Determinants of the Financial Performances of Commercial Banks in Ethiopia: From Internal Corporate Governance Practice Perspective

Authors

  • Olani Bekele Sakilu Dilla University, Ethiopia
  • Berhanu Getinet Kibret Dilla University, Ethiopia

DOI:

https://doi.org/10.15549/jeecar.v2i1.82

Keywords:

Determinants, Internal Corporate Governance, Financial Performance, Commercial Banks

Abstract

ABSTRACT

The purpose of this study is to examine the determinants of the financial performances of commercial banks in Ethiopia from an internal corporate governance practices perspective using time series data covering the period of 2008-2013. In the study, financial performance is measured by ROA and ROE of the banks. The study finds that qualified directors in the board, directors with prior experience in banking, chief executive officer compensation and existence of risk management committee in the board have a statistically significant and positive effect on banks’ performance in terms of both ROA and ROE; whereas ownership dispersion has a statistically significant and negative effect on banks performance.  The effect of frequency of board meeting on financial performance of bank is positive and significant in terms of ROA, but significant and negative in terms of ROE.  On the other hand, variables such as board size, female director in the board, and the existence of audit committee in the board did not have a statistically significant effect on bank’s performance.

Author Biographies

Olani Bekele Sakilu, Dilla University, Ethiopia

Postgraduate coordinator at College of Business and E conomics,Dilla University, Ethiopia

Berhanu Getinet Kibret, Dilla University, Ethiopia

The Dean of College of Business and Economics,Dilla University, Ethiopia

References

Abdullah, S.N., (2004). Board Composition, CEO Duality and Performance among Malaysian Listed Companies, Corporate Governance, 47-61.

Al-Hawary, S. (2011). The Effect of Banks Governance on Banking Performance of the Jordanian Commercial Banks: Tobin’s Q Model "An Applied Study". International Research Journal of Finance and Economics, 35-45.

Anant K. Sundaram, Andrew C. Inkpen, (2004). Stakeholder Theory and the Corporate Objective Revisited, A Reply. Organization Science 15(3), 370-371. http://dx.doi.org/10.1287/orsc.1040.0067

Bonn, I., (2004). Board Structure and Firm Performance: Evidence from Australia, Journal of the Australian and New Zealand Academy of Management, 14-24.

Ciancanelli, P., and Gonzalez, J., (2000). Corporate Governance in Banking: A Conceptual Framework, Social Science Research Network, Electronic Paper Collection: http://papers.ssrn.com/paper.taf?abstract_id=253714. [17 January 2008].

Commercial Bank of Ethiopia (CBE). (2012). Mudaye Niway Magazine, available at http://combanketh.com/publication/bookle.pdf.

Crawford, Ezzell and Miles, 1995. Bank CEO Pay Performance Relations and the Effects of Deregulation, Journal of Business.

Daily, C.M. and Dalton, D.R., (1992). The Relationship Between Governance Structure and Corporate Performance in Entrepreneurial Firms, Journal of Business Venturing.

Davis, J.H., Schoorman, F.D. and Donaldson, L., (1997). Toward a Stewardship Theory of Management, Academy of Management Review.

Eisenhardt, K.M., 1989. Agency Theory: An Assessment and Review, International Journal of Management.

European Central Bank (ECB), (2010). Beyond ROE How to Measure Bank Performance, Appendix to the Report on EU Banking Structures.

Freeman, R. E., Wicks, C. A. and Parmar, B., (2004). Stakeholder Theory and the Corporate Objective Revisited, Organization Science, 15(3), 364 – 369.

Fries, S., Neven, D. and Seabright, P., (2002). Bank Performance in Transition Economies, European Bank for Reconstruction and Development.

Gompers, P., Ishii, L. and Metick, A., (2003). Corporate Governance and Equity Prices, Quarterly Gray DE: Doing Research in the Real World, 1st edition. London: SAGE Publications.

Jensen, M. and Meckling, W., (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, in Putterman, The Economic Nature of the Firm, Cambridge University Press, Journal of Economics.

Klein, A., (1998). Firm Performance and Board Committee Structure, Journal of Law and Economics: 275-303.

Menon, K., and Williams, D. J., (1994). The Use of Audit Committees for Monitoring, Journal of Accounting and Public Policy, 13(2), 121-139.

Mentes A., (2011). Gender Diversity at the Board and Financial Performance: Study on Istanbul Stock Exchange, Middle Eastern Finance and Economics.

Ntim, C.G.and Osei A. O., (2011). The Impact of Corporate Board Meetings on Corporate Performance in South Africa, African Review of Economics and Finance.

Pearce II, J. A., and Zahra, S. A. (1992). Board Composition from a Strategic Contingency Perspective, Journal of Management Studies, 29(4), 411–438.

Pearce, J.A. and Zahra, S.A., (1992). Board Composition from a Strategic Contingency Perspective, Journal of Management Studies.

Poon W., Heong A., Lee T., (2013). The Outcome of Politically Connected Boards on Commercial Bank Performance in Malaysia’, Modern Applied Science.

Ranti O. and Samuel A. (2012). The Effects of Board Size on Financial Performance of Banks: A Study of Listed Banks in Nigeria, International Journal of Economics and Finance,

Sundaram, A. K., and Inkpen, A. C., (2004). Stakeholder Theory and “The Corporate Objective Revisted”: A Reply. Organization Science, 15(3), 370–371.

Vafeas, N., (1999). Board Meeting Frequency and Firm Performance’, Journal of Financial Economics.

Walker, D., (2009). A Review of Corporate Governance in UK Banks and Other Financial Industry

Waweru, M., and Kamau, RG, Uliana, E., (2008). Audit Committees and Corporate Governance in a Developing Country, AAA 2009 Management Accounting Section (MAS) Meeting Paper.

Zhang J. and Yang J., (2011). Corporate Governance and Performance of Listed Commercial Banks during Financial Crisis: Evidence from China’s Banking Industry, Journal of the Washington Institute of China Studies.

Downloads

Published

2015-03-25

How to Cite

Sakilu, O. B., & Kibret, B. G. (2015). Determinants of the Financial Performances of Commercial Banks in Ethiopia: From Internal Corporate Governance Practice Perspective. Journal of Eastern European and Central Asian Research (JEECAR), 2(1). https://doi.org/10.15549/jeecar.v2i1.82