Corporate Governance and Bank Performance: Evidence from Macedonia
Main Article Content
Abstract
The role of banks is integral and significant to the economic development and private initiative of any country. Therefore, we can read different and opposing studies in economic literature about various bank corporate governance regimes and issues. Given the renewed attention on the corporate governance in banks with the global financial crises, this paper investigates the relevance of board size, board composition and CEO qualities in the Macedonian banks and their performance. Thus, the following paragraphs will elaborate on the development of hypotheses to test whether good corporate governance structure can contribute towards higher banks performance measured by Return on assets (ROA), Return on equity (ROE), Cost-Income ratio and Capital adequacy ratio (CAR). We find that board size is only positively related to the bank’s profitability measures by ROA. Further, the research indicates negative association between board independence and ROA and ROE. Also, the results stress that banks in Macedonia which is managed by powerful CEOs that hold this position for a longer period are more profitable than those with CEOs serving their first four-years tenure. In addition, it is important to highlight that our research findings and insights is different and more important than some other studies, both practical and theoretical, as the primary object of study is commercial banks from insufficiently explored financial system and developing economy.
Article Details
Section
Part I: Monetary and Credit Policy
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Dahya, J. and McConnell, J.J. (2007). Board composition, corporate performance, and the Cadbury committee recommendation. Journal of financial and quantitative analysis, 42(3). 535-564.
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Dalton, D.R., Daily, C.M., Ellstrand, A.E. and Johnson, J.L. (1998). Meta analytic reviews of board composition, leadership structure, and financial performance. Strategic management journal, 19(3), 269-290.
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de Andres, P. and Vallelado, E. (2008). Corporate governance in banking: The role of the board of directors. Journal of banking and finance, 32(12), 2570-2580.
de Andres, P.A., Azofra, V. and Lopez, F. (2005). Corporate boards in some OECD countries: Size, composition, functioning and effectiveness. Corporate governance: An International review, 13(2), 197-210.
Dehaene, A., De Vuyst, V. and Ooghe, H. (2001). Corporate performance and board structure in Belgian companies. Long range planning, 34(3), 383-398.
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Drobetz W., Schillhofer, A. and Zimmermann, H. (2004). Corporate governance and expected stock returns: Evidence from Germany. European financial management, 10(2), 267-293.
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Eklund, J.E., Palmberg, J. and Wiberg, D. (2009). Ownership structure, board composition and investment performance. Corporate ownership and control, 7(1), 117-127.
Erkens, D.H., Hung, M. and Matos, P. (2012). Corporate governance in the 2007-2008 financial crisis: Evidence from financial institutions worldwide. Journal of corporate finance, 18(2), 389-411.
Fama, E. (1980). Agency problems and the theory of the firm. Journal of political economy, 88(2), 288-307.
Fenn, G.W. and Liang, N. (2001). Corporate payout policy and managerial stock incentives. Journal of financial economics, 60(1), 45-72.
Ferrell, O.C., Fraedrich, J. and Ferrell, L. (2013). Business ethics: Ethical decision making and cases. Ninth edition. Ohio: Cengage Learning.
Finegold, D., Benson, G.S. and Hecht, D. (2007). Corporate boards and company performance: Review of research in light of recent reforms. Corporate governance: An International review, 15(5), 865-878.
Forbes, D.P. and Milliken, F.J. (1999). Cognition and corporate governance: Understanding boards of directors as strategic decision-making groups. Academy of management review, 24(3), 489-505.
Ghillyer, A. (2012). Business ethics now. New York: McGraw-Hill.
Gompers, P., Ishii, J. and Metrick, A. (2003). Corporate governance and equity prices. Quarterly journal of economics, 118(1), 107-156.
Graefe-Anderson, A. (2009). CEO turnover and compensation: An empirical investigation. Dissertation, Purdue University, West Lafayette.
Grove, H., Patelli, L., Victoravich, L.M. and Xu, P.T. (2011). Corporate governance and performance in the wake of the financial crisis: Evidence from US commercial banks. Corporate governance: An International review, 19(5), 418-436.
Gup, B. (2007). Corporate governance in banks: Does the board structure matter?. In B, Gup (Ed.), Corporate governance in banking: A global perspective (pp. 18-39). Cheltenham, Northampton, MA: Edward Elgar.
Hagendorff, J. and Keasey, K. (2012). The value of board diversity in banking: evidence from the market for corporate control. European journal of finance, 18(1), 41-58.
Hermalin, B.E. and Weisbach, M.S. (2003). Boards of directors as an endogenously determined institution: A survey of the economic literature. Economic policy review, 9(1), 7-26.
Hermes, N. (1994). Financial development and economic growth: A survey of the literature. International journal of development banking, 12(1), 3-22.
Hortsmeyer, D. (2011). Monitoring the monitors. Working paper, University of Southern California, Los Angeles, CA
Jackling, B. and Johl, S. (2009). Board structure and firm performance: Evidence from India’s top companies. Corporate governance: An International review, 17(4), 492-509.
Jensen, M.C. (1993). The modern industrial revolution, exit and the failure of internal control system. Journal of finance, 48(3), 831-880.
Kesner, I. (1987). Directors’ stock ownership and organizational performance: An investigation of Fortune 500 companies. Journal of management, 13(3), 499-508.
Kiel, G.C. and Nicholson, G.J. (2003). Board composition and corporate performance: How the Australian experience informs contrasting theories of corporate governance. Corporate governance: An International review, 11(3), 189-205.
Krivogosky, V. (2006). Ownership, board structure and performance in Continental Europe. International journal of accounting, 41(2), 176-197.
Kutubi, S.S. (2011). Board of director’s size, independence and performance: An analysis of private commercial banks in Bangladeshi. World journal of social sciences, 1(4), 159-178.
Lau, D.C. and Murnighan, J.K. (2005). Interactions within groups and subgroups: The effects of demographic faultlines. Academy of management journal, 48(4), 645-659.
Law of Banks and Savings-Banks, Official Gazette of the Republic of Macedonia, no. 31/93, 78/93, 17/96, 29/96, 30/97, 17/98, 37/98, 25/00.
Law of Banks, Official Gazette of the Republic of Macedonia, no. 63/00, 37/02, 41/02, 32/03, 51/03, 85/03.
Law of Banks, Official Gazette of the Republic of Macedonia, no. 67/07, 88/2008, 118/2008, 42/2009, 90/09, 67/10, 26/13, 13/14.
Law on Obligations, Official Gazette of the Republic of Macedonia, no. 18/01, 78/01, 4/02, 59/02, 5/03, 84/08, 81/09, 161/09.
Law on Securities, Official Gazette of the Republic of Macedonia, no. 95/05, 25/07, 86/07, 123/07, 140/07, 146/07, 7/08, 45/09, 57/10, 135/11, 13/13, 188/13.
Levine, R. (1997). Financial development and economic growth: Views and agenda. Journal of economic literature, 35(2), 688-726.
Lin, T.T. and Lee, Y.C. (2008). Organizational characteristics, board size and corporate performance. Journal of Global business management, 4(2), 338-347.
Linck, J.S., Netter, J.M. and Yang, T. (2008). The determinants of board structure. Journal of financial economics, 87(2), 308-328.
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