Corporate Governance Mechanism: Impact on Performance of Ethiopian Commercial banks
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Date
2013-05
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Addis Ababa University
Abstract
Numerous studies have looked at the implications of corporate governance
mechanism on company performance although the literature is not unanimous in its
conclusions. The aim of this research is to analyze the effect of different corporate
governance mechanisms , particularly board structure, different regulations,
ownership structure and depositors influence, on the performance of nine commercial
banks of Ethiopia, covering the period of 2005-2012. The study adopts quantitative
method research approach by combining documentary analysis and administrating
simple questionnaire. The findings of the study shows that proportion of non-
executive from board characteristics variable, CAR and reserve requirement from
regulation proxies had negative and significant impact on the performance of
Ethiopian commercial banks. On the other hand concentrated ownership, deposit
ratio and availability of audit committee had a positive and significant impact on
banks performance. However, the impact of the remaining variables like board size,
board ownership, and liquidity on bank performance is negligible. The study suggests
that the directive which regulates banks to have fully non-executive directors need to
be modified. Furthermore, by reducing the type and ratio of reserve and liquidity
requirement and by devising different mechanism, like establishing deposit insurance,
NBE need to encourage banks to decrease their money holdings without the potential
of any earning but with interest expense. In addition to this, there need to have
directive which can enforce the disclosure of different relevant information like: share
register, financial reports and the rating of each bank by NBE to different
stakeholders and NBE need to assure the execution of these directives by different
banks
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Impact on performance