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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
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