IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v15y2023i7p5643-d1105403.html
   My bibliography  Save this article

Non-Monotonic Relationship between Corporate Governance and Banks’ Operating Performance—The Moderating Role of CEO Duality: Evidence from Selected Countries

Author

Listed:
  • Marghoob Enam

    (Department of Management Studies & Industrial Engineering, Indian Institute of Technology Dhanbad, Dhanbad 826004, India)

  • Syed Noorul Shajar

    (School of Social Sciences and Languages, Vellore Institute of Technology University, Vellore 632014, India)

  • Niladri Das

    (Department of Management Studies & Industrial Engineering, Indian Institute of Technology Dhanbad, Dhanbad 826004, India)

Abstract

This study examines the non-monotonic (U-shaped, inverted U-shaped or curvilinear) relationship between the corporate governance (CG) and bank performance of commercial banks operating across four countries whose CG framework is based on the OECD principals of CG. Using a dataset of 4230 bank-years observation from 2012–2021, the study shows that governance–performance relations may be non-monotonic but not U-shaped using a two-line approach and the Robin Hood algorithm. In addition, this study, using feasible generalized least squares (FGLS), empirically shows that the interaction effect of CEO duality on governance–performance relations in financial institutions is curvilinear and significantly moderates and reverses these impacts. The findings reveal that, in financial institutions with CEO duality, there is a far more modest association between CG and performance, which has an inverted-U shape and is curvilinear. The findings are consistent with arguments advanced by resource dependence and stewardship theory that, although duality might increase bank performance through joint leadership, it can benefit the bank in the presence of unity of command.

Suggested Citation

  • Marghoob Enam & Syed Noorul Shajar & Niladri Das, 2023. "Non-Monotonic Relationship between Corporate Governance and Banks’ Operating Performance—The Moderating Role of CEO Duality: Evidence from Selected Countries," Sustainability, MDPI, vol. 15(7), pages 1-16, March.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:7:p:5643-:d:1105403
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/15/7/5643/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/15/7/5643/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jensen, Michael C & Meckling, William H, 1979. "Rights and Production Functions: An Application to Labor-managed Firms and Codetermination," The Journal of Business, University of Chicago Press, vol. 52(4), pages 469-506, October.
    2. Aebi, Vincent & Sabato, Gabriele & Schmid, Markus, 2012. "Risk management, corporate governance, and bank performance in the financial crisis," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3213-3226.
    3. Simpson, W. Gary & Gleason, Anne E., 1999. "Board structure, ownership, and financial distress in banking firms," International Review of Economics & Finance, Elsevier, vol. 8(3), pages 281-292, September.
    4. Claessens, Stijn & Yurtoglu, B. Burcin, 2013. "Corporate governance in emerging markets: A survey," Emerging Markets Review, Elsevier, vol. 15(C), pages 1-33.
    5. Panagiotis Staikouras & Christos Staikouras & Maria-Eleni Agoraki, 2007. "The effect of board size and composition on European bank performance," European Journal of Law and Economics, Springer, vol. 23(1), pages 1-27, February.
    6. Andres, Pablo de & Vallelado, Eleuterio, 2008. "Corporate governance in banking: The role of the board of directors," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2570-2580, December.
    7. Francis, Jr & Stokes, Dj, 1986. "Audit Prices, Product Differentiation, And Scale Economies - Further Evidence From The Australian Market," Journal of Accounting Research, Wiley Blackwell, vol. 24(2), pages 383-393.
    8. Mehmet Maksud Onal & John K. Ashton, 2021. "Is the Journey more Important than the Destination? EU Accession and Corporate Governance and Performance of Banks," Journal of Common Market Studies, Wiley Blackwell, vol. 59(6), pages 1516-1535, November.
    9. Hart, Oliver, 1995. "Corporate Governance: Some Theory and Implications," Economic Journal, Royal Economic Society, vol. 105(430), pages 678-689, May.
    10. Bai, Gang & Elyasiani, Elyas, 2013. "Bank stability and managerial compensation," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 799-813.
    11. repec:eme:par000:par-01-2017-0004 is not listed on IDEAS
    12. Benjamin E. Hermalin & Michael S. Weisbach, 1991. "The Effects of Board Composition and Direct Incentives on Firm Performance," Financial Management, Financial Management Association, vol. 20(4), Winter.
    13. Byrd, John & Fraser, Donald R. & Scott Lee, D. & Tartaroglu, Semih, 2012. "Are two heads better than one? Evidence from the thrift crisis," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 957-967.
    14. Caprio, Gerard & Laeven, Luc & Levine, Ross, 2007. "Governance and bank valuation," Journal of Financial Intermediation, Elsevier, vol. 16(4), pages 584-617, October.
    15. Israr Khan & Mansi Wang, 2021. "Evaluating Corporate Performance and Bank Productivity in China: The Moderating Role of Independent Directors," Sustainability, MDPI, vol. 13(6), pages 1-13, March.
    16. Beltratti, Andrea & Stulz, René M., 2012. "The credit crisis around the globe: Why did some banks perform better?," Journal of Financial Economics, Elsevier, vol. 105(1), pages 1-17.
    17. Mashayekhi, Bita & Bazaz, Mohammad S., 2008. "Corporate Governance and Firm Performance in Iran," Journal of Contemporary Accounting and Economics, Elsevier, vol. 4(2), pages 156-172.
    18. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 107-156.
    19. Mohamed Galal Abobakr, 2017. "Corporate Governance and Banks Performance: Evidence from Egypt," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(12), pages 1326-1343.
    20. Linck, James S. & Netter, Jeffry M. & Yang, Tina, 2008. "The determinants of board structure," Journal of Financial Economics, Elsevier, vol. 87(2), pages 308-328, February.
    21. Chen, Charles J. P. & Jaggi, Bikki, 2000. "Association between independent non-executive directors, family control and financial disclosures in Hong Kong," Journal of Accounting and Public Policy, Elsevier, vol. 19(4-5), pages 285-310.
    22. repec:eme:maj000:02686900710772609 is not listed on IDEAS
    23. Mohamed Galal Abobakr, 2017. "Corporate Governance and Banks Performance: Evidence from Egypt," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(12), pages 1326-1343, December.
    24. Ajay Kumar & Jyotirani Gupta & Niladri Das, 2022. "Revisiting the influence of corporate sustainability practices on corporate financial performance: An evidence from the global energy sector," Business Strategy and the Environment, Wiley Blackwell, vol. 31(7), pages 3231-3253, November.
    25. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February.
    26. Fianna Jesover & Grant Kirkpatrick, 2005. "The Revised OECD Principles of Corporate Governance and their Relevance to Non‐OECD Countries," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(2), pages 127-136, March.
    27. Brian K. Boyd, 1995. "CEO duality and firm performance: A contingency model," Strategic Management Journal, Wiley Blackwell, vol. 16(4), pages 301-312.
    28. Bill Francis & Iftekhar Hasan & Qiang Wu, 2015. "Professors in the Boardroom and Their Impact on Corporate Governance and Firm Performance," Financial Management, Financial Management Association International, vol. 44(3), pages 547-581, September.
    29. Salim, Ruhul & Arjomandi, Amir & Seufert, Juergen Heinz, 2016. "Does corporate governance affect Australian banks' performance?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 43(C), pages 113-125.
    30. Pi, Lynn & Timme, Stephen G., 1993. "Corporate control and bank efficiency," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 515-530, April.
    31. Allen N. Berger & Björn Imbierowicz & Christian Rauch, 2016. "The Roles of Corporate Governance in Bank Failures during the Recent Financial Crisis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(4), pages 729-770, June.
    32. Veton Zeqiraj & Flamur Mrasori & Omer Iskenderoglu & Kazi Sohag, 2021. "Dynamic Impact of Banking Performance on Financial Stability: Fresh Evidence from Southeastern Europe," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(1), pages 165-181.
    33. Bhagat, Sanjai & Bolton, Brian, 2008. "Corporate governance and firm performance," Journal of Corporate Finance, Elsevier, vol. 14(3), pages 257-273, June.
    34. repec:eme:maj000:02686900710759406 is not listed on IDEAS
    35. Zeqiraj, Veton & Sohag, Kazi & Hammoudeh, Shawkat, 2022. "Financial inclusion in developing countries: Do quality institutions matter?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    36. Abu-Tapanjeh, Abdussalam Mahmoud, 2009. "Corporate governance from the Islamic perspective: A comparative analysis with OECD principles," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 20(5), pages 556-567.
    37. Abdallah, Abed Al-Nasser & Ismail, Ahmad K., 2017. "Corporate governance practices, ownership structure, and corporate performance in the GCC countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 46(C), pages 98-115.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Walter Gontarek & Yacine Belghitar, 2021. "CEO chairman controversy: evidence from the post financial crisis period," Review of Quantitative Finance and Accounting, Springer, vol. 56(2), pages 675-713, February.
    2. Naeem Tabassum & Satwinder Singh, 2020. "Corporate Governance and Organisational Performance," Springer Books, Springer, number 978-3-030-48527-6, December.
    3. Emmanuel Mamatzakis & Theodora Bermpei, 2015. "The Effect of Corporate Governance on the Performance of US Investment Banks," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 24(2-3), pages 191-239, May.
    4. Mavrakana, Christina & Psillaki, Maria, 2019. "Do board structure and compensation matter for bank stability and bank performance? Evidence from European banks," MPRA Paper 95776, University Library of Munich, Germany.
    5. Oumeima Kacem & Sana El Harbi, 2022. "Do risk governance and effective board affect bank performance? Evidence from large banks worldwide," Risk Management, Palgrave Macmillan, vol. 24(4), pages 461-483, December.
    6. Dong, Yizhe & Girardone, Claudia & Kuo, Jing-Ming, 2017. "Governance, efficiency and risk taking in Chinese banking," The British Accounting Review, Elsevier, vol. 49(2), pages 211-229.
    7. Maria-Eleni K. Agoraki & Manthos D. Delis & Panagiotis K. Staikouras, 2010. "The effect of board size and composition on bank efficiency," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 2(4), pages 357-386.
    8. Sheeba Kapil & Rakesh K Mishra, 2019. "Corporate Governance structure and firm performance in Indian context: A Structural Equation Modelling Approach," Working Papers 1937, Indian Institute of Foreign Trade.
    9. Catarina Fernandes & Jorge Farinha & Francisco Vitorino Martins & Cesario Mateus, 2018. "Bank governance and performance: a survey of the literature," Journal of Banking Regulation, Palgrave Macmillan, vol. 19(3), pages 236-256, July.
    10. Jayati Sarkar & Subrata Sarkar, 2018. "Bank Ownership, Board Characteristics and Performance: Evidence from Commercial Banks in India," IJFS, MDPI, vol. 6(1), pages 1-30, February.
    11. Sailesh Tanna & Fotios Pasiouras & Matthias Nnadi, 2011. "The Effect of Board Size and Composition on the Efficiency of UK Banks," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 18(3), pages 441-462, November.
    12. Ahmed Bouteska, 2020. "Do Board Characteristics Affect Bank Performance? Evidence from the Eurozone," Journal of Asset Management, Palgrave Macmillan, vol. 21(6), pages 535-548, October.
    13. Marina Brogi & Valentina Lagasio, 2019. "Do bank boards matter? A literature review on the characteristics of banks' board of directors," International Journal of Business Governance and Ethics, Inderscience Enterprises Ltd, vol. 13(3), pages 244-274.
    14. Nesrine Djebali & Khemais Zaghdoudi, 2020. "Testing the governance-performance relationship for the Tunisian banks: a GMM in system analysis," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-24, December.
    15. C. P. Abdul Gafoor & V. Mariappan & S. Thiyagarajan, 2018. "Does the Board Structure Affect the Asset Quality of the Banks? Evidence from India," IIM Kozhikode Society & Management Review, , vol. 7(2), pages 122-131, July.
    16. Fidanoski, Filip & Mateska, Vesna & Simeonovski, Kiril, 2013. "Corporate Governance and Bank Performance: Evidence from Macedonia," MPRA Paper 46773, University Library of Munich, Germany, revised Mar 2013.
    17. Battaglia, Francesca & Gallo, Angela, 2017. "Strong boards, ownership concentration and EU banks’ systemic risk-taking: Evidence from the financial crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 46(C), pages 128-146.
    18. Catarina Fernandes & Jorge Farinha & Francisco Vitorino Martins & Cesario Mateus, 2021. "The impact of board characteristics and CEO power on banks’ risk-taking: stable versus crisis periods," Journal of Banking Regulation, Palgrave Macmillan, vol. 22(4), pages 319-341, December.
    19. Kozo Harimaya & Kei Tomimura & Nobuyoshi Yamori, 2015. "Disciplinary Pressure is More Necessary for Cooperative Banks Than Stock Banks: Results from Bank Efficiencies Estimation," Discussion Paper Series DP2015-05, Research Institute for Economics & Business Administration, Kobe University, revised May 2016.
    20. Rubén Chavarín, 2020. "Risk governance, banks affiliated to business groups, and foreign ownership," Risk Management, Palgrave Macmillan, vol. 22(1), pages 1-37, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:15:y:2023:i:7:p:5643-:d:1105403. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.