Corporate Governance Policy and its Effects on the Performance of Private Banks in Ethiopia - A Comparative Analysis

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Addis Ababa University


It is apparent that nowadays the issue of corporate governance has got due attention from various stakeholders such as the general public, academia and government policy makers. This may be due to the recognition of either the multifaceted benefits derived from its effective implementation or the severe consequences it poses otherwise. For this reason the objective of this research is to analyze the effects of the corporate governance policy enforced by the NBE on the performance of the private commercial banks operating in Ethiopia. Thus both primary and secondary data are collected from 14 (fourteen) private banks operating in the country and in order to address the objectives of the study, a deductive research approach and various statistical techniques such as Descriptive Statistics, T- test, Spearman’s Rank Correlation and Analysis of Variance (ANOVA) were employed so as to make comparative analyses among the corporate governance and performance variables during the periods 2011-15 and 2016 respectively. Taking in to account the expected outcome of implementing the policy effectively and the empirical findings of previously done researches, this study has made five hypotheses asserting that the corporate governance variables could have significant effects on bank performance. The analyses result from descriptive statistics depicts the existence of improvements in the implementation of most of the requirements of the policy relatively. However, analytical results from t-tests show that the changes were significant for some variables, but not for others. Spearman’s correlation results also demonstrate the existence of low correlation in general, except for board size and board composition in 2011-15. The results obtained using ANOVA on the other hand show that the mean variance of all corporate governance variables and bank performance are found not-significant during the study periods. Hence, all the hypotheses, except related to Board size, were supported. Based on the results obtained from the analyses some recommendations such as the determination of optimal board size by the banks , enhancing board composition through the participation of executives and/or non-executive professional personnel in boards’ and others are made that are thought to enhance the effectiveness of the policy through safekeeping the interests of both shareholders and other stakeholders and hence improving the performances of the banks accordingly; for that the proactive engagements of all the concerned such as the supervisory organ, the respective banks and others will have a remarkable impact on the effectiveness of the policy under consideration. Key words: Corporate Governance, Corporate Governance Policy, Bank Performance, Board Structure.



Corporate Governance, Corporate Governance Policy, Bank Performance, Board Structure