bank In terms of private banks board diversity

bank
performance and both were also dependent variables. Independent variables were
board size, existence of audit committee, capital adequacy ratio, loan loss
provision allowance. The study used two control variables namely bank size and
ownership type. The result shows that bank size and existence of audit committee
have negative relationship with bank performance. On the other hand capital
adequacy is significantly positively related to bank performance.

To
compare the corporate governance practice in state owned banks and private
commercial banks in Srilanka , Ajanthan,
A; Balaputhiran, S & Nimalathashan, B (2013) did a research. In the
study they also tried to find out impact of corporate governance on banking
performance. For the purpose of the study two state and two private banks had
been selected and data analyzed from 2002 to 2011.  The study focused on aspects of corporate
governance, they are namely board size, board diversity, outside director
percentage, board meeting frequency. Bank performance measured through ROA and
ROE. The result found that all independent variables have positively correlated
with ROE both in state owned and private commercial banks except board
diversity and board meeting frequency. Similarly board meeting frequency has
positive relationship with ROA in state banks. Other components have negative
relationship with ROA in terms of state banks. In terms of private banks board
diversity showed only negative relationship with ROA and other elements have
positive relationship with ROA. Anshuman Kumar and Yatin Nihalani (2014) accomplished
their task with 40 listed banks in India both from public and private sectors.
In their study they used OLS method of regression. The dependent variables
comprised of return of assets, return on equity, earning per share, return on
long term fund and price/ book value. The independent variables comprised of
number of board directors, number of women directors, number of busy directors,
number of executive directors, number of board meeting held per year. Control
variables are log of total asset and debt to equity ratio. The key findings of
the report is that number of board meeting has negative correlation with the
bank performance. Other important finding is that busy directors have negative
relationship with the bank performance. To evaluate the banking performance NPL
amount is a major factor by which we can get clue about banks’ operations,
administration, reputation as well as financial performance.

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Fig -1: NPL (%) for both SCBs and
PCBs

Source: Bangladesh Bank (Banking performance
indicators)

3.0
Methodology

3.1 Research Type

The study is mainly exploratory in nature to serve the
objective of the study that is to critically observe the influence of corporate
governance on selected state owned and private commercial banks in Bangladesh
and in this study two ratios are used but chance to use more ratios and subsequent
analysis.

3.2
Sources of Data

The study was primarily based on information extracted
from secondary sources like various newspapers, magazines,
Financial Statements of investigated banks, journals, books, internet and
commercial banks’ websites, Dhaka
Stock Exchange (DSE), Bangladesh Bank statistics. The
sample of the study are collected from state and private sector banking
organizations in Bangladesh.

3.3
Population and Sampling

All
the banks operating in Bangladesh was our population for the study. Convenient sampling method which is a
non-probability sampling technique was used to select the sample banks for the
study .The sample of the study is collected from state and private sector
banking organizations in Bangladesh. For the study two state owned banks
(Rupali Bank Limited and Janata Bank Limited) and two private banks (AB Bank
Limited and Prime Bank Limited) have been selected as sample. To conduct this
study time series data is used from year 2011 to 2016 for selected both state
owned and private commercial banks.

3.4 Technique
of Data Analysis and Models Specification

In
this study Ordinary Least Squares (OLS) multiple
regression is used to demonstrate the effect of corporate governance on banks’
financial performance. To avoid the heteroskedasticity
problem which is generally present in traditional OLS can lead to a great statistical bias. To examine
the impact of one variable on another OLS technique is very powerful and mostly
used. Multiple
regression was conducted with the help of SPSS 17 version and
presented through graphs and descriptive discussions. Statistical tools were
used for measuring the data, as the study was most of the cases quantitative in
nature.

3.5 Variables
Measurement and Model Specification

Among numerous corporate governance issues four issues
are selected as independent variables in this research paper. Board size /Board Members, Board meeting frequency,
Audit committee meeting frequency and CEO compensation are the selected
corporate governance issues which are treated as independent variables and ROA
and ROE are used as dependent variables.

                                  Table 1:
Variables Measurements

Variables                                                              Measurements

Board size
/Board Members

The number of persons are existing in the board as reported in the
financial statements

Board meeting
frequency

The number of times investigated companies governing body met during
the reporting period which is essential for development as reported in the
financial statements .

Audit committee
meeting frequency

To oversight the financial reporting process, audit process and care
about the internal control as reported in the financial statements.

CEOs’
compensation

Treated as motivating factors to improve the performance as reported in
the financial statements.

Return on asset (ROA)

How well management is employing the company’s total assets to make a
profit. This ratio indicates how profitable a company is relative to its total
assets as reported in the financial statements.

Return on equity(ROE)

This ratio is revealing how much profit a company generates with the
money shareholders have invested as reported in the financial statements

 

The model of the study is mathematically expressed as
follows

Model 1:
ROA= ? + ?1 (x1) + ?2 (x2) + ?3 (x3) + ?4 (x4) +e

Model 2: ROE= ? + ?1 (x1) + ?2 (x2)
+ ?3 (x3) + ?4 (x4) +e

Where,                               

ROA= Return on asset (Dependent variable)

ROE= Return on equity (Dependent variable)

Independent variables for this study are as follows

X1= Board
size /Board