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A non-parametric index of corporate governance in the banking industry: An application to Indian data

Rachita Gulati, Ruth Kattumuri and Sunil Kumar

Socio-Economic Planning Sciences, 2020, vol. 70, issue C

Abstract: This paper presents a methodological framework for constructing a non-parametric index of corporate governance for banks. The index is constructed by aggregating six distinct dimensional indices capturing different dimensions of corporate governance, namely board effectiveness, audit function, risk management, remuneration, shareholder rights and information, and disclosure and transparency. For aggregation, a tailored version of data envelopment analysis (DEA) approach which is popularly known as constrained ‘Benefit-of-the-Doubt (BoD)’ model is employed. This approach is unique and distinctive in the sense that it requires no a priori knowledge of weights, and assigns endogenous weights obtained from actual data to individual dimensions of bank governance in order to construct a composite index of corporate governance. This methodological framework has illustrated by applying it for a data set of 40 Indian banks operating in the year 2017. The data set has been compiled using 58 governance regulations as defined by relevant jurisdictions.

Keywords: Corporate governance index; Data envelopment analysis; Benefit-of-the-doubt model; Indian banks; Composite indicators (search for similar items in EconPapers)
JEL-codes: G21 G30 G38 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceps:v:70:y:2020:i:c:s0038012118302258

DOI: 10.1016/j.seps.2019.03.008

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