Is internal and external mechanism of governance enriching the performance of the banking sector of Pakistan?

Abstract

Purpose The purpose of this study is to explore how governance mechanisms (internal and external) enhance the performance of the return on asset (ROA), return on equity (ROE), earning per share (EPS) and dividend payout ratios (DP) of the banks of Pakistan. The study incorporates not only the internal factors of governance (board size, out-ratio, annual general meeting, managerial ownership, institutional ownership, block holder stock ownership and financial transparency) but also the external factors (legal infrastructure and protection of minority shareholders, and the market for corporate control). Design/methodology/approach The sample size of the study consists of 30 banks (public, private and specialized) listed at the Pakistan Stock Exchange (PSE) for the period 2008-2014. The panel data techniques (fixed or random effect model) have been used for the empirical analysis after verification by Hausman (1978) test. Findings The results revealed that not only do the internal mechanisms of governance enhance the performance of the banking sector of Pakistan but external governance also plays a substantial role in enriching the performance. The findings conclude that for a good governance structure, both internal and external mechanisms are equally important, to accelerate the performance of the banking sector. Research limitations/implications Internal and external mechanisms of corporate governance can also be checked by adding some more variables (ownership i.e. foreign, female and family as internal and auditor as external), but they are not added in this work due to data unavailability. Practical implications The study contributes to the literature and could be useful for the policy makers who need to force banks to mandate codes of governance through which they can create an efficient board structure and augment the performance. The investments from different forms of ownership can be accelerated if they follow the codes properly. Social implications The study facilitates the bankers in incorporating sound codes of corporate governance to enhance the performance of the banks. Originality/value This work is unique as no one has explored the impact of external mechanism of governance on the performance of the banking sector of Pakistan.

Impact of board size on the accounting returns and the asset quality of Indian banks

“…In other words, everyone unit increase in board size of Indian banks increase their ROA by 0.03 per cent. This is in support of the findings of Staikouras and Staikouras (2017) and Sohail et al (2017). Thus, H1 is accepted.…”

“…Sohail et al (2017), based on a sample of 30 Pakistani banks over the period 2008-2014, show that increase in the board size improves the performance of banks. Lu and Boateng (2018) show that the size of the governing board has a negative and significant influence on the credit risk of UK banks.…”

Does an External Governance Framework Enhance the Performance of Pakistan's Banking Sectors? Foreign Ownership as Moderator

“…This percentage is a little high in commercial banks than other non-financial institutions and other variables are showing low percentage results as compared to Sheikh, Wang, and Khan (2013); Sheikh. and Karim (2015); Sohail et al (2017). Besides that, the matrix of correlations showing there is no severe multicollinearity among these variables.…”

“…The organization's main goal is to figure out the issues and then seek to minimize the challenges of implementing corporate practices and mitigating misunderstandings. The poor corporate governance system and globalization of the capital markets have disrupted governance the monetary market both domestically and internationally (Sohail, Rasul, & Fatima, 2017). In a company, the investors and consumers may be in the same place, and they could partner with multiple countries.…”

Impact of External Governance Mechanism on the Performance of Listed Banks of Pakistan with the Moderating Role of Government Ownership

“…Besides, among these variables, there is also no extreme multicollinearity throughout the correlations. In the banking sector, this proportion is marginally higher than that of other non-financial organizations, and other factors indicate poor percentage outcomes relative to many other variables (Ali et al, 2020;Sheikh et al, 2013;Sheikh & Karim, 2015;Sohail et al, 2017).…”