Impact Of Coporate Governance On Financial Performance Of Selected Private Commercial Banks In Ethiopia.

Abstract

Corporate governance is the structure by which the organizations are managed and controlled. Good corporate governance facilitates the effective monitoring of the board and the management activities. It concerns a set of formal association between a company’s management, its shareholders and other stakeholders. To underscore the need for corporate governance as a veritable tool,for improved banking sector performance in Ethiopia, the study aimed to examine the Impact of corporate governance on financial performance of selected private commercial banks in Ethiopia. Explanatory approach design was utilized to setup the causal relationship between corporate governance and return over asset. The study used panel data in examining the effects of corporate governance on financial performance which is collected data from ten private banks for nine consecutive years from 2011-2019. To estimate the impact of corporate governance on private commercial banks financial performance in Ethiopia the following correlation and general panel data regression or research model was developed. Simple correlation was used to see association between return on asset and factors in this study. In addition, multiple linear regressions used to measure the effects of corporate governance on financial performance of private commercial banks. The dependent variable, financial performance, is measured in terms of return over asset. Board gender diversity, Educational qualifications of directors, Audit committee size, Board meeting frequency, as a proxy of corporate governance has positive but insignificant relationship with the private commercial bank financial performance. Regression result revealed that board size, deposit ratio, liquidity ratio and ROA have positive and significant effect on ROA. Board ownership as a proxy of corporate governance has negative but insignificant relationship with the private commercial bank financial performance, while the capital of the private commercial bank is an important factor with a positive contribution to its profitability. It is recommended to that appropriate strategy and policies need to be adopted to improve the balance of boards in Ethiopian banks with a great care about their qualification and competency, audit committee size, minimum capital requirements.