Corporate Governance, Bank Performance and Value:-Evidence from Pakistan

Abstract

The study aims to examine the relationship of board structure, ownership structure, and bank-specific variables with bank performance and value. Panel Data is collected from eighteen conventional commercial banks of Pakistan for the time period of 2012 to 2017. The analysis is carried out by employing pooled OLS model estimation, descriptive statistics, and correlation analysis, using Eviews-9, with 108 observations. The board size and board independence are found to have a determinant effect on the bank performance and value. This implies that the larger boards are more likely to improve corporate performance. Also, an ample number of independent directors, in the board of directors, result in better bank performance. The study also reveals that ownership structure does not contribute directly in bank performance and value; however, foreign shareholding is found to have positive relationship with the value of banks which reduces agency problems. Additionally, adequate capital reserves help banks sustain in the market while the size of banks and non-performing loans contribute to bank performance. The study established a link between corporate governance attributes with the performance and market value of banks while taking bank-specific variables as well. This study has an implication for almost all the stakeholders in banks i.e. corresponding banks, shareholders, central banks, practitioners, and academicians. The study includes only conventional commercial banks and can be extended to study the overall financial sector in a setting or in a comparative manner.

Corporate governance and bank performance: evidence from banking sector of Pakistan

“…All the control variables such as asset quality, liquidity, capitalization and bank size showed mixed results with different measures of bank performance (Menicucci and Paolucci, 2016;Farag et al, 2017;Ghosh, 2017;Jayati and Subrata, 2018;Ali et al, 2020). company through effective ACs.…”

“…By gathering the data of 18 commercial banks from 2012 to 2017, the study of Ali et al (2020) observed that larger board significantly improves the accounting and market measures of bank performance. Several other studies have also reported the similar effect (Arora and Sharma, 2016; Farag et al , 2017; Gordini and Rancati, 2017; Herdjiono and Sari, 2017; Adeabah et al , 2018; Andersson and Wallgren, 2018; Riyadh et al , 2019; Aslam and Haron, 2021).…”

“…They argued that foreign directors in the board are less familiar with national accounting rules, regulations, governance standards, political and economic structure, management methods, cultural context and make it difficult for decision-making in the USA. However, Ali et al (2020) concluded that foreign ownership has insignificant positive and significant negative influence on banks accounting and market measures of performance. This study constructs the following hypothesis:…”

“…Reviewing the literature on Pakistan, we observe that the studies of Ullah et al (2020), Ali et al (2020) and Ullah (2020) have examined the impact of few of the dimensions of corporate governance on bank performance. Specifically, the studies of Ullah et al (2020) and Ali et al (2020) investigated the impact of board size, duality and gender diversity on bank performance by using only accounting and market measures. Similarly, Ullah (2020) used corporate governance index as an explanatory variable to examine its influence on bank performance.…”