The Effects of Corporate Governance on Financial Performance of Commercial Banks of Ethiopia
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Date
2025-06-05
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A.A.U
Abstract
This study investigates the effects of corporate governance mechanisms on the financial
performance of commercial banks in Ethiopia. In light of the increasingly complex and
regulated financial environment, sound corporate governance has emerged as a critical
determinant of organizational performance, especially in banking institutions that face
heightened agency problems due to information asymmetries. Drawing on agency theory,
stakeholder theory, and resource dependency theory, this study employed a mixed-methods
research design, combining quantitative analysis of panel data from 2019 to 2023 with
qualitative insights gathered through interviews with board members from five major
commercial banks in Ethiopia. The study examined six key governance variables—board
size, board meeting frequency, board gender diversity, directors’ educational qualifications,
directors’ industry experience, and chief executive officer (CEO) compensation—and
assessed their influence on bank performance, as measured by return on assets (ROA). The
regression analysis revealed that board size, frequency of board meetings, educational
qualifications of directors, and industry-specific experience were positively and significantly
associated with financial performance. However, gender diversity and CEO compensation
showed no statistically significant effect. The findings underscore the importance of
strengthening governance frameworks tailored to the unique structural and regulatory
environment of the Ethiopian banking sector. This research provides empirical evidence to
inform policymaking by the National Bank of Ethiopia and bank shareholders, and
contributes to the literature on corporate governance in emerging economies, highlighting
the context-specific nature of effective governance structures. It also offers practical
implications for aligning governance reforms with performance enhancement in the
Ethiopian banking industry.