INTERNAL CONTROL EFFECTIVENESS & ITS RELATIONSHIP WITH FINANCIAL PERFORMANCE

Dr.Zahid Ali Channar (), Maha Khan () and Irfan Haider Shakri ()
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Dr.Zahid Ali Channar: Dean, Faculty of Management & Social Sciences, Institute of Business & Technology, Kararachi
Maha Khan: Faculty of Commerce Economics and Management Sciences, Isra University Hyderabad.
Irfan Haider Shakri: Lecturer, Institute of Business & Technology, Karachi

IBT Journal of Business Studies (JBS), 2015, vol. 11, issue 2, 92-107

Abstract: Purpose This research attempts to investigate the functionality of each of the five Internal control components, effectiveness of the control system and its relationship with financial performance.Methodology Sample size for this research is 210 respondents comprising of employees from 6 Banks in Hyderabad NBP and Sindh bank from the public sector, MCB and HBL from the private sector, Meezan bank and Bank Alfalah as Islamic banks.In this study, internal control is measured by the five components whereas financial performance is measured through three profitability ratios.Data is collected through primary as well as secondary sources.The primary source used is questionnaire taken from a combination of instruments developed by Baker, Castro, Labrena & Meyer 2005.Secondary source used are the financial statements of the sample banks for a period of four years.Return on Asset ROA, Return on Equity ROE, Profit expense ratio PER are the profitability ratios used to measure the financial performance.Data was analyzed using the Statistical Package for Social Scientists SPSS.The statistical methods of correlation and oneway ANOVA were used for the testing of the research hypotheses.Findings Results showed that Internal control effectiveness is strongest in private banks, followed by public banks and weakest in islamic banks, although the difference is not statistically large, but slight variation exists.Moreover, private banks had a high level of financial performance, public banks had moderate level of financial performance whereas islamic banks were found to have low financial performance.Hence it was concluded that Internal control effectiveness has a positive relationship with the Financial performance of the banks.Practical Implications The detailed evaluation and understanding of the Internal control system effectiveness and its components provides valuable insights to managers and employees of how they can manage or improve their control systems in order to achieve greater operational as well as financial performance.

Keywords: Internal Control Effectiveness; Control components; Financial performance; Public banks; Private banks and Islamic banks (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:aib:ibtjbs:v:11:y:2015:i:2:p:92-107

DOI: 10.46745/ilma.ibtjbs.2015.112.8

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