Journal of
Economics and International Finance

  • Abbreviation: J. Econ. Int. Finance
  • Language: English
  • ISSN: 2006-9812
  • DOI: 10.5897/JEIF
  • Start Year: 2009
  • Published Articles: 312

Article in Press

Corporate governance and its effects on financial performance of banks evidence from selected private commercial banks in Ethiopia

Kefiyalew Belachew Bayu and Mitiku Melese Tessema

  •  Received: 28 January 2020
  •  Accepted: 04 March 2020
Corporate governance is not an abstract goal but exists to serve corporate purposes by providing a structure within which stockholders, directors, and management can pursue most effectively the objectives of the corporation and thereby it maximize the financial performance of the company for its shareholders. This paper investigates and examines the corporate governance and its effects on financial performance from the evidenced data gathered from selected privately owned commercial banks in Ethiopia. Purposive sampling technique has been utilized to select the respondents from the existing target population. Panel data, mainly comprises both time series and cross-sectional data, was used for testing different time period of each independent sampled banks and investigate the resulting variable effects on corporate governance. This paper will include independent corporate governance variables such as Board size, Meeting frequency of board, Audit Committee Size, Liquidity Ratio, Existence of outside director, Board Educational Qualification, Board Gender Diversity, chief executive compensation and controlling variable of bank age and bank growth. Random Effect Model GLS regressions analysis was adopted to analyze the annual data generated from the annual statements of the selected private commercial banks of Ethiopia and annual reports of National Bank of Ethiopia covering a period from 2010 to 2018G.C.In addition, primary data of structured open ended questionnaires used to support the finding of secondary data. The presence female director, chief compensation, audit committee size, Educational Qualification, meeting frequency of board, liquidity ratio was found to be a positive and significant relationship with return on asset. In the other side, board size has a negative and insignificant association with return on asset. As a recommendation, Private commercial banks have to have a moderate number of board size and they have to hold meeting and discussion for the future fate of banks. Audit committee in private commercial banks should be given as a major determinant. As much as possible, banks have to hire and train female board and it is better in that banks should encourage and motivate executive with compensation.

Keywords: Corporate Governance, Financial Performance, Privately Owned Commercial Bank