Impact of Corporate Governance on Non-Performing Loans of Commercial Banks in Bangladesh

Abstract

The paperinvestigates the nexus between corporate governance and the levels of non-performing loans (NPL) of commercial banks in Bangladesh based on the sample of 10 private commercial banks for 10 years covering from 2012 to 2021. A number of econometric models such as pooled OLS, fixed effect, random effect, cross-sectional GLS, and one- step system GMM approach were employed in our analyses. From the observed estimated coefficients, the availing of credit rating from the three renowned credit rating agencies had a significant negative impact on non-performing loans under pooled OLS, GLS, and random effect. Board size had a significant negative relationship under GLS while bank size had a significant positive influence. Institutional ownership had a significant negative influence and government ownership had a significant positive influence under the fixed effect model. From the estimated coefficients observed from the one-step system GMM, only director’s ownership is significantly lessening non-performing loans, while board meetings and stock-exchange listed banks had a significant positive impact. All other coefficient values under the one- step GMM estimation except for government ownership and employment of big four affiliated auditors as external auditor was found to adhere to our hypothesized impact.