Internal Corporate Governance and Financial Performance Nexus; a Case of Banks of Pakistan

Abstract

The persistence of corporate governance (CG) is to expedite operative and cautious management which can transport the enduring success of the company. The performance of any firm or bank is vibrantly enhanced by corporate governance. The key contribution of this study to governance literature is that; it demonstrates how the presence of the internal governance mechanism influence the bank performance. The study makes an attempt to measure the impact of internal governance indicators (Board Structure and Ownership Structure) on the financial performance (Return on Equity, Return on Assets and Earning Per Share) of the banks of Pakistan under the presence of control variables (leverage and size). The selected sample consist of 30 banks (public, private and specialized), which are listed at Pakistan Stock Exchange (PSE) for the period 2008-2014. The study takes 30 banks listed in PSE, formerly KSE and, check how corporate governance impact on all the listed banks at PSE, irrespective of their nature of operation. Study also extended the time frame till 2014. The study comprises of three models. The regression analysis results reveal that the majority of the internal governance indicators of Model 2 and 3 show significant relationship with ROE and EPS whereas, majority of the internal governance indicators of Model 1 depict insignificant relationship with ROA. The results depict that in a developing country like Pakistan there are sound codes of corporate governance but, their proper implementation is missing.