Economics and Business
ISSN 2775-9237 (Online)
Published: 12 April 2021
The Relevance of Good Corporate Governance Practices to Bank Performance
Muhammad M. Ma’aji, Ediri O. Anderson, Christine G. Colon
CamEd Business School (Cambodia)
Download Full-Text Pdf
Keywords: Board Size, Board Independence, Board Meetings, Corporate Governance
The purpose of this paper is to examine how corporate governance instruments impact firm value in the context of Cambodian banks. This paper considers foreign and domestic-owned banks in Cambodia. This study opts for a balanced sample of foreign and domestic owned banks for the period 2014-2018. Panel data regression is adopted for estimation of main results. The suitable model, i.e. fixed and random effect model is selected using the Hausman specification test where the result shows that the random effect model using generalized least square (GLS) regression is more suitable for the analysis. The findings show that Cambodian banks are having a substantially higher percentage of NEDs on their board, high implementation of governance procedures on board committees where on average the banks are having more than the required two board committees (audit and risk committees) as required by the Prakas on the governance of banks by National Bank of Cambodia. The average board size is around 8 members of which at least 3 members are having a postgraduate degree or a professional qualification. Policymakers need to improve on their supervisory function as the majority of the domestic and some foreign banks do not disclose their annual reports on their company website as required by the Prakas on Corporate Governance of Banks operating in Cambodia. Moreover, amendments should be made to the current corporate governance code for financial institutions as there are no explanatory notes that guide companies and therefore, the current guideline is open to individual and subjective interpretation.
Adams, R. (2003). What do boards do? Evidence from board committee and director compensation data. Unpublished working paper. Federal Reserve Bank of New York, New York, NY.
Albrecht, W. (2016). Why good corporate governance is so important. BYU Wheatley Institution, Working Paper, https://wheatley.byu.edu/why-good-corporate-governance-is-so-importan t/
Andrianova, S., Demetriades, P., & Shortland, A. (2008). Government ownership of banks, institutions, and financial development. Journal of development economics, 85(1-2), 218-252.
Arora, A., & Sharma, C. (2016). Corporate governance and firm performance in developing countries: evidence from India. Corporate governance.
BCBS (2006) Enhancing Corporate Governance for Banking Organisations. Basel: Bank for International Settlements.
Berger, A.N., Kick, T., Schaeck, K. (2014). Executive board composition and bank risk-taking. Journal of Corporate Finance, 28, 48-65.
Berger, A. N., Klapper, L. F., Peria, M. S. M., & Zaidi, R. (2008). Bank ownership type and banking relationships. Journal of Financial Intermediation, 17(1), 37-62.
Bhat, K., Chen, Y., Jebran, K., & Bhutto, N. (2018). Corporate governance and firm value: a comparative analysis of state and non-state-owned companies in the context of Pakistan. Corporate Governance: The International Journal of Business in Society
Burlaka, M. V. (2006) ‘Bank Corporate Governance: The Emerging Ukrainian Market Compared to International Best Practices,’ Fordham Journal of Corporate & Financial Law, 11(4), 851–891.
Breusch, T. S., & Pagan, A. R. (1979). A simple test for heteroscedasticity and random coefficient variation. Econometrica: Journal of the Econometric Society, 1287-1294.
Cheaseth, S., Samreth, S., & Sethyraon, I. (2010). Board governance regulation, practices and their relationships with financial performance: Cambodian bank and microfinance institution context. The First Annual Online International Conference on Corporate Governance & Regulation in Banks, Sumy, Ukraine, May 27 – June 2, 2010.
Cheng, X., & Degryse, H. (2010). The impact of bank and non-bank financial institutions on local economic growth in China. Journal of Financial Services Research, 37(2-3), 179-199.
Chen, D., & Wu, A. (2016). The structure of board committees. Working Paper 17-032, available at https://www.hbs.edu/faculty/Publication%20Files/17-032_22ea9e7a-4f26-4645-af3d-042f2b4e058c.pdf
Chmelarova, V. (2007). The Hausman test, and Some Alternatives, with Heteroskedastic Data. Louisiana State University and Agricultural & Mechanical College, 2007. Retrieved 1/6/2007 from here (http://etd.lsu.edu/docs/available/etd-01242007-165928/unrestricted/ Chmelarova_dis.pdf).
Cicero, D., Wintoki, M. B., & Yang, T. (2008). Do firms adjust to a target board structure? Unpublished working paper, University of Georgia.
Coles, J. W., & Hesterly, W. S. (2000). Independence of the chairman and board composition: Firm choices and shareholder value. Journal of Management, 26(2), 195-214.
Cornett, M.M., Marcus, A.J. & Tehranian, H. (2008). Corporate governance and pay-for-performance: The impact of earnings management, Journal of Financial Economics, 87, (2): 357-373.
Daily, C.M. & Dalton, D.R. (1994). Bankruptcy and corporate governance: The impact of board composition and structure, Academy of Management Journal, 37: 1603-1617.
Davis, J. H., Schoorman, F. D., & Donaldson, L. (1997). Toward a stewardship theory of management. Academy of Management Review, 22(1), 20-47.
Demitriades PO, Du J, Girma S, Xu S (2008) Does the Chinese Banking System Promote the Growth of Firms? University of Leicester Discussion Paper 08/6.
Dulewicz, V. and Herbert, P. (2004). Does the composition and practice of boards of directors bear any relationship to the performance of their companies? Corporate Governance: An International Review, 12(3), 263-80.
Elsayed, K. (2007). Does CEO duality affect corporate performance? Corporate Governance: An international review, 15(6), 1203-1214.
Fama, E., & Jensen, M. (1983). Separation of ownership and control. Journal of Law and Economics, 26, 301-325.
Gebba, T. R. (2015) ‘Corporate Governance Mechanisms Adopted by UAE National Commercial Banks’, Journal of Applied Finance & Banking, 5(5), 23–61.
Guest, M. (2009): The impact of board size on firm performance: evidence from the UK, The European Journal of Finance, 15:4, 385-404.
Guillet, B.D., Seo, K., Kucukusta, D. & Lee, S. (2013). CEO duality and firm performance in the US restaurant industry: Moderating role of restaurant type, International Journal of Hospitality Management, 33: 339-346.
Gujarati, D. (2004). Basic Econometric (Trans. S. Zain). Jakarta: Erlangga Publishers.
Guo, L., & Masulis, R.W. (2015). Board Structure and Monitoring: New evidence from CEO turnovers. Review of Financial Studies, 28(10), 2770-2811.
Hausman, J. A. 1978. Specification tests in econometrics. Econometrica 46: 1251–1271.
Jensen, M. (2001). Value maximization, stakeholder theory, and the corporate objective function. Journal of applied corporate finance, 14(3), 8-21.
Jensen, M., & Meckling, W. (1976). Theory of the firm: Management behavior, agency costs, and capital structure. Journal of financial economics, 3(4), 305-60.
Kakabadse, N. K, Yang, H. & Sanders, R. (2010). The effectiveness of non-executive directors in Chinese state-owned enterprises. Management Decision, 48(7), 1063-1079
Kirkpatrick, G. (2009) 'The Corporate Governance Lessons from the Financial Crisis, Financial Market Trends, 2009 (1), 61–87.
Klein, A. (1998). Firm performance and board committee structure. Journal of Law and Economics, 41(1), 275-303.
Krause, R. & Semadeni, M. (2013). Apprentice, departure, and demotion: An examination of the three types of CEO–board chair separation, Academy of Management Journal, 56(3), 805-826.
Laeven, L. (2013) ‘Corporate governance: What’s special about banks?’, Annual Review of Financial Economics, 5(1), 63–92.
Macey, J. R., & O'hara, M. (2003). The corporate governance of banks. Economic policy review, 9(1).
Ma'aji, M., Abdullah, N., & Khaw, K. (2018). Predicting Financial Distress among SMEs in Malaysia. European Scientific Journal, 14, 91.
Ma'aji, M., Abdullah, N., & Khaw, K. (2019). Financial distress among SMEs in Malaysia: An early warning signal. International Journal of Business & Society, 20(2), 775-792.
Marcinkowska, M. (2012) ‘Corporate Governance in Banks: Problems and Remedies’, Financial Assets and Investing, 2 (2), 47–67.
Masulis, R. W., Wang, C., Xie, F., & Zhang, S. (2018). Directors: Older and Wiser, or Too Old to Govern? European Corporate Governance Institute (ECGI)-Finance Working Paper, (584).
Maxfield, S., Wang, L. and Magaldi de Sousa, M. (2018) 'The Effectiveness of Bank Governance Reforms in the Wake of the Financial Crisis: A Stakeholder Approach, Journal of Business Ethics, 150(2), 485–503.
McMullen, D.A. (1996). Audit committee performance: an investigation of consequences associated with audit committees. Auditing: A Journal of Practice and Theory, 15(1), 87-103.
Nowak, M. & McCabe, M. (2008). The independent director on the board of company directors. Managerial Auditing Journal, 23(6), 545-566
OECD (2015). G20/OECD principles of corporate governance. OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264236882-en
Ong, C., Wan, D. Board Structure, Board Process, and Board Performance: A Review & Research Agenda. Journal of Comparative International Management, 4(1), 3-24.
Pagano, M., & Volpin, P. F. (2005). The political economy of corporate governance. American economic review, 95(4), 1005-1030.
Rashid, K. & Islam, S. (2013). Corporate governance, complementarities and the value of a firm in an emerging market: the effect of market imperfections. Corporate Governance: The International Journal of Business in Society, 13(1), 70-87.
Sanchez, L., Odriozola D., & Luna, M. (2020). How corporate governance mechanisms of banks have changed after the 2007–08 financial crisis. Global Policy, 11(1), 52 – 61.
Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. The journal of finance, 52(2), 737-783.
Sokhorng, C. (2016). Firms flimsy on corporate governance. Phnom Penh Post News https://www. phnompenhpost.com/business/firms-flimsy-corporate-governance
Stein, E., & Daude, C. (2001). Institutions, integration, and the location of foreign direct investment. New horizons for foreign direct investment, 101.
Talamo, G. M. C. (2009). 2. FDI, mode of entry and corporate governance. Geography, Structural Change, and Economic Development: Theory and Empirics, 29.
Talamo, G. (2011). Corporate governance and capital flows. Corporate Governance: International Journal of Business in Society, 11(3), 228-243.
Vafeas, N. & Theodorou, E. (1998). The relationship between board structure and firm performance in the UK. British Accounting Journal, 30, 383-407.
Wooi, H. C & Ming, T. C (2009). Directors’ Pay-Performance: A Study on Malaysian Government Linked Companies. CenPRIS Working Paper No. 110/09, Universiti Sains Malaysia
Wu, Y. (2004). The impact of public opinion on board structure changes, director career progression, and CEO turnover: Evidence from CalPERS’ corporate governance program. Journal of Corporate Finance, 10, 199–227.
Yermack, D. 1996. Higher market valuation of companies with a small board of directors. Journal of Financial Economics 40: 185–221.
Zakaria, Z., Purhanudin, N. and Wahidudin, A. N. (2018) ‘The Role of Board Governance on Bank Performance,’ Journal of Finance & Banking Studies, 7(4), 38–50.