Non-Monotonic Relationship between Corporate Governance and Banks’ Operating Performance—The Moderating Role of CEO Duality: Evidence from Selected Countries

Abstract

This study examines the non-monotonic (U-shaped, inverted U-shaped or curvilinear) relationship between the corporate governance (CG) and bank performance of commercial banks operating across four countries whose CG framework is based on the OECD principals of CG. Using a dataset of 4230 bank-years observation from 2012–2021, the study shows that governance–performance relations may be non-monotonic but not U-shaped using a two-line approach and the Robin Hood algorithm. In addition, this study, using feasible generalized least squares (FGLS), empirically shows that the interaction effect of CEO duality on governance–performance relations in financial institutions is curvilinear and significantly moderates and reverses these impacts. The findings reveal that, in financial institutions with CEO duality, there is a far more modest association between CG and performance, which has an inverted-U shape and is curvilinear. The findings are consistent with arguments advanced by resource dependence and stewardship theory that, although duality might increase bank performance through joint leadership, it can benefit the bank in the presence of unity of command.

Analysis of Banking Performance Over Corporate Governance, Risk Management and Disclosure Practises

“…Moreover, there is strong relationship between corporate governance and banking institutions performance. The findings of current research are in line with the findings of current research as strong governance procedure leads towards batter performance of the financial institutions (Amrani & Najab, 2023;Boachie, 2023;Enam et al, 2023). In this connection, according to the findings of Mamatzakis et al (2023) the strong governance procedures leads toward batter performance of banking institutions.…”

Corporate Governance Dynamics: Contending with Egocentric Leadership and Enhancing Board Efficacy

“…The representative's responsibility is to maximise the principal's profits while keeping their welfare in mind. This challenge, however, can lead to an agency conflict as the representative's preferences may not always align with those of the principal, a phenomenon referred to as an imbalance of concern (Enam et al, 2023). Considering these claims, this study affirms that conflict of interest opposes corporate governance doctrines.…”

“…This author found that corporate governance is positively related to organisational financial performance. Enam et al (2023) investigated the non-monotonic relationship between corporate governance and banks' operating performance. They found that the relationship between corporate governance and performance was nonlinear, which means that corporate governance had a moderate impact on the performance of banks.…”

“…This finding is consistent with previous research studies in corporate governance, which also highlighted the negative impact of conflicts of interest on effective governance practices. Enam et al (2023) investigated the non-monotonic relationship between corporate governance and banks' operating performance in selected countries. The study highlighted a probable conflict of interest among stakeholders, including shareholders, the board of directors, executives, and managers.…”

“…In some cases, there may be a conflict of interest between the shareholders (principal) and the board of directors, executives, and managers (representatives) due to a discrepancy in priorities (Enam et al, 2023). The representative's responsibility is to maximise the principal's profits while keeping their welfare in mind.…”