The Impact of Corporate Governance on the Financial Performance of Banks Listed on the Pakistan stock exchange (PSX): Empirical Investigation from 2010 to 2022.

Abstract

Abstract:

In recent years, "corporate governance" has come to be seen as increasingly critical for businesses of all sizes. Better corporate governance practices, which guarantee that businesses are run in an open, accountable, and ethical manner, can be attributed to improved financial performance. While good corporate governance practices can improve financial performance and increase returns, poor practices can cause financial scandals and the erosion of shareholder value. The significance of sound corporate governance practices has recently come to be understood in Pakistan. The primary goal of corporate governance is to protect shareholders and other business partners from harm. More specifically, Agrawal and Cooper (2017) note that preventing fraud, scandals, misrepresentation, and other forms of corporate wrongdoing necessitates effective corporate administrative measures. Contrarily, poor corporate governance fosters a culture of dishonesty and misrepresentation, which can be extremely harmful to the company and its stakeholders. According to recent research, investors favor investing in businesses that uphold strict corporate governance standards. Strong governance directly leads to better financial outcomes and greater shareholder wealth. The scope of this research was limited to commercial banks trading on the Pakistan Stock Exchange (PSX). The findings of this research will help fill in the gaps in our understanding of how poor corporate governance affects the financial health of Pakistan's banking industry. While corporate governance is essential for ensuring that businesses are transparent and accountable, little is known about the link between corporate governance practices and financial performance in the Pakistani context. A total of three financial performance indicators were used i.e. Return on Assets(ROA), and Return on Equity(ROE). Four independent variables were used in the research i.e. CEO duality, the ratio of females to Directors, institutional ownership, and the size of the BOD. Secondary data used in this research were obtained from annual reports of the companies published on the official websites from 2010 to 2022. The analysis examines the effects of variables like the proportion of male to female-directors, institutional ownership, board size, and CEO duality on ROE. There was no statistically significant relationship found between ROE and CEO duality, the percentage of women on the board, or the total number of board members. However, institutional ownership and ROE have a favorable and statistically significant relationship. This suggests that higher profitability relative to shareholders' equity is associated with insider ownership. The effects of institutional ownership on measures such as return on assets (ROA), board size, gender parity on boards, and CEO duality are examined. There is no evidence that any of the independent variables had a significant effect on ROA.