The Impact of Corporate Governance on Firm Performance in Commercial Banks of Bangladesh

Abstract

In the era of globalization and MNCs, the issue of governance has become the central of corporate culture which works as a key influential factor in global capitalism. Corporate governance (CG) is defined as a system of rules, practices and processes by which a company is directed and controlled. The main objective of this study is to explore the impact of corporate governance on firm performance in Bangladesh. Research on CG primarily investigated different CG principles. The study incorporates four CG principles such as rights of shareholders, role of stakeholders in CG, Disclosure and transparency and the responsibilities of board directors based on the Organization of Economic Cooperation and Development (OECD) Principles and Bangladesh Bank (BB) revised principles of Corporate Governance. The firm performance was assessed by measuring financial performance based on return on assets (ROA). Data were obtained from 22 listed banks on the Dhaka Stock Exchange (DSE) to measure corporate governance principles and firm performance. Subjective data was collected from the top management of the respected banks. The companies with 10 years operational background were selected randomly for this study. The data were analyzed using different statistical tools by the help of STATA. The result of the statistical analysis shows the effects of corporate governance concept, CG principles, obstacles that affect CG and enablers that affect CG, on firm performance. This study further supports the argument that when firm implement good corporate governance principles, it experiences improved firm performance, i.e., financial performance. This study, with its emphasis on developing a corporate governance model, makes a significant contribution to the body of knowledge on corporate governance in emerging economies like Bangladesh.