CORPORATE GOVERNANCE AND PROFITABILITY IN NEPALESE COMMERCIAL BANKS

Abstract

Corporate Governance is increasingly recognized as a critical global issue for enhancing the accountability and transparency of financial and non-financial institutions. Financial institutions play a pivotal role in shaping a nation’s economy, while central banks hold the responsibility of ensuring a well-governed and reliable banking sector. To remain sustainable, banks must maintain strong performance. This research investigates the connection between Corporate Governance elements and performance indicators. The study analyzes independent variables such as Board Size, the number of Independent Directors, Bank Size, Earnings Per Share, Capital Adequacy Ratio, and Leverage. The dependent variables considered are Return on Equity and Net Interest Margin. Data were collected from the annual reports of 11 commercial banks in Nepal, and correlation and regression analyses were used to determine the relationships and their significance. The findings revealed a negative correlation between Board Size and Return on Equity, while a positive correlation was found between the number of Independent Directors (ID) and Earnings Per Share(EPS). The other variables did not show any significant relationships. The findings suggest that banks should consider reducing Board Size and increasing the presence of Independent Directors to enhance performance. Moreover, central banks should focus on fostering bank growth and ensuring robust governance practices within the sector.