Corporate Governance And Its Effect On Financial Performance Of The Ethiopian Private Commercial Banks

The paper takes a look at the effects of corporate governance on the financial performance of privaterncommercial banks in Ethiopia. This exploratory study seeks to analyze the effect of differentrncorporate governance mechanisms, particularly board gender diversity, directors’ educationalrnqualification, variety number of internal board sub-committee, meeting frequency of board, boardrnownership, regulations of legal reserve and liquidity and depositor influence, on the financialrnperformance of 8 privately owned commercial banks of Ethiopia. And the study also controls therneffect of private commercial banks size. The financial performance measure was Return on Assetrn(ROA). In order to achieve this objective, the study uses mixed research approach that is by adoptingrnquantitative method research approach by combining documentary analysis of secondary data whichrnwas collected from the National Bank of Ethiopia (NBE). And capturing and administrating primaryrndata using structured questionnaire which were completed by board secretary and delegated staffs asrnhe/she is in a better position to comment on corporate governance affairs. Panel data covering 11rnyear period from 2005-2015 was analyzed and regression result with recommendation are displayedrnfor the selected 8private commercial banks. The cross section fixed effect technique has been appliedrnto find out the most significant variables from considered corporate governance variables. Thernfindings indicated that board gender diversity and liquidity ratio does not have a significant effect onrnthe financial performance of selected private commercial banks.Board members educationalrnqualification is positively but insignificantly related with the financial performance.Similarly, varietyrnnumber of internal board sub-committee, meeting frequency of board, and board ownership hadrnstatistically insignificant positive effect on private commercial bank financial performance. Inrnadditionprivate commercialbank size had statistically significant positive effect on privaterncommercialbank financial performance. Legal reserve ratio and depositor influencehave negativernsignificanceat 5% level and positive significanceat 10% level effect on the financial performance ofrnselected private commercial banks.rnKeywords: Banking Sector, Private Commercial Bank Financial Performance, CorporaternGovernance Mechanisms.

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