Assessing the Impact of Corporate Governance Index on Financial Performance in the Romanian and Italian Banking Systems

Marco Benvenuto, Roxana Loredana Avram, Alexandru Avram and Carmine Viola
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Marco Benvenuto: Department of Economics, University of Salento, 73100 Lecce, Italy
Roxana Loredana Avram: Department of Finance, Faculty of Economics and Business Administration, West University of Timisoara, 300115 Timisoara, Romania
Alexandru Avram: Department of Finance, Faculty of Economics and Business Administration, West University of Timisoara, 300115 Timisoara, Romania
Carmine Viola: Department of Economics, University of Salento, 73100 Lecce, Italy

Sustainability, 2021, vol. 13, issue 10, 1-16

Abstract: Background: Our study aims to verify the impact of corporate governance index on financial performance, namely return on assets (ROA), general liquidity, capital adequacy and size of company expressed as total assets in the banking sector for both a developing and a developed country. In addition, we investigate the interactive effect of corporate governance on a homogenous and a heterogeneous banking system. These two banking systems were chosen in order to assess the impact of corporate governance on two distinct types of banking system: a homogenous one such as the Romanian one and a heterogeneous one such as the Italian one. The two systems are very distinct; the Romanian one is represented by only 34 banks, while the Italian one comprises more than 350 banks. Thus, our research question is how a modification in corporate governance legislation is influencing the two different banking systems. The research implication of our study is whether a modification in legislation, thus in the index of corporate governance, is feasible for two different banking sectors and what the best ways to increase the financial performance of banks are without compromising their resilience. Methods: Using survey data from the Italian and Romanian banking systems over the period 2007–2018, we find that the corporate governance has a significant, positive and long-lasting effect on profitability and capital adequacy in both countries. Results: Taking the size of the company into consideration, the impact of the Index of Corporate Governance (ICG) on a homogenous banking system is positive while the impact on a heterogeneous banking system is negative. Conclusions: Our study provides evidence of the impact of IGC on financial performance and sheds light on the importance of the size of the company. Therefore, one can state that the corporate governance principles applied do not encourage the growth of large banks in heterogeneous banking sectors, thereby suggesting new avenues of research associated with new perspectives.

Keywords: index of corporate governance; performance; banking sector; VAR (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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