CORPORATE GOVERNANCE AND BANK PERFORMANCE IN NEPAL

Presented by:-Ambu GyawaliAnita K. LuitelAyush Nepal

Barsaha ShresthaBidur Koirala

PURPOSE OF THE STUDY

To investigate the relationship between Corporate Governance and the firm performance in Nepal’s banking sector

To examine the impact on bank performance in relation to : Board Size Board Composition Number of BOD Meetings Leverage

LITERATURE REVIEW

Jensen and Meckling (1976), Blair (1995), Smerdon (1998), Shleifer and Vishny (1997), Ruin (2001)

All of them came to similar type of conclusion: CG facilitates to ensure the well-being of an

organization.

SIGNIFICANCE OF THE STUDY

Impact of Corporate Governance on ROA as well as ROE in the financial institutions (mainly commercial banks)

The significance of the board size and Executive CEO in effect on ROE

STUDY METHODOLOGY

The study is based on secondary data which were gathered from 23 banks

The pooled cross-sectional data analysis has been undertaken in the study

Study is a comparative type as it deals with relationship of corporate governance and control variables with bank performance.

Study Includes: The Model Hypothesis

THE MODELBank Performance

β0 + β1BS + β2NED + β3NID + β4NOM + β5LEV + e

Where, BS= Board Size NED = Number of Executive Directors NID = Number of independent directors NOM = Number of board meetings in the last fiscal

year LEV = Leverage

HYPOTHESISThe study develops following hypothesis: H1: Board size is negatively related to bank’s

performance H2: Board independence is positively related to

bank’s performance H3: Board independence of executive directors is

negatively related to bank’s performance H4: Number of board meetings are positively

related to bank’s performance H5: If leverage of a firm increases, it would increase

the banks’s performance

REGRESSION OF CORPORATE GOVERNANCE AND CONTROL VARIABLE ON ROEModel BS LEV NED NID NOM

1 -0.05 (0.89)

2 1.69(2.458*)

3 -1.17(2.63*)

4 1.12 (3.17*)

5 0.34(0.89)

6 -0.18 (1.12) 1.52(3.58*) -2.14(3.18*)

7 -0.15(0.89) 0.68(3.12*) -1.05(2.92*)

8 -0.81(0.95) 1.24(2.82*) 0.69(2.25*)

9 -0.23(1.23) 1.19(2.51*) 0.21(2.37*) 1.05(0.93)

REGRESSION OF CORPORATE GOVERNANCE AND CONTROL VARIABLE ON ROA

Model BS LEV NED NID NOM1 -0.25 (1.43)

2 2.56(3.02*)

3 -4.08(2.23*)

4 0.38 (2.23*)

5 1.27(1.59)6 -0.13 (0.35) 3.37(4.02*) -2.13(3.12*)

7 -0.51(0.34) 1.77(2.58*)

8 -0.23(1.12) 1.61(3.12*) 1.15(3.26*)

9 -0.31(0.83) 1.63(3.56*) 0.27(2.91*) 0.78(1.27)

REGRESSION OF CORPORATE GOVERNANCE AND CONTROL VARIABLE ON NPL TO TA.

Model BS LEV NED NID NOM1 -1.15 (1.12)

2 0.25(3.18*)

3 2.25(3.35*)

4 -0.79 (2.57*)

5 -1.1(1.02)6 -2.01 (0.92) 0.26(2.67*) 1.1O(2.13*)

7 -0.56(1.16) 1.26(2.82*) 2.12(3.61*)

8 -1.61(1.12) 1.45(3.38*) -1.16(3.10*) -0.72(0.89)

9 -0.72(0.86) 2.23(4.12*) 2.21(3.12*) -0.92(1.04)

REGRESSION OF CG & CONTROL VARIABLES ON ROEWe can see that:

The variables BS and NOM are not significant with ROE at α=5% whereas LEV, NED, NID are significant.

The result shows that higher the leverage higher will be the ROE.

Similarly, larger the NID in the board, higher will be the ROE. And same goes for NOM.

But NID is significant at α=5% whereas NOM is not.

We can see that: The variables BS and NOM are not significant

with ROA at α=5% whereas LEV, NED, NID are significant.

The result indicates that larger the leverage higher will be the ROA.

Similarly, larger the NED in the board lower will be the ROA. Hence, higher ROA is associated with larger NID.

REGRESSION OF CG & CONTROL VARIABLES ON ROA

We can see that The variables BS and NOM are not significant

with ROE at α=5% whereas LEV, NED, NID are significant.

The result shows that higher the coefficient of leverage are positive and significant which shows that higher will be the Non-performing loans.

Similarly, the coefficient for NID is negative and significant which shows larger the NID in the board, lower will be the NPL.

The coefficient for NED is positive which shows that larger the NED in the board, higher will be the NPL.

REGRESSION OF CG & CONTROL VARIABLE ON NPL TO TA

CONCLUSIONS Bank emerging as the major sector of the

economy CG is nothing but a system by which a company is

directed and controlled Bank performance depends upon several

corporate governance and control variables such as: Board Sizes Executive directors Number of independent directors Number of board meetings Leverage i.e. Total Debt/Total Assets

THANK YOU