A Study on the Impact of Corporate Governance on Bank Performance and Stability

• Author(s): Parameshwari N
• Paper ID: 1700176
• Page: 141-152
• Published Date: 28-02-2018
• Published In: Iconic Research And Engineering Journals
• Publisher: IRE Journals
• e-ISSN: 2456-8880
• Volume/Issue: Volume 1 Issue 8 February-2018

Abstract

Corporate governance, defined as the system of rules, practices, and processes by which a firm is directed and controlled, plays a pivotal role in determining the performance and stability of banks, as it encompasses the mechanisms through which banks’ objectives are set and pursued within the context of the social, regulatory, and market environment, with a focus on ensuring the alignment of interests among stakeholders, reducing agency problems, and promoting transparency and accountability; this conceptual research paper aims to explore the multifaceted impact of corporate governance on bank performance and stability by examining the interplay of various governance mechanisms, such as board structure, ownership concentration, executive compensation, regulatory oversight, and shareholder rights, and their influence on key performance indicators like profitability, asset quality, capital adequacy, and risk management; furthermore, the study delves into the theoretical underpinnings of corporate governance, drawing on agency theory, stakeholder theory, and stewardship theory to provide a comprehensive framework for understanding how governance practices affect bank behavior and outcomes, particularly in the context of the Indian banking sector, where recent reforms and regulatory changes have sought to enhance governance standards in response to issues like non-performing assets (NPAs), fraud, and financial instability; the research employs a mixed-methods approach, combining quantitative analysis of financial data from a sample of public and private sector banks with qualitative insights from case studies and expert interviews, to uncover the nuances of governance practices and their impacts; in the quantitative analysis, financial ratios and performance metrics are used to assess the relationship between governance variables and bank performance, employing statistical techniques like regression analysis and structural equation modeling to test hypotheses and validate the conceptual framework; the qualitative component involves in-depth case studies of select banks that have undergone significant governance changes, providing a contextual understanding of the challenges and successes associated with different governance practices, supplemented by interviews with bank executives, regulators, and corporate governance experts to gain firsthand perspectives on the effectiveness of governance mechanisms; key findings from the study indicate that robust corporate governance frameworks, characterized by diverse and independent boards, transparent and performance-linked executive compensation, and strong regulatory oversight, are positively correlated with better bank performance and greater stability, as evidenced by higher profitability, lower incidence of NPAs, and improved risk management practices; however, the research also highlights potential pitfalls, such as the risk of overregulation and the need for a balanced approach that fosters innovation and competitiveness while ensuring sound governance; the study further discusses the role of technology and digital transformation in enhancing governance practices, noting that advancements in fintech and regtech can facilitate more effective monitoring and compliance, thereby supporting governance objectives; the implications of the research are significant for policymakers, bank management, and investors, as they underscore the importance of continuing efforts to strengthen corporate governance frameworks to safeguard the stability and integrity of the banking system, particularly in the face of evolving financial risks and market dynamics; the paper concludes with recommendations for future research, emphasizing the need for longitudinal studies to track the long-term effects of governance reforms and the exploration of cross-country comparisons to identify best practices and lessons that can be applied to different banking contexts; ultimately, this study contributes to the growing body of literature on corporate governance in banking by providing a comprehensive analysis of its impact on performance and stability, offering valuable insights for enhancing governance standards and ensuring the resilience of banks in an increasingly complex financial landscape.

Keywords

Corporate Governance, Bank Performance, Bank Stability, Board Structure, Regulatory Oversight, Risk Management, Non-Performing Assets (NPAs), Executive Compensation

Citations

IRE Journals:
Parameshwari N "A Study on the Impact of Corporate Governance on Bank Performance and Stability" Iconic Research And Engineering Journals Volume 1 Issue 8 2018 Page 141-152

IEEE:
Parameshwari N "A Study on the Impact of Corporate Governance on Bank Performance and Stability" Iconic Research And Engineering Journals, 1(8)