The Effects of Corporate Governance on Financial Performance of Commercial Banks in a Turbulent Economic Environment

Newman Wadesango (), Charity Mhaka (), Blessing Mugona () and Hilja I. Haufiku ()
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Newman Wadesango: University of Limpopo
Charity Mhaka: University of Namibia
Blessing Mugona: Midlands State University
Hilja I. Haufiku: University of Namibia

Acta Universitatis Danubius. OEconomica, 2020, issue 16(4), 164-191

Abstract: This study sought to investigate the effects of corporate governance on the financial performance of commercial banks in a turbulent economic and political environment. Board size, board composition, audit committee and leverage ratios and how they affected the financial performance of commercial banks in Zimbabwe during different economic and political landscapes were examined. Return on equity (ROE) was used as a measure of bank performance. An explanatory research design was used to investigate the relationship between corporate governance and financial performance of commercial banks in a hostile political and economic landscape. The population of study was 13 commercial banks regulated by the central bank of Zimbabwe. The sample size was 5/13 of the total population. Secondary data was collected from the annual reports of the 5 commercial banks. The data was gathered exclusively by analyzing the annual reports of the commercial banks for the period 2010 to 2017 and the data was analyzed using EViews 08. The period of study was split into two periods (2010–2013) being a relatively stable economic and political environment and (2014–2017) a period of high political and economic volatility to capture the difference in the political and economic environment. The study found that the employed measures of corporate governance were significant predictors of financial performance of commercial banks in Zimbabwe. The board size, board composition, the subcommittees and leverage were found to be significant in explaining the profitability of commercial banks in Zimbabwe in both periods (stable and turbulent environments). Based on the findings, another study encompassing all corporate governance tenets in different environments should be conducted to assess the full impact of the environment on corporate governance and performance of banks.

Keywords: Corporate governance; financial performance; turbulent economic environment (search for similar items in EconPapers)
Date: 2020
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