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Corporate Governance in the Banking Industry of Kosovo: Does Board Size and Board Independence Matter?

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  • Arber H. Hoti

    (University of Prishtina, Republic of Kosovo)

  • Arben Dermaku

    (University of Prishtina, Republic of Kosovo)

Abstract

Themain purpose of this research is to study the impact of corporate governance on the financial performance of the banking sector in Kosovo. To analyze this impact, the Pearson correlation coefficient, multiple regression analysis related to the board size and board independence and banking sector performance in Kosovo were applied. The key corporate governance variables that have been studied in this research are: (i) size of the board of directors, (ii) the independence of the board of directors (the ratiobetween non-executive directors and the total number of board members). The data for this research were collected from the annual reports and audited financial statements of commercial banks in Kosovo for the 12 year period (2006-2017) and from questionnaires addressed to board members of commercial banks in Kosovo as well as other publications from relevant local institutions such as the Central Bank of Kosovo (CBK), Statistical Office of Kosovo (SOK), Tax Administration of Kosovo (TAK), etc. The results of the multiple regression analysis regarding the influence of the board of directors on the financial performance of the banking sector indicate that: the size of the board of directors and the independence of the board of directors have a positive and significant impact on the financial performance of the banking sector in Kosovo, expressed through return on assets (ROA) and return on equity (ROE). Findings of this research are in line with the findings of other researchers in this field and confirm the assertion that the management of the above variables improves and has a positive impact on the financial performance of banks in Kosovo.

Suggested Citation

  • Arber H. Hoti & Arben Dermaku, 2018. "Corporate Governance in the Banking Industry of Kosovo: Does Board Size and Board Independence Matter?," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 7(3), pages 20-34, July.
    • Handle: RePEc:rbs:ijfbss:v:7:y:2018:i:3:p:20-34
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    References listed on IDEAS

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    1. Baysinger, Barry D & Butler, Henry N, 1985. "Corporate Governance and the Board of Directors: Performance Effects of Changes in Board Composition," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 1(1), pages 101-124, Spring.
    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.
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