Effectiveness of governance mechanisms on bank financial performance in a changing world: evidence from a Small Island Developing States

Abstract

The unique Coronavirus has speedily spread all over the world distressing all economies around the globe. This epidemic is not simply a health issue because it has affected the whole world in diverse facets due to the governmental measures taken to combat against it such as lockdowns, movement restrains, and social distancing strategies. It has also caused substantial damage to each part of the banking system as well as its performance where Small Island Developing States (SIDS) is not an exception. Thus, this study contributes to the limited literature by providing the first empirical evidence on the impact of covid19 on the role of internal and external Corporate Governance (CG) mechanisms in relation to bank performance (BP) in a SIDS. The purpose of this study is to evaluate the effectiveness of governance mechanisms on BP during pandemic and also look for whether the covid19 as a moderator has affected the CG variables in relation to BP. To answer the research questions, all the 18 banks operating in Mauritius from the years 2020-2022 are considered. Mauritius because it is one of the strongest economies with a ranking of second among SIDS. As per the result of this study, there is sufficient evidence to conclude that CG mechanisms are effective as some explanatory variables such as OI, AUDC, and CEOD are helpful in anticipating BP as measured by ROA, ROE, and NIM during the pandemic. Therefore, Ho is not rejected. That is, governance mechanisms are effective in relation to BP in this changing world. The evidence suggests that the adherence to CG mechanisms lead to some improvement in performance. Therefore, it is possible to minimise the adverse impact of covid19 on BP through effective governance.However, the result from moderated multiple regression (MMR) has confirmed that the insignificant effects of BIND, BDIVER, and BoSIZE on performance of banks recorded from both fixed effect model regression and dynamic panel data estimation results were due to covid19.In order to curtail the adverse effect of covid19 pandemic, the organistaion and board should recognise opportunities and build new strategies to acclimate to the uncertainties caused by the covid19 pandemic. Banks should also adhere effectively to the code of CG and not just to fulfill the legal requirements.