Board Structure and Financial Performance: A study of state-owned service enterprises in Ethiopia

Corporate governance is concerned with holding the balance between economic and social goals, and between individual and communal goals. Different sources indicated that despite extensive privatization over the past 20 years, state-owned enterprises (SOEs) remain important in many developing countries and globally SOEs account for 20 percent of investment, 5 percent of employment, and up to 40 percent of output in some countries. Ethiopia as developing country is invested in most strategic sectors that can assist the ongoing development by attracting private investment. Studying their corporate governance and financial performance is very critical for sustainable economic performance of the country. Corporate governance is there to encourage efficient use of resources and equally to require accountability for the stewardship of those resources. This study indicated the relationship between the most common corporate governance variables included in board structure of board size, board composition, board committee and board leadership structure and the accounting based performance measures of ROA and ROE for the year 2000 to 2014 in state-owned service enterprises in Ethiopia. The dataset is panel type and the descriptive statistics, ANOVA, correlation and regression is analyzed using stata software package. The findings showed, separate leadership, percentage of non-executive directors and board size has significant relationship with both ROA and ROE performance variables. On the other hand, board committee has significant relationship with ROE but not with ROA. Therefore, this study concludes that there is a positive relationship between corporate governance variable of board structure and financial performance but the relationship between the financial performance and corporate governance indicators mentioned above remains mixed.