Abstract
The present paper seeks to examine the association between board characteristics and banks profitability. The study is based on convenience sampling of 10 Indian banks for the period from 2010 to 2019. Banks profitability is measured by return on assets, return on capital employed, profit after tax and return on net worth, while board of directors’ characteristics is measured by board of directors’ size, board of directors’ composition, board of directors’ diligence, board executive directors and board promoters. The study is used leverage, size, and liquidity as controlling variables. Fixed and random effects models are used for analyzing the data. The findings revealed that Total board size positively and significantly impacts return on assets, Return on capital employed, Profit after detecting tax and Return on net worth, while percentage of promoter negatively and insignificant impacts return on assets, Return on capital employed, profit after detecting tax and Return on net worth. The present study contributes to the existing literature by examining the impact of board characteristics which includes board promoters and executive directors on Indian banks profitability.
Highlights
In the last two decades, the international banking sector has undergone significant structural reforms and the behavior of banks with a stronger focus on profitability and rigorous asset management has changed dramatically in recent years (Mirzaei, et al.2013).the Indian banking system is divided generally into five categories: In the second schedule of the Reserve Bank of India (RBI) Act,1934, public sector banks (PSBs), private sector banks, international banks, regional rural banks (RRBs) and cooperative banks are included (Kumar& Prakash, A. 2019)
The present paper seeks to examine the association between board characteristics and banks profitability
Results of random effect model show that the R2 and adjusted R2 are fairly good, R2 is 0.56 which means that 0.46 of the variation in return on assets of Indian banks is attributable jointly by board of directors’ size, board of directors’ composition, board of directors’ diligence, board executive directors, board promoters, leverage, size, while the rest of variation in return on assets of Indian banks can be explained by other variables which are not included in this study
Summary
In the last two decades, the international banking sector has undergone significant structural reforms and the behavior of banks with a stronger focus on profitability and rigorous asset management has changed dramatically in recent years (Mirzaei, et al.2013).the Indian banking system is divided generally into five categories: In the second schedule of the Reserve Bank of India (RBI) Act,1934, public sector banks (PSBs), private sector banks, international banks, regional rural banks (RRBs) and cooperative banks are included (Kumar& Prakash, A. 2019). While globalization has accelerated the transfer of values, ideas and business practices around the world, and mainly related to the movement of capital and goods, corporate governance concerns gained a worldwide audience in 2001 with the dramatic fall of Enron, and suddenly the board of directors of several underperforming businesses were reluctantly put into the spotlight. 2008) in view of the above, the objective of this paper is to study the association between board characteristics and banks profitability, the present study contributes to the existing literature by examining the impact of board characteristics which includes board promoters and executive directors on Indian banks profitability. This article is structured as follows: Section 2 introduces some studies in the literature of board characteristics and banks profitability; Section 3 provides Research design; Section 4 exhibits the discussion of the results; Section 5 concludes and provides Conclusion
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