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Impact of Board Composition on Financial Performance of Commercial Banks in Ethiopia

Received: 3 July 2021     Accepted: 27 July 2021     Published: 18 August 2021
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Abstract

The major objective of the present study is to examine the impact of internal and external board composition on financial performance of commercial banks in Ethiopia. The samples selected for the present study are twelve commercial banks based on ten years financial report for the period of 2009-2018. Both primary and secondary data collection methods employed for the study. Primary data for corporate governance (board compassion) which is independent variable and secondary data for bank financial performance Return on Asset (ROA), Return on Equity (ROE), and Net Interest Margin (NIM) dependent variables of the present study. Explanatory type of study with a quantitative approach was employed to analyze the collected data. Both descriptive and econometric analyses are used for the current study. Descriptive analysis includes mean, maximum, minimum, and standard deviation, whereas, econometric model includes correlation and regression analysis. Fixed effect and random effect econometric analysis has been made using Eviews-9 Software. The present study shows that there is a linear relationship between board compassion (independent variable) and commercial banks financial performance as measured by Return on Assets (ROA). From this, the researcher reveals that there is a positive and statistically significant relationship between board composition and Return on Assets (ROA). There is negative and statistically insignificant relationship between board composition and Return on Equity (ROE) of commercial banks in Ethiopia. Board Composition is negatively correlated with Net Interest Margin (NIM) and statistically significant at 5 % level of significant. The present study concludes that the higher the board composition leads to better financial performance as measured by Return on Assets (ROA), but in contrarily the higher the board composition of commercial banks in Ethiopia decreases the financial performance as measured by Return on Equity (ROE) and Net Interest Margin (NIM).

Published in International Journal of Economic Behavior and Organization (Volume 9, Issue 3)
DOI 10.11648/j.ijebo.20210903.12
Page(s) 49-56
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2021. Published by Science Publishing Group

Keywords

Corporate Governance, Financial Performance, Board Composition, Commercial Banks

References
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  • APA Style

    Addisu Gemeda Edeti, Mahesh Chand Garg. (2021). Impact of Board Composition on Financial Performance of Commercial Banks in Ethiopia. International Journal of Economic Behavior and Organization, 9(3), 49-56. https://doi.org/10.11648/j.ijebo.20210903.12

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    ACS Style

    Addisu Gemeda Edeti; Mahesh Chand Garg. Impact of Board Composition on Financial Performance of Commercial Banks in Ethiopia. Int. J. Econ. Behav. Organ. 2021, 9(3), 49-56. doi: 10.11648/j.ijebo.20210903.12

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    AMA Style

    Addisu Gemeda Edeti, Mahesh Chand Garg. Impact of Board Composition on Financial Performance of Commercial Banks in Ethiopia. Int J Econ Behav Organ. 2021;9(3):49-56. doi: 10.11648/j.ijebo.20210903.12

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  • @article{10.11648/j.ijebo.20210903.12,
      author = {Addisu Gemeda Edeti and Mahesh Chand Garg},
      title = {Impact of Board Composition on Financial Performance of Commercial Banks in Ethiopia},
      journal = {International Journal of Economic Behavior and Organization},
      volume = {9},
      number = {3},
      pages = {49-56},
      doi = {10.11648/j.ijebo.20210903.12},
      url = {https://doi.org/10.11648/j.ijebo.20210903.12},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijebo.20210903.12},
      abstract = {The major objective of the present study is to examine the impact of internal and external board composition on financial performance of commercial banks in Ethiopia. The samples selected for the present study are twelve commercial banks based on ten years financial report for the period of 2009-2018. Both primary and secondary data collection methods employed for the study. Primary data for corporate governance (board compassion) which is independent variable and secondary data for bank financial performance Return on Asset (ROA), Return on Equity (ROE), and Net Interest Margin (NIM) dependent variables of the present study. Explanatory type of study with a quantitative approach was employed to analyze the collected data. Both descriptive and econometric analyses are used for the current study. Descriptive analysis includes mean, maximum, minimum, and standard deviation, whereas, econometric model includes correlation and regression analysis. Fixed effect and random effect econometric analysis has been made using Eviews-9 Software. The present study shows that there is a linear relationship between board compassion (independent variable) and commercial banks financial performance as measured by Return on Assets (ROA). From this, the researcher reveals that there is a positive and statistically significant relationship between board composition and Return on Assets (ROA). There is negative and statistically insignificant relationship between board composition and Return on Equity (ROE) of commercial banks in Ethiopia. Board Composition is negatively correlated with Net Interest Margin (NIM) and statistically significant at 5 % level of significant. The present study concludes that the higher the board composition leads to better financial performance as measured by Return on Assets (ROA), but in contrarily the higher the board composition of commercial banks in Ethiopia decreases the financial performance as measured by Return on Equity (ROE) and Net Interest Margin (NIM).},
     year = {2021}
    }
    

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  • TY  - JOUR
    T1  - Impact of Board Composition on Financial Performance of Commercial Banks in Ethiopia
    AU  - Addisu Gemeda Edeti
    AU  - Mahesh Chand Garg
    Y1  - 2021/08/18
    PY  - 2021
    N1  - https://doi.org/10.11648/j.ijebo.20210903.12
    DO  - 10.11648/j.ijebo.20210903.12
    T2  - International Journal of Economic Behavior and Organization
    JF  - International Journal of Economic Behavior and Organization
    JO  - International Journal of Economic Behavior and Organization
    SP  - 49
    EP  - 56
    PB  - Science Publishing Group
    SN  - 2328-7616
    UR  - https://doi.org/10.11648/j.ijebo.20210903.12
    AB  - The major objective of the present study is to examine the impact of internal and external board composition on financial performance of commercial banks in Ethiopia. The samples selected for the present study are twelve commercial banks based on ten years financial report for the period of 2009-2018. Both primary and secondary data collection methods employed for the study. Primary data for corporate governance (board compassion) which is independent variable and secondary data for bank financial performance Return on Asset (ROA), Return on Equity (ROE), and Net Interest Margin (NIM) dependent variables of the present study. Explanatory type of study with a quantitative approach was employed to analyze the collected data. Both descriptive and econometric analyses are used for the current study. Descriptive analysis includes mean, maximum, minimum, and standard deviation, whereas, econometric model includes correlation and regression analysis. Fixed effect and random effect econometric analysis has been made using Eviews-9 Software. The present study shows that there is a linear relationship between board compassion (independent variable) and commercial banks financial performance as measured by Return on Assets (ROA). From this, the researcher reveals that there is a positive and statistically significant relationship between board composition and Return on Assets (ROA). There is negative and statistically insignificant relationship between board composition and Return on Equity (ROE) of commercial banks in Ethiopia. Board Composition is negatively correlated with Net Interest Margin (NIM) and statistically significant at 5 % level of significant. The present study concludes that the higher the board composition leads to better financial performance as measured by Return on Assets (ROA), but in contrarily the higher the board composition of commercial banks in Ethiopia decreases the financial performance as measured by Return on Equity (ROE) and Net Interest Margin (NIM).
    VL  - 9
    IS  - 3
    ER  - 

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Author Information
  • Haryana School of Business, Guru Jambheshwar University of Science and Technology, Hisar, India

  • Haryana School of Business, Guru Jambheshwar University of Science and Technology, Hisar, India

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