Presented By:Anushuya Dahal

Arogya Joshi

Bishal Khanal

Deepti Koirala

Dinesh Adhikari

Chairman of Finance Instruction

Committee, Tribhuvan University.

Received ‘Dirgha Sewa Padak’

2061.

Living legend of financial

management and related disciplines.

Author

Prof. Dr. Radhe S. Pradhan

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The system of rules, practices and processes by which a company is directed

and controlled .

It involves balancing the interests of the many stakeholders in a company -

these include its shareholders, management, customers, suppliers, financiers,

government and the community.

The challenge of corporate governance is to set up supervisory and incentive

alignment mechanism that alter the risk and effort orientation of agents to align

them with the interest of principals.(Tosi and Gomez-Mejia, 1989)

Introduction: Corporate Governance

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It Improves access to capital and financial markets.

Better corporate governance can also provide Shareholders with greater security

on their investment.

The adoption of corporate governance principles can play a significant role in

increasing the corporate value of a company.

Adopting good corporate governance practices leading to better internal control

systems, greater accountability, and better profit margins.

Why corporate governance

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The study examines the effect of board size, number of executive directors in board, number of independent directors in the board, number of board meetings held in the last fiscal year at the time of gathering data and leverage on bank performance.

Significance of the research

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This research study is based on the secondary data from 23 banks in

Nepal.

Main sources of data

Banking and Financial Statistics published by Nepal Rastra Bank.

NRB directives.

legal provisions incorporated in Companies Act, 2063.

Bank and Financial Institutions Act, 2063.

Study Methodology

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Bank performance = f (CG variables, control variables).

CG variables = Board size (BS), Number of executive directors

(NED), Number of independent directors (NID), and Number of

board meetings (NOM)

Control Variables = Total debt to total assets i.e. Leverage (LEV)

More specially,

Bank performance = β0 + β1 BS + β2 NED + β3 NID + β4 NOM +

β5 LEV + e

Model used

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S.No. Name of the commercial banks Study period Observations

1 Rastriya Banijya Bank 2006/07-2010/11 5

2 Nepal SBI Bank 2006/07-2010/11 5

3 Bank of Kathmandu 2006/07-2010/11 5

4 Citizens Bank International 2006/07-2010/11 5

5 Laxmi Bank 2006/07-2010/11 5

6 DCBL 2006/07-2010/11 5

7 Agricultural Development Bank 2006/07-2010/11 5

8 Bank of Asia 2006/07-2010/11 5

9 Nepal Investment Bank 2006/07-2010/11 5

10 Nepal Standard and Chartered Bank 2006/07-2010/11 5

11 Himalayan Bank 2006/07-2010/11 5

12 NMB Bank 2006/07-2010/11 5

13 Lumbini Bank 2006/07-2010/11 5

14 NABIL Bank 2006/07-2010/11 5

15 NIC Bank 2006/07-2010/11 5

16 Global Bank 2006/07-2010/11 5

17 Kumari Bank 2006/07-2010/11 5

18 Everest Bank 2006/07-2010/11 5

19 Machhapuchhre Bank 2006/07-2010/11 5

20 Prime Bank 2006/07-2010/11 5

21 Sidhartha Bank 2006/07-2010/11 5

22 Sunrise Bank 2006/07-2010/11 5

23 Nepal Bangladesh Bank 2006/07-2010/11 5

Total number of observations 115

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H1: Board size is negatively related to bank performance.

H2: Board independence is positively related to bank performance.

H3: Board dependence on executive directors is negatively related to bank performance.

H4: Number of Board meetings is positively related to bank performance.

H5: If leverage of a firm increases, it would improve the firm performance.

The model assumes the following priori hypothesis for return on assets and return on equity models:

β3, β4, β5>0 and β1, β2<0

The model assumes the following priori hypothesis for non- performing loans:

β2 and β5 >0 and β1, β3 and β4 <0

Empirical Hypothesis

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Ratio Minimum Maximum Mean Standard deviation

ROE .000 .931 .158 .198

ROA .000 .192 .0141 .021

NPL .000 .102 .0325 .156

BS 5.000 9.001 7.431 1.456

LEV .651 .924 .824 .105

NED .000 8.150 6.235 1.251

NID .000 2.000 1.00 0.001

NOM 2.000 26.00 12.975 2.356

Findings

Descriptive Statistics

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ROE ROA NPL LEV

0 0 0

0.651

0.931

0.192

0.102

0.924

0.158

0.041 0.0325

0.824

0.198

0.021

0.1560.105

DESCRIPTIVE STATISTICS FOR ROA, ROE, NPL & LEV Minimum Maximum Mean Stdd. Deviation

Graphical presentation of Dependent variable and Independent control variable

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0

5

10

15

20

25

30

BS NED NID NOM

Descriptive Statistics for BS, NED, NID & NOM

Minimum Maximum Mean Stdd. Deviation

Graphical presentation of Independent CG variable

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Correlation matrix for the dependent and

independent variables

RATIOS ROE ROA NPL BS LEV NED NID NOM

ROE 1

ROA 0.281 1

NPL -0.183 -0.325 1

BS -0.056 -0.172 -0.361 1

LEV 0.101 0.095 0.412 0.213 1

NED -0.054 -0.142 0.235 0.432 0.201 1

NID 0.029 0.116 -0.258 0.423 0.092 -0.079 1

NOM 0.134 0.145 -0.015 0.067 0.087 0.047 0.068 1

Regression of CG and control variables on ROE

MODES

LS

INTERCEPT REGRESSION COEFFICENTS OF ADJ R-

BAR2

SEE F

BS LEV NED NID NOM

1 5.13

(10.13)

-0.05

(0.89)

0.18 10.12 15.12

2 11.13

(8.12)

1.69

(2.45*)

0.23 9.89 14.32

3 13.58

(7.26)

-1.17

(2.63*)

0.15 23.57 18.25

4 8.39

(4.29)

1.12

(3.17*)

0.19 27.65 14.46

5 21.13

(3.56)

0.34

(0.89)

0.13 16.65 19.19

6 12.67

(3.35)

-0.18

(1.12)

1.52

(3.58*)

-2.14

(3.18*)

0.28 32.59 25.68

7 6.79

(5.45)

-0.15

(0.89)

0.68

(3.12*)

-1.05

(2.92*)

0.37 45.26 36.49

8 16.36

(3.68)

-0.81

(0.95)

1.24

(2.82*)

0.69

(2.25*)

0.46 56.38 43.36

9 18.93

(3.86)

-0.23

(1.23)

1.19

(2.51*)

0.21

(2.37*)

1.05

(0.93)

0.54 53.28 53.232/26/2015 14

MODESLS INTERCEPT REGRESSION COEFFICENTS OF ADJ

R-

BAR2

SEE F

BS LEV NED NID NOM

1 2.02

(5.32)

-0.25

(1.43)

0.23 4.91 35.05

2 21.05

(4.35)

2.56

(3.02*)

0.15 5.89 10.23

3 4.43

(3.27)

-4.08

(2.23*)

0.31 7.45 19.32

4 1.59

(3.53)

0.38

(2.23*)

0.28 8.32 26.54

5 18.59

(1.32)

1.27

(1.59)

0.32 6.67 21.18

6 10.26

(2.93)

-0.13

(0.35)

3.37

(4.02*)

0.34 10.34 35.61

7 14.56

(3.16)

-0.51

(0.34)

1.77

(2.58*)

-2.13

(3.12*)

0.45 28.89 38.43

8 11.36

(2.15)

-0.23

(1.12)

1.61

(3.12*)

1.15

(3.26*)

0.52 29.92 56.78

9 23.16

(2.08)

-0.31

(0.83)

1.63

(3.56*)

2.27

(2.91*)

0.78

(1.27)

0.60 34.51 86.76

Regression of CG and Control variable on ROA

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MODESLS INTERCEPT REGRESSION COEFFICENTS OF ADJ R-

BAR2

SEE F

BS LEV NED NID NOM

1 12.36

(5.68)

-1.15

(1.12)

0.20 8.86 12.14

2 9.78

(3.45)

0.25

(3.18*)

0.19 10.82 10.13

3 13.15

(6.38)

2.25

(3.15*)

0.16 9.17 21.16

4 10.15

(7.68)

-0.79

(2.57*)

0.26 15.16 27.68

5 15.35

(6.57)

-1.11

(1.02)

0.09 12.14 21.19

6 19.16

(5.25)

-2.01

(0.92)

0.26

(2.67*)

1.10

(2.13*)

0.18 21.15 32.65

7 12.37

(5.36)

-0.56

(1.16)

1.26

(2.82*)

2.12

(3.61*)

0.24 32.32 31.82

8 6.79

(4.47)

-1.61

(1.12)

1.45

(3.38*)

-1.16

(3.10*)

-0.71

(0.89)

0.37 43.15 38.38

9 12.13

(5.52)

-0.72

(0.86)

2.23

(4.12*)

-2.21

(3.12*)

0.92

(1.04)

0.43 36.12 36.56

Regression of CG and Control variables on NPL

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There is a significant impact of corporate governance on Return on assets as

well as Return on equity.

The impact of board size and total assets are positively significant with ROE

whereas the executive CEO has insignificant effect on ROE.

The study shows that average ROE is 15.8 percent while the average ROE is

14.1 percent with standard deviation of 19.8 percent and 2.1% respectively.

There is negative correlation between ROE with NPL, BS and NED.

Positive correlation of ROA with LEV, NID and NOM.

Summary and conclusion

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Data are taken only from commercial bank. Other development bank,

financial company should include.

Research is based on only secondary data.

Only quantitative techniques are not sufficient to analysis. We have to

consider qualitative techniques as well.

Limitation

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It is useful to those who want to know about corporate governance of

Nepalese banking sector.

It will also help the government in setting up various forth polices and

regulation for good corporate governance.

This research will help bankers to find out the factor which can help to

increase their ROA and ROE.

Critical appreciation

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Thank You