Main Article Content
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.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Once the manuscript is accepted for publication, authors shall transfer the copyright to the publisher. If the submitted manuscript is not accepted for printing by the journal, the authors shall retain all their rights. The following rights on the manuscript are transferred to the publisher, including any supplementary materials and any parts, extracts or elements of the manuscript:
- the right to reproduce and distribute the manuscript in printed form, including print-on-demand;
- the right to print prepublications, reprints and special editions of the manuscript;
- the right to translate the manuscript into other languages;
- the right to reproduce the manuscript using photomechanical or similar means including, but not limited to photocopy, and the right to distribute these copies;
- the right to reproduce and distribute the manuscript electronically or optically using and all data carriers or storage media, and especially in machine readable/digitalized form on data carriers such as hard drive, CD-ROM, DVD, Blu-ray Disc (BD), Mini Disc, data tapes, and the right to reproduce and distribute the article via these data carriers;
- the right to store the manuscript in databases, including online databases, as well as the right to transmit the manuscript in all technical systems and modes;
- the right to make the manuscript available to the public or to closed user groups on individual demand, for use on monitors or other readers (including e-books), and in printable form for the user, either via the Internet, online service, or via internal or external networks.
Authors reserve the copyright to published articles and have the right to use the article in the same manner like third parties in accordance with the licence Attribution-Non-Commercial-Non-Derivate 4.0 International (CC BY). Thereby they must quote the basic bibliographic data of the source article published in the journal (authors, article title, journal title, volume, pagination).
Adams, R. and Mehran, H. (2012). Bank board structure and performance: Evidence for large bank holding companies. Journal of financial intermediation, 21(2), 243-267.
Anderson, R.C., Mansi, S. and Reeb, D.M. (2004). Board characteristics, accounting report integrity and the cost of debt. Journal of accounting and economics, 37(3), 315-342.
Arslan, O., Karan, M.B. and Eksi, C. (2010). Board structure and corporate performance. Managing global transitions, 8(1), 3-22.
Arun, T.G. and Turner, J.D. (2004). Corporate governance of banks in developing economies: Concepts and issues. Corporate governance: An International review, 12(3), 371-377.
Bacon, J. (1973). Corporate directorship practice, member and committees of the board. New York: The conference board.
Barnhart, S., Marr, M. and Rosenstein, S. (1994). Firm performance and board composition: Some new evidence. Managerial and decision economics, 15(4), 329-340.
Basel Committee on banking supervision (BCBS). (2006). Enhancing corporate governance for banking organizations. Basel: Bank for International settlements.
Bauer, R., Eichholtz, P. and Kok, N. (2010). Corporate governance and performance: The REIT effect. Real estate economics. 38(1), 1-29.
Beasley, M.S. (1996). An empirical analysis of the relation between the board of director composition and financial statement fraud. Accounting review, 71(4), 443-465.
Bebchuk, L., Cohen, A. and Ferrell, A. (2009). What matters in corporate governance?. Review of financial studies, 22(2), 783-827.
Becht, M., Bolton, P. and Röell, A. (2003). Corporate governance and control. In G.M. Constantinides, M. Harris and R.M. Stulz (Eds.), Handbook of the economics of finance: Corporate finance, 1A (pp. 1-109). Amsterdam: Elsevier.
Berger, A.N., Kick, T. and Schaeck, K. (2013). Executive board composition and bank risk taking. Journal of corporate finance (forthcoming), Available online 13 November 2013.
Berle, A. and Means, G. (1932). The modern corporation and private property. New York: Macmillan.
Boone, A.L., Field, C.L, Karpoff, J.M. and Raheja, C.G. (2007). The determinants of corporate board size and composition: An empirical analysis. Journal of financial economics, 85(1), 66-101.
Booth, J.R., Cornett, M.M. and Tehranian H. (2002). Boards of directors, ownership, and regulation. Journal of banking and finance, 26(10), 1973-1996.
Cadbury, A. (1992). The Committee on the financial aspects of corporate governance. London: Gee and Company.
Cadbury, A. (2002). Corporate governance and chairmanship: A personal view. New York: Oxford University press.
Carrol, A.B. and Buchholtz, A.K. (2009). Business and society: Ethics and stakeholder management. Seventh edition. Ohio: Cengage Learning.
Chakravarthy, B.S. (1986). Measuring strategic performance. Strategic management journal, 7(5), 437-458.
Chang, B. and Dutta, S. (2012). Dividends and corporate governance: Canadian evidence. IUP Journal of applied finance, 18(4), 5-30.
Cheng, S. (2008). Board size and variability of corporate performance. Journal of financial economics, 87(1), 157-176.
Coles J.L., Daniel, N.D. and Naveen, L. (2008). Boards: Does one size fits all?. Journal of financial economics, 87(2), 329-356.
Coughlan, A. and Schmidt, R. (1985). Executive compensation, management turnover and firm performance: An empirical investigation. Journal of accounting and economics, 7(1), 43-66.
Crowther, D. and Aras, G. (2009). Corporate governance and corporate social responsibility in context. In D. Crowther and G. Aras (Eds.), Global perspectives on corporate governance and CSR (pp. 1-41). Surrey: Gower Publishing, Ltd.
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.
Daily, C.M. and Dalton, D.R. (1993). Board of directors leadership and structure: Control and performance implications. Entrepreneurship: Theory and practice, 17, 65-81.
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.
Dalton, D.R., Daily, C.M., Johnson, J.L. and Ellstrand, A.E. (1999). Number of directors and financial performance: A meta-analysis. Academy of management journal, 42(6), 674-686.
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.
Demsetz, H. and Lehn, K. (1985). The structure of corporate ownership: Causes and consequences. Journal of political economy, 93(6), 1155-1177.
Dikolli, S.S., Mayew, W.J. and Nanda, D. (2009). Performance surprises and uncertain managerial ability: Evidence from CEO turnovers. Working paper, Duke University, Durham, NC.
Drobetz W., Schillhofer, A. and Zimmermann, H. (2004). Corporate governance and expected stock returns: Evidence from Germany. European financial management, 10(2), 267-293.
Eisenberg, T., Sundgren, S. and Wells, M.T. (1998). Larger board size and decreasing firm value in small firms. Journal of financial economics, 48(1), 35-54.
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.
Lipton, M. and Lorsch, J. (1992). A modest proposal for improved corporate governance. Business lawyer, 48(1), 59-77.
Macey, J. and O’Hara, M. (2003). The corporate governance of banks. Economic policy review, 9(1), 91-107.
Mak, Y.T. and Kusnadi, Y. (2005). Size really matters: Further evidence on the negative relationship between board size and firm value. Pacific-Basin finance journal, 13(3), 301-318.
Mishra, C.S. and Nielsen, J.F. (2000). Board independence and compensation policies in large bank holding companies. Financial management, 29(3), 51-69.
Monks, A.G.R. and Minow, N. (2004). Corporate governance. Third edition. Malden, MA: Blackwell.
Morck R., Shleifer, A. and Vishny. R. (1988). Management ownership and market valuation: An empirical analysis. Journal of financial economics, 20, 293-315.
Nguyen, B.D. and Nielsen, K.M. (2010). The value of independent directors: Evidence from sudden deaths. Journal of financial economics, 98(3), 550-567.
Pathan, S. and Skully, M. (2010). Endogenously structured boards of directors in banks. Journal of banking and finance, 34(7), 1590-1606.
Peng, M.W. (2004). Outside directors and firm performance during institutional transitions. Strategic management journal, 25(5), 453-471.
Pfeffer, J. and Salancik, G. (1978). The external control of organizations: A resource-dependence perspective. New York: Harper and Row.
Pi, L. and Timme, S.G. (1993). Corporate control and bank efficiency. Journal of banking and finance, 17(2), 515-530.
Pokrashenko, P. (2012). Cost efficiency of Russian banks: The impact of board of directors and executive group. Working paper, Economics education and research consortium, Moscow.
Prevost, A.K., Rao, R.P. and Hossain, M. (2002). Determinants of board composition in New Zealand: A simultaneous equations approach. Journal of empirical finance, 9(4), 373-397.
Rajan, R. and Zingales, L. (1998). Financial dependence and growth. American economic review, 88(3), 559-586.
Report on banking system of the Republic of Macedonia. (2012). National bank of the Republic of Macedonia (NBRM), Skopje.
Rosenstein S. and Whatt. J. (1997). Inside directors, board effectiveness and shareholder wealth. Journal of financial economics, 44(2), 229-250.
Schellenger, M.H., Wood, D.D. and Tashakori, A. (1989). Board of director composition, shareholder wealth and dividend policy. Journal of management, 15(3), 457-467.
Shan, Y.G. and Xu, Lei. (2012). Do internal governance mechanisms impact on firm performance? Empirical evidence from the financial sector in China. Journal of Asia-Pacific business, 13(2), 114-142.
Sheikh, N.A. and Wang, Z. (2012). Effects of corporate governance on capital structure: Empirical evidence from Pakistan. Corporate governance, 12(5), 629-641.
Shleifer, A. and Vishny, R. (1997). A survey of corporate governance. Journal of finance, 52(2), 737-783.
Singh, M. and Davidson, W.N. (2003). Agency costs, ownership structure and corporate governance mechanisms. Journal of banking and finance, 27(5), 793-816.
Spencer Stuart Board Index. (2008). Chicago: Spencer Stuart.
Steger, U. and Amann, W. (2008). Corporate governance: How to add value. West Sussex: John Wiley and Sons.
Stiglitz, J.E., Jaramillo-Vallejo, J. and Park, Y.C. (1993). The role of the state in financial markets. World Bank research observer, Annual conference on development economics supplement (Proceedings), 19-61.
Subrahmanyam V., Rangan, N. and Rosenstein, S. (1997). The role of outside directors in bank acquisitions. Financial management, 26(3), 23-36.
Suklev, B. (2011). Korporativno upravuvanje. Skopje: Faculty of Economics.
Thomsen, M. (2000). Surveys reveal investors will pay for good governance. SocialFunds. http://www.socialfunds.com/news/article.cgi/article441.html. Accessed 1 December 2000.
Tirole, J. (2006). The theory of corporate finance. New Jersey: Princeton University press.
Tricker, B. (2003). Essential director. London: The Economist Newspaper, Ltd.
Tricker, B. (2012). Corporate governance: Principles, policies and practices. Second edition. Oxford: Oxford University press.
Van der Walt, N. and Ingley, C. (2003). Board dynamics and the influence of professional background, gender and ethnic diversity of directors. Corporate governance: An International review, 11(3), 218-234.
van Greuning, H. and Brajovic-Bratanovic, S. (2009). Analyzing banking risk: A framework for assessing corporate governance and risk management. Third edition. Washington D.C.: World Bank publications.
Vance. S. (1983). Corporate leadership: Boards, directors and strategy. New York: McGraw-Hill.
Wang, W.K., Lu, W.M. and Lin, Y.L. (2012). Does corporate governance play an important role in BHC performance? Evidence from the US. Economic modeling, 29(3), 751-760.
Wulf, T., Stubner, S., Miksche, J. and Roleder, K. (2010). Performance over the CEO lifecycle - A differentiated analysis of short and long tenured CEOs. Working paper, HHL Leipzig Graduate School of Management, Leipzig.
Wurgler, J. (2000). Financial markets and the allocation of capital. Journal of financial economics, 58(1-2), 187-214.
Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of financial economics, 40(2), 185-211.