The purpose of this research is to study the corporate governance mechanisms and theirrnimpact on performance of commercial banks in Ethiopia. The study examined thernrelationship between selected internal and external corporate governance mechanisms, andrnbank performance as measured by ROE and ROA. Accordingly, the study used mixedrnmethods approach, particularly structured review of documents and in depth interviews werernused. Both financial and non financial data were collected from all commercial banks thatrnwere in operation from the year 2005 to 2011 in Ethiopia.rnThe findings indicated that board size and existence of audit committee in the board hadrnstatistically significant negative effect on bank performance in terms of both ROE and ROA;rnwhereas bank size had statistically significant positive effect on bank performance in terms ofrnboth ROE and ROA. Similarly, capital adequacy ratio as a measure of external corporaterngovernance mechanism had statistically significant positive effict on bank performance. Onrnthe other hand the remaining variables such as loan loss provision, loan to deposit ratio, andrnownership type did not have statistically significant effect on bank performance.rnThe study also indicated the various challenges of corporate governance mechanism inrnEthiopian commercial banks that have adverse effict on bank performance, which includernabsence of organized stock exchange, high government intervention and involvement inrnbusiness activities leading to unfair competition, lack of corporate governance awareness,rnabsence of nationally implemented code of corporate governance, absence of nationallyrnimplemented accounting as well as auditing standards, and weak legal framework to protectrnminority shareholder rights.