Evaluating Corporate Performance and Bank Productivity in China: The Moderating Role of Independent Directors

Abstract

Corporate governance (CG) is not an abstract goal. It exists to serve the bank’s purpose by giving a framework through which investors, directors, and the top management can efficiently follow its objectives. Subsequently, it boosts the financial performance of the bank for its shareholders. This paper explores CG and its impacts on financial performance from the evidence collected from selected commercial banks (CB) in China. The data sample for this research comprises selected CBs in China for the period from 2008 to 2019. Applying selection standards provides us a data sample of 17 CBs. We employed the generalized method of moments (GMM) regression model constructed on 170 observations to identify the variables’ relationship. Our findings show that female independent directors positively and significantly affect bank financial performance. Despite the literature review, we found that the existence of female directors alone does not positively and significantly improve banks’ financial performance. The finding suggests that female directors are more efficient when they are selected as independent directors. The findings show that CEO duality affects bank financial performance positively and significantly. CEO duality strengthens the financial performance of CBs because of the solidarity of the order it presents. The results also show that CEO shareholding and financial performance of Chinese CBs have a positively significant bond with each other. This result suggests that a blend of CG instruments is more impressive than one CG component. The investigation results added a new dimension to the governance literature that could be an important source of knowledge for policymakers and regulators to improve the current governance structure for better performance across countries. This paper support principal-agent theory and the author also provide some help for the theories that regulators should support gender quotas in the board of directors of banks to decrease risk-taking behavior.

The Effect of CEO on Bank Efficiency: Evidence From Private Commercial Banks

“…Bank size is determined by taking the common logarithm of total assets some past investigations also used (Abdullah, 2005 ; Murtaza and Azam, 2019 ). Leverage measure as total obligations divided by total assets (Ilmas et al, 2018 ; Khan and Wang, 2021 ). Measurement of each variables are exist in Table 1 .…”

“…The statistical technique of Eviews was applied in the process of data analysis. To test the study hypothesis, we followed the FE model (Jensen and Murphy, 1990;Hermalin and Weisbach, 2006;Buck et al, 2008;Ausat, 2018;Khan and Wang, 2021 (1.1) Where i refers to the cross-section, t is time, and µ it is an error term. β 0 is the Constant coefficient of regression.…”

“…Board diversity is a significant part of CG, and much literature exists on the correlation between board variables and the financial performance of a bank, e.g., (Pearce and Zahra, 1992 ; Bhagat and Black, 2001 ; Adams et al, 2010 ; Khan and Wang, 2021 ). However, there is no research about the relationship between Chief Executive Officer (CEO) characteristics and the financial performance of the bank (Nicholson and Kiel, 2007 ).…”

Corporate Governance and Principal-Agent Theory: a Critical Review

“…Pada penelitian Horan & Mulreany (2021) menyimpulkan bahwa PAT bagi sebuah perusahaan memberikan kemampuan untuk mengikuti perubahan keterlibatan antar pemangku kepentingan meskipun literatur mengenai perusahaan sektor publik lebih berkembang ketimbang sektor swasta. Maka dari itu, literatur CG berdasarkan PAT dapat meningkatkan sumber pengetahuan bagi pembuat kebijakan dan regulator (Khan & Wang, 2021).…”

Key determinants of deposits volume using CAMEL rating system: The case of Saudi banks

“…Other scholars have explored banks’ management quality through the implementation of best corporate governance and social responsibility practices [ 24 , 51 – 53 ]. [ 51 ] applied different corporate governance practices in banks (i.e., female independent directors, CEO duality, and CEO shareholding) and found that bank financial performance was positively affected by these practices. [ 53 ] revealed that social responsibility and human resource management have a significant positive effect on bank reputation and a significant negative influence on turnover intention.…”