Effects of Corporate Governance on the Financial Performance of Commercial Banks in Ethiopia
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Date
2026-06-02
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Addis Ababa University
Abstract
This paper would research on the impacts of corporate governance on the financial performance of commercial banks in Ethiopia. The paper analyses one hundred and ten bank-years of panel data of ten commercial banks during the time 2014-2024. There are six governance variables, including board size, board independence, CEO duality, audit effectiveness, frequency of board meetings, and ownership concentration. ROA and ROE are used to measure financial performance. The research design used is explanatory research design based on a quantitative approach. In the case of Hausman test, fixed effects regression is employed. Diagnosis checks show that there is no heteroskedasticity and autocorrelation, but multicollinearity is observed between the independence of the board and audit performance. Both Return on Assets and Return on Equity have negative and statistically significant correlation with the board size, which have an adverse impact on the financial performance of large boards. CEO duality is observed to positively and significantly influence both the performance measures hence indicating that unified leadership is effective in promoting performance within the Ethiopian context. Concentration of ownership has adverse impact on Return on Assets as well as Return on Equity. Returns on Assets are not impacted by audit effectiveness in a negative way. No significant effects are found in board independence and the frequency of meeting. The models account about seventy one percent of within bank variation in performance. These results undermine traditional wisdom of governance and create an indication that Ethiopian banks require context-specific governance structures. The research suggests that the NBE should issue purer procedures on optimum board size, indorsing an adequate range that heightens efficiency and decision-making. Management should evaluate leadership structure based on ownership bank size, and operational complexity instead of implementing uniform corporate governance practices. Investors should pay close attention to ownership structure and board size when making investment decisions, as higher board size and high ownership concentration are negatively affect financial performance.
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Corporate Governance, Financial Performance, Board Size, Board Independence, CEO Duality, Audit Committee Effectiveness