Impact of corporate governance on profitability of banks: A study on listed indian banks

This paper seeks to explain the relationship between corporate governance and banks performance in listed Indian banks and also determines explicitly what variables explain corporate governance and how they impact on banks performance. The analysis is based on multiple regression to explore the impact of corporate governance on the performance indicators of 34 listed Indian banks. Five specific factors representing corporate governance were identified for analysis. The result of our study indicates that the existence of independent directors do not bear any significant relationship with any variable representing performance and profitability of listed banks. The proportion of institutional shareholding bears a positive significant relationship with return on equity. The duality of Chairman & Managing Director position in banks has significant positive impact on return on assets and capital adequacy ratio and negative effect on net non performing assets. The proportion of controlling shareholders and their shareholding do not bear any significant impact on the performance and profitability of listed banks. To further explore the relat ionship between corporate governance and a bank’s profitability, disclosure standard may be used as a proxy variable for corporate governance. The variables used in this research, and those are suggested, may also be tested on other sectors to assess their influence on the firm s profitability in the context of Indian corporate world. The study has been able to show that in banks where govt, owns significant share, corporate governance does not have significant impact on profitability and performance. This study attempts to enrich empirical research in the field and provides an insight into the role of corporate governance on bank performance in the context of Indian listed banks.