Corporate Governance and Its Relationship with Financial Performance of Nepalese Commercial Banks

Abstract

Corporate governance is very significant in enhancing transparency, accountability and financial performance with regard to the banking sector. This paper discusses the situation of corporate governance practices and their association with the financial performance of commercial banks in Nepal. The study follows a quantitative research design based on secondary data obtained through the annual reports and financial statements of the selected banks in Nepal. The data were analysed with descriptive and
inferential statistics to analyse the nature of the variables and investigate the association between corporate governance practices and financial performance. The statistical data show that board members and women had medium levels of representation on boards. The average asset turnover indicated moderate profitability of the banks within the research period. The correlation analysis indicates that board size and ethnic diversity are connected with bank profitability, whereas firm size has a positive relationship with the return on assets. Also, a negative correlation existed between board size and liquidity. The regression outcomes indicate that the negative effects of board size, earnings per share, and female directors on ROA are observed but the positive effects of capital adequacy ratio and ethnic diversity are realised on bank profitability. The outcomes of the regression, in the case of NIM, show that capital adequacy ratio and firm size have a positive impact on net interest margin, whereas board size and female directors have a negative impact. In general, the results demonstrate the significance of proper corporate governance systems in determining the performance of commercial banks. The research adds to the existing body of literature by presenting evidence on governance practices in Nepal and gives us suggestions that policymakers, regulators, and banking institutions can use to enhance financial performance within the banking sector.