background: Our study aims to verify the impact of corporate governance index on financial performance, namely return on assets (ROA), general liquidity, capital adequacy and size of company expressed as total assets in the banking sector for both a developing and a developed country. In addition, we investigate the interactive effect of corporate governance on a homogenous and a heterogeneous banking system. These two banking systems were chosen in order to assess the impact of corporate governance on two distinct types of banking system: a homogenous one such as the Romanian one and a heterogeneous one such as the Italian one. The two systems are very distinct; the Romanian one is represented by only 34 banks, while the Italian one comprises more than 350 banks. Thus, our research question is how a modification in corporate governance legislation is influencing the two different banking systems. The research implication of our study is whether a modification in legislation, thus in the index of corporate governance, is feasible for two different banking sectors and what the best ways to increase the financial performance of banks are without compromising their resilience. Methods: Using survey data from the Italian and Romanian banking systems over the period 2007–2018, we find that the corporate governance has a significant, positive and long-lasting effect on profitability and capital adequacy in both countries. Results: Taking the size of the company into consideration, the impact of the Index of Corporate Governance (ICG) on a homogenous banking system is positive while the impact on a heterogeneous banking system is negative. Conclusions: Our study provides evidence of the impact of IGC on financial performance and sheds light on the importance of the size of the company. Therefore, one can state that the corporate governance principles applied do not encourage the growth of large banks in heterogeneous banking sectors, thereby suggesting new avenues of research associated with new perspectives.

The Relationship Between Corporate Governance Mechanisms and Financial Institution Performance. A COVID-19 Perspective

“…The relationship between a financial institution performance and corporate governance was debated during the time by the authors such as Benvenuto et In the Romanian context, Benvenuto et al (2021) assessed the impact of the corporate governance index on the financial performance in the Romanian and Italian banking systems for the period 2007-2018. For Romania, the authors identified that the effective implementation of corporate governance within the banking system had a positive long-term impact on profitability.…”

Empirical Evidence of Board Composition and Ceo-Duality With Financial Performance of Select Indian Banks

“…Control variables are included in regression analyses to estimate the causal effect of a treatment on an outcome. To study the impact of independent variable on dependent variables in multiple regression total assets of the selected banks have been taken as control variable as a measure of firm size (Dang, Li, & Yang, 2018), (Basuony, Mohamed, & Al-Baidhani, 2014), (Benvenuto, Avram, Avram, & Viola , 2021). The log transformation can be used to make highly skewed distributions less skewed.…”

The Impact of Corporate Governance and Its Consequences on Protecting the Bank’s Assets: Empirical Evidence From Kosovo Banks

“…Corporate governance reconciliation studies offer a wide range of qualitative and quantitative analyzes that reveal the degree, scope, and levels of compliance (Seidl 2013; Shrivers and Niamh 2015; and Okhmatovskiy 2017), in addition to its importance to the bank's performance and value (Stiglbauer and Velte 2014; Rose 2016; Roy and Pay 2017). Besides this, the most recent study in the field of CG, performed by Benvenuto et al (2021), analyzes the influence of CG in Romania and Italy, using financial indicators also CG components in productivity and shareholder value protection turns out to be significant in both cases. This study's sample included 34 Romanian banks as well as over 350 Italian banks that used the dynamic VAR techniques, which were integrated at various levels.…”

“…𝛽 ′ = 𝛽 0 𝛽 1 𝛽 3,…, 𝛽 𝑡+,𝑛 ……………………………………………………………………………………....………... (5) Our specific scenario's formula is derived from this formula, and it looks like this: LAssests i,t = α + β 1 NIM i,t + γ 2 NIM i,t + β 3 NPL′s i,t + γ 4 NPL′s i,t + β 5 ELR i,t + γ 6 ELR i,t + β 7 SB i,t + γ 8 SB i,t + β 9 CSM i,t + γ 10 CSM i,t + β 11 CSF i,t + γ 12 CSF i,t + β 13 SBC i,t + γ 14 SBC 15 +  it ………………………………………………………………………………….…….. (6) Econometric Findings Empirical analysis requires flow logic before commenting on the results, applying some diagnostic tests on the appropriateness of the applied approach. Therefore, the diagnostics of the approach was initially done through R 2 , wherein our case is 63.7 percent of the independent variables explain the dependent variables, also for multicollinearity testing was applied VIF, where the mean value of the variables is 9.62 which proves that the data do not have multicollinearity problem.…”

“…Second, the application of the dynamic approach through the 2SLS method and multilevel mixed-effects regression, to eliminate the dilemmas between the studies conducted, and third, in terms of policy-making implications. So, premised on this perspective, the authors regarding the selection of variables in the framework of this research, using panel data and approaches to econometric estimates are based on two studies performed by Benvenuto et al (2021) and Durguti and Kryeziu (2021) where they have analyzed the influence of CG and some financial indicators in Romania and Italy, respectively the case of Kosovo to investigate the possible consequences in profitability and shareholders" value protection. The approaches used in these two cases are VAR techniques, OLS, and 2SLS estimation.…”