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This document analyzes the relationship between corporate governance factors and financial performance in Indian banks from 2012-2017. It finds that:
1) Board size has a positive and significant impact on bank performance, implying larger boards can better influence decisions and performance.
2) Board independence also has a positive correlation with return on equity, indicating that greater independence is linked to higher performance, especially in state-owned banks.
3) The number of board meetings did not significantly impact performance - banks with more meetings did not necessarily perform better.
The study aims to analyze how board structure variables like size, composition, and committees relate to bank performance.
Originalbeschreibung:
a study of corporate governance practices by indian banks
This document analyzes the relationship between corporate governance factors and financial performance in Indian banks from 2012-2017. It finds that:
1) Board size has a positive and significant impact on bank performance, implying larger boards can better influence decisions and performance.
2) Board independence also has a positive correlation with return on equity, indicating that greater independence is linked to higher performance, especially in state-owned banks.
3) The number of board meetings did not significantly impact performance - banks with more meetings did not necessarily perform better.
The study aims to analyze how board structure variables like size, composition, and committees relate to bank performance.
This document analyzes the relationship between corporate governance factors and financial performance in Indian banks from 2012-2017. It finds that:
1) Board size has a positive and significant impact on bank performance, implying larger boards can better influence decisions and performance.
2) Board independence also has a positive correlation with return on equity, indicating that greater independence is linked to higher performance, especially in state-owned banks.
3) The number of board meetings did not significantly impact performance - banks with more meetings did not necessarily perform better.
The study aims to analyze how board structure variables like size, composition, and committees relate to bank performance.
-Prof. Arti V. Modi Asst. Prof, LLIM Introduction and meaning • Governance, in general terms, means the process of decision-making and the process by which decisions are implemented (or not implemented), involving multiple actors. Good governance is one which is accountable, transparent, responsive, equitable and inclusive, effective and efficient, participatory and which is consensus oriented and which follows the rule of law” Need for corporate governance in banks • The need for corporate governance in the banking sector emerges from the fact that sound corporate governance is an important element of bank safety and soundness and the stability of the financial system. • the failure of one bank can rapidly affect another through inter-institutional exposures and confidence effects Why corporate governance in banks • The importance of corporate governance in banks as stated by the Basel Committee has been expressed as “[c]orporate governance for banking organizations is arguably of greater importance than for other companies, given the crucial financial intermediation role of banks in an economy, the need to safeguard depositors‟ funds and their high degree ofsensitivity to potential difficulties arising from ineffective corporate governance. Effective corporate governancepractices, on both a system-wide and individual bank basis, are essential to achieving and maintaining public trust and confidence in the banking system, which are critical to the proper functioning of the banking sector andeconomy as a whole” (Basel Committee on Banking Supervision (2005) par. 8). Research question • In the current paper a study is attempted to analyse the relation between corporate governance and the performance of the banking sector. For this purpose 8 banks have been taken for the study and they have been examined for a period of 8 years from 2012-2017 on various aspects of corporate governance as suggested by the Basel Committee viz. board structure variables: size, composition, duality, committees, meetings and other directorships. The data has been acquired through annual reports and other secondary sources and analysis using descriptive statistics and correlation analysis. variables
• Dependent variable: Return on equity for the years 2010-2017 is
the dependent variable. This variable has been used to analyse the financial performance of the banks • Independent variable • Board size: The first variable used for corporate governance is the board size representing the total number of members on theboard of the company • Number of board meetings: the number of board meetings held in the year has a relationship with the performance of the bank • Independence of the director: the stake of the chairperson and other top management professionals in the organization influence the performance of the organisation • Audit committee- the composition of the audit committee has a direct impact on the performance of the banks objective • The objective of the research is to study the interdependence of the corporate governance factors viz. size of the board, independence of the directors, number of board meetings held and the presence of audit committee on the performance of the commercial banks. Model Specification
• The economic model used is given as:
• Y= β0 + β Fit + eit (1) • Where, Y is the dependent variable viz ROE of the banks. β0 is constant, β is the coefficient of the explanatory variable (corporate governance mechanisms), Fit is the independent variable viz. the corporate governance factor influencing the performance of te bank and eit is the error term (assumed to have zero mean and independent across time period). • By adopting the economic model as in equation above specifically to this study, we have analyzed the impact using the equation below • . ROE = β0 + β1BSIZE + β2BIND + β3BM + β4BACOM + eit (2) Results and findings • The results above shows that Board Size has a positive and significant impact on the performance of the banks. This implies that the size of the banks would influence the decisions of the board and thus affecting the performance of the banks • Board independence has a positive correlation with the return on equity which means that higher the independence greater would be the performance of the banks. It was noted that in state owned nanks the level of independence was higher than that in private banks • The number of board meetings did not have a significant impact on the performance of the banks. Those having higher number of meetings did not show better performance than those with lesser nimber of meetings • Although the number of members showed a positivite correlation with the ROE however the relation was insignificant. This indicated that the number of members in the audit committee thoug impacts the working of the bank would not be significant in changing the performance levels of the banks • Interpretation: The mean of ROE is 4.89 in the said period.. The average board size is 7.86 with a standard deviation of 0.8 and it ranges 8 to 15 members. The average independent directors are 54% with standard deviation 0.87. This indicates that in general there is more than overage independence level in most of the banks. A majority of the firms (78%) have audit committee of comprising of 1 to 15 members. Conclusion and recommendations