Corporate governance determinants of asset quality in an emerging economy: evidence from Indian banks

Abstract

PurposeThis paper aims to identify specific corporate governance determinants of asset quality in the Indian banking system and suggest a future course of action for research in the Indian banking industry. The results will guide other developing nations to handle poor asset quality in banks. Nations with economic interest in India can take cognisance from the results.Design/methodology/approachThe authors identify the determinants of asset quality for the Indian banks using novel data from 2010 to 2019 through a dynamic panel data approach. The authors analyse 45 public and private sector banks using general method of moments.FindingsThe results indicate that intensity of board activities, board functioning and ownership concentration are significant determinants of asset quality. Furthermore, the study hypotheses on board independence and board size are rejected as they do not significantly impact the asset quality. The authors also call for further research on the qualitative aspects of gender diversity, board independence and special committee activity for better insights.Originality/valueThis is the first study to identify specific corporate governance determinants of asset quality for the Indian banking system using a dynamic panel data approach with data spanning over ten years from 45 banks. Unlike all other studies, the authors have used both bank-specific and macroeconomic variables as control variables, making the results accurate and reliable. The authors also recognise the persistent nature of asset quality.

Role of corporate governance in asset quality of banks: comparison between government-owned and private banks

“…Either sector should utilize the other sectors’ strengths to improvise their own corporate governance in order to improve asset quality. The result of each determinant has been discussed below based on the findings of (Gupta and Sharma, 2022).…”

“…Particularly the existing literature identifies seven corporate governance determinants (Gupta and Sharma, 2022) that this article uses in its empirical analysis. They are board size, gender diversity, number of board meetings, audit committee meetings, CEO duality, ownership concentration and board independence.…”

“…Several research papers on macroeconomic and bank-specific determinants of asset quality exist, but little attention has been paid to corporate governance determinants. Some studies, such as Bezawada and Adavelli (2020), Tarchouna et al (2017) and Gupta and Sharma (2022), have identified the fact that corporate governance affects asset quality but have not studied the difference between the behavior of these determinants between public and private sector banks. We propose to add to this body of knowledge by comparing the impact of key corporate governance factors on asset quality in Indian public sector banks (PSBs) and private sector banks (PVBs).…”

Mekanisme Corporate Governance pada Maskapai Penerbangan di Indonesia

“…Corporate Governance memiliki peran yang sangat penting untuk menjaga kelangsungan bisnis dan meningkatkan kinerja keuangan perusahaan (Abdoush, 2022). Corporate Governance telah menjadi topik yang semakin penting dalam industri penerbangan karena industri ini memiliki risiko yang sangat tinggi dan ketatnya peraturan yang diterapkan oleh pemerintah (Gupta & Sharma, 2022). Dalam industri penerbangan, Corporate Governance adalah mekanisme penting untuk memastikan bahwa perusahaan dikelola dengan baik dan menjaga kepentingan seluruh stakeholder.…”

Corporate Governance and Performance of Pension Funds in Ghana: A Mixed-Method Study

“…Empirical evidence reveal that corporate governance and firm performance are inconclusive, and these studies have shown mixed results (Alabdullah 2018;Buallay et al 2017). From a positive perspective, studies found corporate governance characteristics to significantly impact the performance of firms (Ahmed and Hamdan 2015;Gupta and Sharma 2022). A research study by Buallay et al (2017) in Saudi Arabia using 171 listed firms demonstrated that more robust corporate governance systems of a firm significantly improve its performance.…”